Business environment unit 1 BBA

1. BUSINESS
EEENVIRONMENTEN
VIRONMENT

2. BUSINESS MEANS:
Business is an economic activity that
involves the exchange, purchase, sale or
production of goods and services with a
motive to earn profits and satisfy the needs
of customers. Businesses can be both profit
or non-profit organizations that function to
gain profits or achieve a social cause
respectively.

3. FEATURES OF BUSINESS:
 (1) An Economic Activity.
 (2)Manufacturing or Procurement of Services and
Goods.
 (3)Exchange or Sale of Goods and Services for the
Satisfaction of Human Needs.
 (4) Dealings With Goods and Services on a Daily Basis.
 (5) Profit Earning.
 (6) Uncertainty of Return.

4. ENVIRONMENT MEANS:
 The aggregate of social and cultural
conditions that influence the life of an
individual or community.
Ordinarily environment refers to the
materials and forces that surround the
living organism.

5. BUSINESS ENVIRONMENT

6. BUSINESS ENVIRONMENT MEANS:
Business Environment is sum or collection of all
internal and external factors such as employees,
customers needs and expectations, supply and
demand, management, clients, suppliers, owners,
activities by government, innovation in technology,
social trends, market trends, economic changes, etc.
These factors affect the function of the company and
how a company works directly or indirectly. Sum of
these factors influences the companies or business
organisations environment and situation.

7. BUSINESS ENVIRONMENT MEANS:
Business environment helps in
identifying business opportunities,
tapping useful resources, assists in
planning, and improves the overall
performance, growth, and
profitability of the business. There
are various types of Business
Environment like Micro
Environment and Macro
Environment.

8. BUSINESS ENVIRONMENT

9. Nature of Business Environment:
The nature of business environment is as follows:
 1. Complex: Business environment is compound in
nature. Environment consists of a number of factors,
events, conditions and influences arising from different
sources which impact business thus making the business
complex.
 2. Interdependence: The environment of the business is
made of social, economic, legal, cultural, technological,
and political factors. These factors of the environment
are interdependable. The economic status of a country
affects the development of technology. A rich country
can make sufficient expenditure on the research and
development.

10. Nature of Business Environment:
 3. Dynamic: Business environment is constantly changing
process. Business environment is dynamic as it keeps on
changing in terms of technological improvement, shifts in
consumer preferences or entry of new competition in the
market. The various forces in the environment keep on
changing from time to time thus making business dynamic
and not static.
 4. Inter-relatedness: The different factors of business
environment are co-related. For example, let us suppose
that there is a change in the import-export policy with the
coming of a new government. In this case, the coming of
new government to power and change in the importexport
policy are political and economic changes respectively.
Thus, a change in one factor affects the other factor.

11. Nature of Business Environment:
 5.Impact: Business environment has both long term
and short term impact. Environment therefore has
different effects on different firms in the same
industry, for example, drugs. 6.Uncertainty: Business
environment is largely uncertain as it is very difficult to
predict future happenings, especially when
environment changes are taking place too frequently
as in the case of information technology or fashion
industries.

12. Nature of Business Environment:
 7. Relativity: It is a relative concept since it differs
from country to country and region to region. Political
conditions in the USA, for example differ from those in
China or Pakistan. Similarly, demand for sarees may be
fairly high in India whereas it may be almost non-
existent in France.

13. Significance of Business
Environment:
 Some of the direct benefits of understanding the
business environment are given below: 1. Customer
Focus: Environmental understanding makes the
management sensitive to the changing needs and
expectations of consumers. For example: Hindustan
Lever and several other FMCG companies launched
small sachets of shampoo and other products realising
the wishes of customers. This move helped the firms
to increase sales.

14.  2. Strategy Formulation: Environmental monitoring
provides relevant information about the business
environment. Such information serves as the basis for strategy
making. For example: ITC realised that there is a vast scope
for growth in the travel and tourism industry in India and the
government is keen to promote this industry because of its
employment potential. With the help of this knowledge ITC
planned new hotels both in India and abroad.
 3. Public Image: A business firm can improve its image by
showing that it is sensitive to its environment and responsive
to the aspirations of public. Leading firms like Reliance
Industries, ICICI Bank and others have others have built good
image by being sensitive and responsive to environmental
forces. Environmental understanding enables business to be
responsive to their environment.

15.  4. Continuous learning: Environmental analysis serves
as broad based and ongoing education for business
executives. It keeps them in touch with the changing
scenario so that they are never are caught unaware. With
the help of environmental learning managers can react
in an appropriate manner and thereby increase the
success of their organisations.
 5. Giving Direction for Growth: The interaction with
the environment leads opening up new frontiers of
growth for the business firms. It enables the business to
identify the areas for growth and expansion of their
activities.

16.  6. Change Agent: Business leaders act as agents of
change. They create a drive for change at the grass root
level. In order to decide the direction and nature of
change, the leaders needs to understand the
aspirations of people and other environmental forces
through environmental scanning. For example:
contemporary environment requires prompt decision-
making and power to people. Therefore, business
leaders are increasingly delegating authority to
empower their staff and to eliminate procedural
delays.

