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BUSSINESS ENVIRONMENT
By ABDUL SAMAD ALI
Business Environment
Business Environment refers to all those INTERNAL & EXTERNAL factors
which impact the functioning and performance of a firm and its decision
making, strategies.
In a broad sense, both internal & external factors impacting the business in its
common usage it often refers to the external factors.
External Environment : Business opportunities and threats to Business.
Internal Environment : Strengths and Weaknesses of the org.
Types of Environment
 Internal Environment : Controllable factors (Physical
facilities, personnel, marketing mix, etc.)
 External Environment : Uncontrollable (competitors,
economic, social factors, Govt., legal, etc.)
Internal Environment
 Vision, Mission and Objectives
 Management structure and Nature
 Internal relationship
 HR
 Company image and Brand
 Miscellaneous Factors
External Environment
Micro Environment
 Suppliers
 Customers
 Competitors
 Market Intermediaries
 Financiers
 Public
Macro Environment
 Global Environment
 Threat of Entry (Govt. policy, economy, product differentiation,
capital, monopoly)
 Threats of Substitutes
 Bargaining power
Nature, scope and objectives of
Business
 Business is a sum total of activities
concerned with production & distribution of
goods & services for satisfying the needs of
society & also for raising social welfare.
◦ Activities related to the Production of Goods
◦ Activities related to the Distribution of Goods
◦ Activities related to the Provision of Services
◦ Activities related to the Provision of Finance
Characteristics
 Transfer of Ownership
 Scope of Activities (Services)
 Profit Motive
 Continuous
 Economic Institution
 Ethical & Lawful
 Creative & Dynamic
 Global Business
Objectives of Business
Organic Objectives :
Survival
Growth
Prestige
Economic Objectives :
Profit
Creating & Retaining Customers
Optimum utilization of Resources
Innovation
Human Objectives :
Psychological Needs
Motivating Employees
HR Development
Social Objectives:
Consumers
Suppliers
Employees
Creditors
Share holders
Environment
Govt.
Types of Business
 Extractive ( Extraction of materials from Natural elements)
i.e. Fishing, Mining, Oil Exploration
 Manufacturing (Heavy Ind., Consumer goods Ind.)
i.e. Iron & Steel, Cement, Chemicals
 Construction
i.e. Road, Dams, Railways, Bridges, Harbors
 Service
i.e. Banking, Insurance, Transportation, Advertising
a. Industry (Production)
b. Distribution
 Trade
Buying & Selling
 Banking
Finance
 Transport
Moving goods
 Insurance
Risk Covering
 Ware Housing
Storing Goods
Environmental Analysis
Environmental analysis is the process of monitoring
economic, competitive, technological, socio-cultural,
demographic and political settings to determine opportunities
or threats t the firm.
According to William F Glueck,
Environmental analysis consists of identifying and analyzing
environmental influences individually and collectively to
determine their potential effects on an org.
Characteristics of Environmental
Analysis
 Continuous Process
 Exploratory Process
 Holistic Process
Objectives of Environmental
Analysis
 Understanding the environment
 Input-output Relationship
 Appropriate strategy formulation
 To predict future developments
Limitations of Environmental
analysis Unexpected events
 Not a sufficient guarantor
 Inaccurate Data
 Too much information
 Overcautious approach
 Management (Planning, Organizing, Motivating, Staffing,
Controlling)
 Marketing Systems (Dealers, Suppliers, demand, MIS)
 Financial Ratios (Liquidity (current ratio), Leverage(debt-
asset ratio), activity(inventory turn over ratio), profitability (Net
profit margin))
 Production/Operations (process, capacity, inventory,
work force, quality)
National Income Accounting
It refers to the money value of all the final goods and
services produced in the domestic territory of a country
including the net factor income from abroad.
Methods of measuring National
Income
Product
Method/Value
added method
• Agriculture
• Forestry
• Fishing
• Manufacturing
• Real Estate
Income Method
(wages)
• Gas/Electricity
• Transport
• Communication
• Banking
Expenditure +
Commodity Flow
• Construction
Different Sectors in India
1. Primary Sector (19.7%) (Agriculture, Forestry, fishing,
mining)
2. Secondary Sector (26.2%) (Manufacturing, power
gen, gas )
3. Tertiary Sector (54.1%)(Services, real estate)
(2005-06)
Difficulties in measurement
 Non-monetary transactions (agri output consumed at home)
 Absence of accounts
 Lack of statistical data
 Consumable articles (agri output consumed at home)
 Govt. treatment
 Double Counting
 Transfer payments