17. Components of Business
Environment:
It combines the factors that exist
within the company. These are –
1. Human resources
2. Value system
3. Vision and mission
4. Labour union
5. Corporate culture
6. Production method
7. Objectives and policies
8. Production capacity
An external Environment includes
those outside factors that exercise an
influence on a business’s operations. It
Is further classified into two segments.
Macro - Socio-cultural, political, legal,
and global factors fall into this
category.
Micro - This environment has a direct
and immediate impact on a business. It
consists of customers, investors,
suppliers, etc.
Internal External

18. Components of Business Environment

19. MICRO ENVIRONMENT:
 What is the micro-environment?
 The micro-environment is basically the environment
that has a direct impact on your business. It is related to
the particular area where your company operates and can
directly affect all of your business processes. In other
words, it consists of all the factors that affect particularly
your business. They have the ability to influence your
daily proceedings and general performance of the
company. Still, the effect that they have is not a long-
lasting one.
 The micro-environment includes customers,
suppliers, resellers, competitors, and the general
public.

20. What is the macro-environment?
The macro-environment is more general - it is the environment
in the economy itself. It has an effect on how all business groups
operate, perform, make decisions, and form strategies
simultaneously. It is quite dynamic, which means that a
business has to constantly track its changes. It consists of
external factors that the company itself doesn’t control but is
certainly affected by.
The factors that make up the macro-environment are economic
factors, demographic forces, technological factors, natural and
physical forces, political and legal forces, and social and
cultural forces.

21. MICRO ENVIRONMENT FACTORS:
Micro-environment factors:
1. Customers:
The kind of customer base that your company
attracts, as well as the reasoning behind purchasing
your product, are going to highly affect the way you
create marketing campaigns. Your customers can be
B2C, B2B, international, local, and so on.
Important factors related to customers are:
▪ Stability of demand ▪ Prospects of sale growth
▪ Relative profitability ▪ Intensity of competition

22. SUPPLIERS:
2.Suppliers:
If a supplier of a particular product is the largest, or
even the only one, they are certainly going to have a
big influence on how successful your business is.
The suppliers are extremely important factors as:
▪ Key link in the value delivery process ▪ Insurance
that your business has the necessary resources ▪
Essential determinants in terms of price increase or
decrease

23. Resellers:
If you decide to sell your product via a third party
reseller, or middlemen such as wholesalers and
retailers, then the success of your marketing is going
to be highly dependent on them. If let’s say, a certain
retail seller has a strong reputation, it will pass on to
your product.
As a link between you and the customer, they are
important in terms of these factors:
▪ Promotion ▪ Sale ▪ Distribution ▪ Marketing ▪
Financial mediation

24. Competitors:
Logically, every business that sells the same or a
similar kind of product as you do is your
competition on the market. So, their sale and
marketing tactics matter to you a lot. You need to
answer various questions, such as how their
product and its price affects yours and how you can
make use of that in order to gain an edge over
them.
The three factors that matter in this case are:
▪ Desire competition ▪ Product form competition ▪
Brand competition

25. The general public:
Of course, every business organization has in its best
interest to appease to the general public. Every step
that you take needs to be viewed from their
perspective as well. It is extremely important how your
actions affect others because their opinion can be the
one thing that either pushes you towards success or
pulls you down from the pedestal.
So, the general public is very important in terms of:
▪ Public opinion ▪ Media

26. Macro-environment factors
 Economic factors Basically, the very environment of
the economy can have an effect on two essential
aspects – your company’s levels of production and the
decision-making process of your customers.
 Some examples of economic factors affecting business:
 ▪ Interest rates ▪ Exchange rates ▪ Recession ▪ Inflation
▪ Taxes ▪ Demand / Supply
 Economic conditions

27. Demographic forces:
 Each and every chunk of the market is affected by
universal demographic forces. These are age,
education level, cultural characteristics, country and
region, lifestyle, and so on.
 The crucial variables include:
 Size of population
 Age,
 ▪ How income variables influence business ▪ Age
variables that affect business ▪ Geographic Region
Variables ▪ Education Level as a Variable

28. Technological factors:
 These factors are related to skills and ability that are
implemented into production, as well as all the materials
and technology that a particular product requires to be
made. They are essential and can have a big impact on
how well your business is running. It boils down to even
the most basic factors, such as what kind of maintenance
trolleys you use in order to preserve your tools and
equipment for as long as you possibly can.
 Some of the most common technological factors are:
 ▪ Automation ▪ Internet connectivity ▪ 3D technology ▪
Speed/power of computer calculation ▪ Engine
performance and efficiency ▪ Security in terms of
cryptography ▪ Wireless charging

29. Natural and physical forces
 Every business must also take into account the very
planet and its resources. There are those that can be
renewed, such as forests and agricultural products,
and those that cannot, such as coal,
 minerals, oil, and the like. Both are strongly related to
production. So, natural and physical forces can be:
 ▪ Climate change ▪ Pollution ▪ Weather ▪ Availability of
both non-renewable and renewable resources ▪ Laws
that regulate the environment ▪ Survival of particular
biological species

30. Political and legal forces
 The market develops according to the political and
legal environment in various areas. This means that
every business needs to be up to date with such forces
worldwide in order to be able to make the right
decisions.
 This generally includes legal factors such as:
 ▪ Copyright law ▪ Employment law ▪ Fraud law ▪
Discrimination law ▪ Health and Safety law ▪
Import/Export law

31. Social and cultural forces
 Finally, it is crucial to understand that the product that
you bring to the market can have a strong impact on
society. For example, your production needs to eliminate
every practice that is hazardous to society, and show that
it is socially responsible. There is a wide variety of social
and cultural factors, some of them being:
 ▪ Purchasing habits ▪ Level of education ▪ Religion and
beliefs ▪ Consciousness about health issues ▪ Social
classes ▪ Structure and size of a family ▪ Growth rate of
the population ▪ Emigration and immigration rates ▪ Life
expectancy rates and age distribution ▪ Different
lifestyles

32.  ➢ Both micro and macro factors have a strong
influence on how successful your business is. Every
decision that you make needs to take these two
environments into consideration. Your marketing
strategies have to be based on them as well, if you truly
want them to be lucrative, and retain a reputable
position on the market.

33. International Factors:
 Exporting
 Licensing and Franchising
 Contracts
 Overseas assembly Operations
 Joint Ventures
 Mergers
 Strategic Alliances etc.

34. ENVIRONMENTAL SCANNING
 Meaning:
Organisations are predominantly impacted by legal,
social, economical, global, and technological variables.
The environmental examination or scanning is an
investigation of these different impacting factors.
Environmental checking or scanning is concerned
with gathering and using the data or information
about noticeable trending patterns, examples, events,
and connections that can unfavourably affect the
business to decide future dangers, threats, or
opportunities.

36. Example:
 Example of Environmental Scanning
Microsoft has been able to work crucially to use its
research and development to adapt to the changing
trends in the software and mobile devices
development. Initially, the software giant has a deep
root in making software for desktops and mobile PCS
until they started making mobile devices like phones
and pads to compete well globally and expand their
reach.

37. Importance
 Importance of Environmental Scanning
 1. It Helps to Identify The Strengths of the
Organization:
The strength of the business implies the ability of the
firm to have an advantage over its competitors. The
analysis of the internal business environment helps to
highlight the power of the firm.
 2. It Helps to Identify the Organization’s
Weaknesses
Recognizing the weakness of an organization means
unearthing the limitations of the firm. Assessing the
internal environment helps to highlight not only the
strength but also the limitations of the firm.

38.  3.It helps to Identify Opportunities:
Environmental scanning helps to identify and
understand the opportunities in the market. The firm
should take every necessary step to take advantage of the
opportunity that comes.
 4.Environmental Scanning Helps Organizations to
Optimize Resources:
An ideal environmental scanning helps to make use of
an organization’s human, natural, and capital resources.
Proper environmental scanning helps to limit wastage
and optimize all other available resources.

39.  5.It Helps to Identify Threats:
 Business is open to threats from competitors and several
factors. Environmental scanning helps them to discover
a threat from the external environment. When risks are
detected early, it is good as it helps to eliminate them
without much stress.
 6.It Ensures Survival and Growth:
 Systematic scanning of the business environment helps
the firm to optimize its strength, reduce its weakness,
take advantage of the opportunity, and diffuse threats.
This helps the firm to survive and grow in the eternal
competitive business world.

40.  7.It helps to Plan a Long-Term Business Strategy:
 Every business organization has short term and long-term
objectives. The accurate environmental scanning of
environmental factors helps the business organization to make
plans and policies that will help in achieving organizational
goals.
 8.Environmental Scanning Helps in Making Productive
Decision-Making:
 Decision-making is a process of choosing the best alternative
among several available alternatives. An environmental
assessment is an essential tool in making the right decisions in
the business world. The success of any organization depends
mainly on the decision making capability of senior management.
Thus, environmental scanning is highly crucial in shaping the
company’s business decisions.

41. TECHNIQUES OF E.SCANNING
SWOT ANALYSIS: (Strengths, Weakness, Opportunity,
Threats)
ETOP: (Environmental Threats and Opportunity profile)
PEST Analysis :( Political, Economic, Social, and
Technological)
QUEST Analysis: ( Quick Environmental Scanning
strategy)
Correlation
Time Series Analysis
Ratio Analysis

42. SWOT:

43. SWOT:
 Strength: After analysis of the internal environment of a
company, we will be able to identify the strengths that give the
company a competitive advantage. The entrepreneur can use this
information to maximise these strengths and earn more profits.
 Weakness: Study of the internal environment also point out the
weaknesses of the company. For the growth and stability of the
company, these identified weaknesses must be corrected without
delay.
 Opportunity: Analysis of the external environment helps with
the identification of possible opportunities. The entrepreneur
can prepare to capitalize on these.
 Threats: Analysis of the external environment will also help in
the identification of any business threats from competitors or
any other factors. The company can come up with a strategy to
diffuse such threats or minimize its impact.

44. ETOP:
 1. Environmental Threat and Opportunity Profile
Analysis (ETOP)
 ETOP is considered as a useful device that facilitates an
assessment of information related to the environment
and also in determining the relative significance of
external environment threats and opportunities to
systematically evaluate environmental scanning. By
dividing the environment into different sections, the
ETOP analysis helps in analyzing its impact on the
organization. The analysis is based on threats and
opportunities in the environment.

45. ETOP:

46. PEST:
 PEST Analysis
 PEST technique for a firm’s environmental scanning
includes analysis of political, economic, social, and
technical factors of the environment.

47. PEST:

48.  a) Political/ Legal factors: Different factors like changes
in tax policy, availability of raw material, etc. creates a
direct effect on a business. So organizations are required to
constantly monitor tax-related policy changes as an
increase in tax may increase the heavy financial burden on
them. Similarly, different laws like “Consumer protection
act” also play an important role in an organization’s
operation activities as it is important to abide by the act.
 More examples can be foreign trade policy, political
changes, regulations in competition, trade restrictions, etc.
also considered as different political/ legal factors that exist
in the external business environment.

49.  Economic factors: Different economical Factors like
the unemployment rate, inflation, cost of labor,
economic trends, disposable income of consumers,
monetary policies, etc. play an important role in
environmental scanning.
 For example, in the case of high unemployment, a
company may decrease the prices of its products or
services and in opposite situation i.e. when the
unemployment rate is low then prices can be high. This
happens because if more customers are unemployed
then by lowering the prices, an organization can attract
them.

50.  Social / Cultural factors: Attitude, trends, and
behavioral aspects of society also create an impact on the
functioning of the organization. Studying and
understanding the lifestyle of consumers is very much
required to target the right audience and to offer the right
product or services based on their preferences.
 For example, Issues and policies related to the
environment like pollution control are also being
considered by organizations to ensure that it operates in an
environment-friendly atmosphere. Taking care of the
cultural aspect of different countries while doing business
at the international level, is also an important factor.

51.  Technological Factors: Technological factors affect the way
firms produce products and services as well as market them.
Like, “processes based on new technologies” is one of the
important factors of a technological environment. To maximize
profits, production should be handled most cost-effectively and
this, technology has an important contribution.
 For example, an increase in computer and internet-based
technology is playing a major role in the way organizations are
distributing and marketing their products and services. Also,
different advancements in technologies like automation of the
manual process and use of machinery based on more advanced
and latest technologies, more investment in research &
development by organizations have increased their efficiency by
increasing production in less time, cost-reduction and better
investment in the long run.

52. QUEST:
 Quick Environmental Scanning Technique Analysis
(QUEST):
 QUEST is an environmental scanning technique that is designed
to assist with organizational strategies by keeping adheres to
change and its implications. Different steps involved in this
technique are as follows:
 The process of environmental scanning starts with the
observation of the organization’s events and trends by
strategists.
 After observation, important issues that may impact the
organization are considered using environment appraisal.
 A report is created by making a summary of these issues and
their impact.
 In the final step, planners who are responsible for deciding the
feasibility of the proposed strategy, review reports.

53. Corelation:
A mutual relationship or connection between two or
more things.
"research showed a clear correlation between recession
and levels of property crime"

54. Economic Environment and
Economic System:

55. Economic System:
An economic system is the combination of the various
agencies and entities that provide the economic
structure that defines the social community. These
agencies are joined by lines of trade and exchange goods.
Alternatively, an economic system is the set of principles
by which problems of economics are addressed, such as
the economic problem of scarcity through allocation of
finite productive resources.
The scarcity problem, for example, requires answers to
basic questions, such as: • What to produce? • How to
produce it? • Who gets what is produced?

56. Types of Economic Systems
•Socialist Economy
•Capitalist Economy
•Mixed Economy

57. Socialist Economy
 In a socialist economic system, a large part of the
economic system is controlled by a centralized power.
This type of economy was the core of the communist
philosophy. Since the government is such a central
feature of the economy, it is often involved in everything
from planning to redistributing resources. A command
economy is capable of creating a healthy supply of its
resources, and it rewards its people with affordable
prices. This capability also means that the government
usually owns all the critical industries like utilities,
aviation, and railroad.

58. Advantages of Socialist Economic
Systems
 • If executed correctly, the government can mobilize resources on
a massive scale. This mobility can provide jobs for almost all of
the citizens.
 • The government can focus on the good of society rather than an
individual. This focus could lead to more efficient use of
resources.
 Disadvantages of Socialist Economic
Systems:
 • It is hard for central planners to provide for everyone’s needs.
This challenge forces the government to ration because it cannot
calculate demand since it sets prices. •
 There is a lack of innovation since there is no need to take any
risk. Workers are also forced to pursue jobs the government
deems fit.

59. Capitalist Economy:
Capitalist Economy( Free Market Economy)
 • In a capitalist economy, firms and households act in
self-interest to determine how resources get allocated,
what goods get produced and who buys the goods. This is
opposite to how a command economy works, where the
central government gets to keep the profits.
 • There is no government intervention in a pure market
economy (“laissez-faire“). However, no truly free market
economy exists in the world. For example, while America
is a capitalist nation, our government still regulates (or
attempts to control) fair trade, government programs,
honest business, monopolies, etc.
 Examples : US and UK

60. Advantages and Disadvantages of a
Free Market Economy
 • Consumers pay the highest price they want to, and businesses only
produce profitable goods and services. There is a lot of incentive for
entrepreneurship. • This competition for resources leads to the most
efficient use of the factors of production since businesses are very
competitive. • Businesses invest heavily in research and development.
There is an incentive for constant innovation as companies compete to
provide better products for consumers.
 Disadvantages of a Free Market Economy:
 • Due to the fiercely competitive nature of a free market, businesses will
not care for the disadvantaged like the elderly or disabled. This lack of
focus on societal benefit leads to higher income inequality. •
 Since the market is driven solely by selfinterest, economic needs have a
priority over social and human needs like providing healthcare for the
poor. Consumers can also be exploited by monopolies.

61. Mixed Economy
 A mixed economy is a combination of different types
of economic systems. This economic system is a cross
between a market economy and command economy.
In the most common types of mixed economies, the
market is more or less free of government ownership
except for a few key areas like transportation or
sensitive industries like defense and railroad.

62. Advantages of Mixed Economies
 • There is less government intervention than a command
economy. This results in private businesses that can run
more efficiently and cut costs down than a government
entity might.
 The government can intervene to correct market failures.
For example, most governments will come in and break
up large companies if they abuse monopoly power.
Another example could be the taxation of harmful
products like cigarettes to reduce a negative externality
of consumption. • Governments can create safety net
programs like healthcare or social security. • In a mixed
economy, governments can use taxation policies to
redistribute income and reduce inequality.

63. Disadvantages of Mixed Economies
 • There are criticisms from both sides arguing that
sometimes there is too much government
intervention, and sometimes there isn’t enough.
 • A common problem is that the state run industries
are often subsidized by the government and run into
large debts because they are uncompetitive.

64. Economic Planning in India
 The Constitution came into force on 26 January 1950. Subsequently, Planning
Commission was set up on 15 March 1950 and the plan era started from 1 April 1951
with the launching of the First Five Year Plan (1951-56).
Long term objectives of Five Year Plans in India are:
 To remove regional imbalances in the economy.
 Increase employment opportunities in the economy .
 Uniform Growth rate to improve the living standard of the residents of India.
 To develop social infrastructure and its improvements.
Economic stability for prosperity.
 Self-reliant economy.
 Social justice and reducing the inequalities.
 Modernization of the economy.
 The idea of economic planning for five years was taken from the Soviet Union under
the socialist influence of first Prime Minister Pt. Jawahar Lal Nehru.
The first eight five year plans in India emphasised on growing the public sector
with huge investments in heavy and basic industries, but since the launch of Ninth
five year plan in 1997, attention has shifted towards making government a growth
facilitator.

65. List of Five Year Plans in India
[1951-2017]
Five Year Plans Years Five Year Plans Years
First Five year Plan 1951- 1956 Seventh Five year
Plan
1985-1990
Second Five year
Plan
1956-1961 Annual Plans 1989-1991
Third Five year Plan 1961-1966 Eighth Five year Plan 1992-1997
Plan Holidays –
Annual Plans
1966-1969 Ninth Five year Plan 1997-2002
Fourth Five year Plan 1969-1974 Tenth Five year Plan 2002 –2007
Fifth Five year Plan 1974-1979 Eleventh Five year
Plan
2007-2012
Sixth Five year Plan 1980-1985 Twelfth Five year Plan 2012-2017

66. Features of India’s Five Year Plans
 Democratic: The first important feature of Indian planning is
that it is totally democratic. India being the largest democratic
country in the world has been maintaining such a planning set
up where every basic issue related to its Five Year Plan is
determined by a democratically elected Government. Moreover,
while formulating a Five Year Plan, opinions of various tiers of
Government, various organizations, institutions, experts etc. are
being given due considerations.
 Decentralized Planning:
 Although since the inception of First Plan, the importance of
decentralized planning was emphasized so as to achieve active
people’s participation in the planning process, but the real
introduction of decentralized planning was made in India for the
first time during the Seventh Plan.

67.  3. Periodic Plan:
 One of the important features of Indian planning is that it has
adopted a periodic plan of 5-year period having five depurate
Annual Plan components. This type of periodic plan approach is
quite suitable for realizing its definite targets.
 4. Existence of Central Plan and State Plan:
 Another important feature of Indian planning is that there is the
co-existence of both the Central Plan and State Plans. In every
Five Year Plan of the country, separate outlay is earmarked both
for the Central Plan and also for the State Plans. Central Plan is
under the exclusive control of the Planning Commission and the
Central Government, whereas the State Plan is under the
exclusive control of State Planning Board and State Government
which also requires usual approval from the Planning
Commission.

68.  5. Regulatory Mechanism:
 Another important feature of Indian planning is that it is
being directed by a central planning authority, i.e., the
Planning Commission of India which plays the role of
regulatory mechanism, so as to provide necessary
direction and regulation over the planning system.
Thus under the present regulatory mechanism, every
planning decision in India originates from the Planning
Commission and being finally approved by the National
Development Council. Moreover, the Planning
Commission of India is also having adequate regulatory
mechanism over the successful implementation of
planning.

69. Achievements under Planning
 1. Increase in National Income
 2. Increase in Per Capita Income
 3. Development in Agriculture
 4. Development of Industry
 5. Development of Transport and Communication
 6. Self Reliance
 7. Employment
 8. Development of Science and Technology
 9. Capital Formation
 10. Social Services

70. Failures of Five year Plans:
 1. Stagnant Economy
 2. Poverty
 3. Unequal Distribution of Income and Assets
 4. Increasing Unemployment
 5. Abnormal Growth of Population
 6. Inflationary Pressure
 7. Adverse Balance of Payment
 8. Unproductive Expenditure
 9. Huge Amount of Deficit Financing
 10. Biased Growth Profile
 11. Vicious Circle of Poverty
 12. Inadequate Social Development
 13. Defective Process of Planning
 14. Slow Economic Growth

71. Industrial Policy:
 Government action to influence the ownership &
structure of the industry and its performance. It takes
the form of paying subsidies or providing finance in
other ways, or of regulation.
It includes procedures, principles (i.e., the philosophy
of a given economy), policies, rules and regulations,
incentives and punishments, the tariff policy, the
labour policy, government’s attitude towards foreign
capital, etc.

72. Industrial Policy

73. Objectives of Industrial Policy
 To maintain steady growth in productivity.
 To create more employment opportunities.
 Utilize the available human resources better
 To accelerate the progress of the country through different
means
 To match the level of international standards and
competitiveness
 Government action to influence the ownership & structure of the
industry and its performance. It takes the form of paying
subsidies or providing finance in other ways, or of regulation.
 It includes procedures, principles (i.e., the philosophy of a given
economy), policies, rules and regulations, incentives and
punishments, the tariff policy, the labour policy, government’s
attitude towards foreign capital, etc.

74. Industrial Policy Resolution, 1948
 Industrial Policy Resolution, 1948
 It declared the Indian economy as Mixed Economy
 Small scale and cottage industries were given the importance
 The government restricted foreign investments
 Industries were divided into 4 categories
 Exclusive monopoly of central government(arms and ammunitions,
production of atomic energy and management of railways)
 New undertaking undertaken only by state(coal, iron and steel, aircraft
manufacturing, ship building, telegraph, telephone etc.)
 Industries to be regulated by the government(Industries of basic
importance)
 Open to private enterprise, individuals and cooperatives(remaining)

75. Industrial Policy Resolution, 1956
(IPR 1956)
 This policy laid down the basic framework of Industrial
Policy
 This policy is also known as the Economic Constitution
of India
 It is classified into three sectors
 Schedule A – which covers Public Sector (17 Industries)
 Schedule B – covering Mixed Sector (i.e. Public &
Private) (12 Industries)
 Schedule C – only Private Industries
 This has provisions for Public Sector, Small Scale
Industry, Foreign Investment. To meet new challenges,
from time to time, it was modified through statements in
1973, 1977, and 1980.

76. Industrial Policy Statement, 1977
 This policy was an extension of the 1956 policy.
 The main was employment to the poor and reduction
in the concentration of wealth.
 This policy majorly focused on Decentralization
 It gave priority to small scale Industries
 It created a new unit called “Tiny Unit”
 This policy imposed restrictions on Multinational
Companies (MNC).

77. Industrial Policy Statement, 1980
 The Industrial Policy Statement of 1980 addressed the need for
promoting competition in the domestic market, modernization,
selective Liberalization, and technological up-gradation.
 It liberalised licensing and provided for the automatic expansion
of capacity.
 Due to this policy, the MRTP Act (Monopolies Restrictive Trade
Practices) and FERA Act (Foreign Exchange Regulation Act,
1973) were introduced.
 The objective was to liberalize the industrial sector to increase
industrial productivity and competitiveness of the industrial
sector.
 The policy laid the foundation for an increasingly competitive
export-based and for encouraging foreign investment in high-
technology areas.
 Aspirants can refer to the links below for UPSC preparation:

78. New Industrial Policy, 1991
 The New Industrial Policy, 1991 had the main objective of
providing facilities to market forces and to increase efficiency.
 Larger roles were provided by
 L – Liberalization (Reduction of government control)
 P – Privatization (Increasing the role & scope of the private
sector)
 G – Globalisation (Integration of the Indian economy with the
world economy)
 Because of LPG, old domestic firms have to compete with New
Domestic firms, MNC’s and imported items
 The government allowed Domestic firms to import better
technology to improve efficiency and to have access to better
technology. The Foreign Direct Investment ceiling was increased
from 40% to 51% in selected sectors.

79. New Industrial Policy, 1991
 The maximum FDI limit is 100% in selected sectors like
infrastructure sectors. Foreign Investment promotion board was
established. It is a single-window FDI clearance agency. The
technology transfer agreement was allowed under the automatic
route.
 Phased Manufacturing Programme was a condition on foreign firms
to reduce imported inputs and use domestic inputs, it was
abolished in 1991.
 Under the Mandatory convertibility clause, while giving loans to
firms, part of the loan will/can be converted to equity of the
company if the banks want the loan in a specified time. This was
also abolished.
 Industrial licensing was abolished except for 18 industries.
 Monopolies and Restrictive Trade Practices Act – Under his MRTP
commission was established. MRTP Act was introduced to check
monopolies. The MRTP Act was relaxed in 1991.

80. New Industrial Policy, 1991
 On the recommendation of the SVS Raghavan committee,
Competition Act 2000 was passed. Its objectives were to promote
competition by creating an enabling environment.
 To know more about the Competition Commission of India,
check the linked article.
 Review of the Public sector under this New Industrial Policy, 1991
are:
 Public sector investments (Disinvestment of Public sector)
 De-reservations –Industries reserved exclusively for the public
sector were reduced
 Professionalization of Management of PSUs
 Sick PSUs to be referred to the Board for Industrial and financial
restructuring (BIFR).
 The scope of MoUs was strengthened (MoU is an agreement
between a PSU and concerned ministry

81. National Manufacturing Policy
2011:-
 The Cabinet approved the revised proposal of the
Department of Industrial Policy and Promotion,
Ministry of Commerce and Industry to put in place a
National Manufacturing Policy.
The Cabinet in its meeting held on 15" September 2011
considered the National Manufacturing Policy and
directed that the policy may be considered by a Group of
Ministers (GOM) for further harmonizing the
differences in some inter-ministerial positions notably
relating to Ministry of Labour and Employment and the
Ministry of Environment and Forests.

82. National Manufacturing Policy
2011
 Objectives of the Policy:
 Incentives for small and medium enterprises
 Simplification of business regulations
 Financial and institutional mechanism for the
development of technology
 Industrial training and skill up-gradation for
workforce
 A simple procedure for closure of units.

83. Exim Policy:

84. Exim Policy:
 What are the objectives of the Exim Policy?
 To increase India’s export and import growth.
 To stimulate long-term economic growth by increasing access to
intermediates, components, consumables, essential raw
materials, and capital goods.
 To improve the competitiveness of the agriculture industry and
services, create new employment opportunities and encourage
the attainment of internationally accepted quality standards.
 To supply high-quality services and goods at an affordable cost.
Canalization is a critical component of Exim Policy, as it restricts
the import of certain goods to designated agencies. For example,
only SBI and a few foreign banks or recognised organisations
may import gold in bulk.

85. Exim Policy:Objectives
 Foreign trade’s role in economic development
 Foreign trade and economic development
 Economic development is mainly dependent on trade with other
nations. As a result, a country’s economic progress is dependent on
foreign trade.
 Foreign exchange earning
 Foreign trade gives foreign exchange for poverty alleviation and other
purposes.
 Market expansion
 Demand plays a vital role in increasing a country’s production. As a
result of foreign trade, the market for goods and services expands and
encourages the producers to increase production.
 Increase in investment
 Foreign trade promotes investment. As a result, the investment rate
rises.

86.  Foreign investment
 In addition to promoting local investment, foreign trade encourages foreign
investors to invest in countries with a shortage of investment.
 Increase in national income
 Foreign trade boosts country production and income, and to meet foreign
demand, we increase production, which also increases GNP.
 Decrease in unemployment
 Rising demand for goods increases the country’s rate of development and
reduces global unemployment.
 Price stability
 Foreign trade helps to stabilise the price of goods and services. You can import
any goods in short supply and whose prices are rising and export any goods you
have in excess, thus stopping price fluctuation.
 Specialisation
 The quality and quantity of various production factors vary by country. Each
country focuses on producing commodities where it has a comparative
advantage. So all trading countries profit from international trade.

87.  Remove monopolies
 Foreign trade discourages monopolies. While monopolists raise prices, the government
enables imports to lower prices.
 Removal of food shortage
 Food shortages are also a problem in India. India has imported wheat numerous times to
alleviate the country’s food shortage. So, we’ve solved this problem for years due to
foreign trade.
 Agricultural development
 Our economy relies heavily on agricultural development. Our agricultural sector has
grown tremendously due to foreign trade. We ship rice, cotton, and fresh fruits and
vegetables to countries worldwide every year, and our farmers’ incomes rise due to goods
exports. It encourages them to grow.
 To increase local product quality
 Foreign trade improves the quality of local products and expands the market by changing
demand and supply.
 External economics
 Foreign trade can also achieve external economics. Large-scale food producers in India
benefit from foreign trade.

88.  Competition with foreign producers
 Competition in international trade improves product quality and lowers
production costs because we can compete against foreign producers.
 Beneficial for world peace
 All countries now have trade ties with one another. As a result, foreign trade
contributes to global peace and prosperity.
 Import of capital goods and technology
 In less developed countries, foreign trade has accelerated economic growth by
bringing in capital goods and cutting-edge technology.
 Import substitution
 These countries produce import substitutes, but they also help reduce their
countries’ balance of payment deficits.
 Better understanding
 People from different countries can meet, talk, and exchange ideas about their
social, economic, and political problems due to foreign trade.

89. Evaluation of EXIM Policy 2002-
2007
 Corporate sector with proven credential will be encouraged
to sponsor Agri Export Zone for boosting agro exports. The
corporate to provide services such as, provision of pre/post
harvest treatment and operations, plant protection,
processing, packaging, storage and related Research and
Development (R&D).
 To promote growth of exports in embedded software,
hardware shall be admissible for duty free import for
testing and development purposes.
 Diamond & Jewellery Dollar Account for exporters dealing
in purchase/sale of diamonds and diamond studded
jewellery.

90.  Nominated agencies to accept payment in dollars for cost
of import of precious metals from Export Earners Foreign
Currency (EEFC) account of exporter.
 Up gradation of infrastructure in existing
clusters/industrial locations under the Department of
Industrial Policy & Promotion (DIPP) scheme to increase
overall competitiveness of the export dusters.
 For revival of sick units, extension of export obligation
period to be allowed to such, units based on Board for
Industrial and Financial Reconstruction (BIFR)
rehabilitation schemes. This facility shall also be available
to units outside the purview of BIFR but operating under
the State rehabilitation programme.

91.  Import of 69 items covering animal products, vegetables
and spices, antibiotics and films removed from restricted
list.
 Sales from Domestic Tariff Area (DTA) to SEZs to be
treated as export. This would now entitle domestic
suppliers to Drawback/ DEPB benefits, Central Sales Tax
(CST) exemption and Service Tax exemption.
 Agriculture/Horticulture processing Export Oriented Units
(EOUs) will now be allowed to provide inputs and
equipment to contract farmers to promote production of
goods as per the requirement of importing countries.

92.  The Export Promotion Capital Goods (EPCG) scheme
shall now allow import of capital goods for pre-
production and post-production facilities also.
 The Export Obligation under the scheme shall now be
linked to the duty saved and shall be 8 times the duty
saved.
 To facilitate up gradation of existing plant and
machinery, import of spares shall also be allowed
under the scheme.

93. New Exim policy 2004-2009
 The new Foreign Trade Policy of the Union
Government was unveiled by the commerce Minister
Shri. Kamal Nath on August 31, 2004. With foreign
trade largely freed and import duties falling
progressively, the policy have necessarily restricted
itself to a facilitating role rather. This policy stated,
“Trade is not an end in itself , but a means to economic
growth.

94.  Objectives:
2.1. To double India’s percentage share of global
merchandise trade by 2009.
 India had a share of 0.8% in Foreign Trade between
2003-2004, the target in this policy was set to achieve
1.5% share in world trade by 2009. It was 1.1% in 2005 &
1.2% in 2006 and in May 2007 it had touched 1.5%.

95.  The key strategies:
3.1. Unshackling of controls and creating an atmosphere of trust and
transparency
3.2. Simplifying procedures and bringing down transaction costs
3.3. Neutralizing incidence of all levies on inputs used in export products and
adopting the fundamental principle that duties and levies should not be
exported.
3.4. Identifying and nurturing different special focus areas to facilitate
development of India as a global hub for manufacturing, trading and services.
3.5. Facilitating technological and infrastructural up gradation of the Indian
Economy. Especially through import of capital goods and equipment.
3.6. Avoiding inverted duty structure and ensuring that domestic sectors are
not harmed.
3.7. Revitalizing Board of trade.
3.8. Activating Indian Embassies as key players in the export strategy of our
country.

96.  Sectors with significant export prospects coupled with
potential for employment generation in semi-urban
and rural areas have been identified as thrust sectors,
and specific sectoral strategies have been prepared.
 Further sectoral initiatives in other sectors will be
announced from time to time. For the present, Special
Focus Initiatives have been prepared for Agriculture,
Handicrafts, Handlooms, Gems & Jewelry and Leather
& Footwear sectors.

97.  A new scheme called Vishesh Krishi Upaj Yojana has
been introduced to boost exports of fruits, vegetables,
flowers, minor forest produce and their value added
products.
 Import of seeds, bulbs, tubers and planting material
has been liberalized.
 Duty free import of consumables for metals other than
gold and platinum allowed
 Duty free import of commercial samples of jewelry
increased to Rs.1 lakh.

98.  Duty free import of trimmings and embellishments for
Handlooms & Handicrafts sectors increased
 Duty free entitlements of import trimmings, embellishments
and footwear components for leather industry .
 Import of second-hand capital goods shall be permitted without
any age restrictions
 Services Export Promotion Council:
An exclusive Services Export Promotion Council shall be set up
in order to map opportunities for key services in key markets,
and develop strategic market access programmes, including
brand building, in co-ordination with sectoral players and
recognized nodal bodies of the services industry.
 Validity of all licenses/entitlements issued under various
schemes has been increased to a uniform 24 months.

99.  Exporters can file digitally signed applications and use
Electronic Fund Transfer Mechanism for paying
application fees.
 A new scheme to establish Free Trade and
Warehousing Zone has been introduced to create
trade-related infrastructure to facilitate the import and
export of goods and services with freedom to carry out
trade transactions in free currency.

100. New Exim policy 2009-20014
 The features of the Foreign Trade Policy for 2009-14 which
was announced by Commerce Minister, Anand Sharma,
 Higher Support for Market and Product Diversification 1.
Incentive schemes under Chapter 3 have been expanded by
way of addition of new products and markets. 2. 26 new
markets have been added under Focus Market Scheme.
These include 16 new markets in Latin America and 10 in
Asia-Oceania. 3. The incentive available under Focus
Market Scheme (FMS) has been raised from 2.5% to 3%. 4.
The incentive available under Focus Product Scheme (FPS)
has been raised from 1.25% to 2%.

101.  A large number of products from various sectors have been
included for benefits under FPS. These include,
Engineering products (agricultural machinery, parts of
trailers, sewing machines, hand tools, garden tools,
musical instruments, clocks and watches, railway
locomotives etc.), Plastic (value added products), Jute and
Sisal products, Technical Textiles, Green Technology
products (wind mills, wind turbines, electric operated
vehicles etc.), Project goods, vegetable textiles and certain
Electronic items.

102.  To aid technological upgradation of our export sector,
EPCG Scheme at Zero Duty has been introduced. This
Scheme will be available for engineering & electronic
products, basic chemicals & pharmaceuticals, apparels &
textiles, plastics, handicrafts, chemicals & allied products
and leather & leather products (subject to exclusions of
current beneficiaries under Technological Upgradation
Fund Schemes (TUFS), administered by Ministry of
Textiles and beneficiaries of Status Holder Incentive
Scheme in that particular year). The scheme shall be in
operation till 31.3.2011.

103.  Focus Product Scheme benefit extended for export of
‘green products’; and for exports of some products
originating from the North East.
To neutralize duty incidence on gold Jewellery exports,
it has now been decided to allow Duty Drawback on
such exports.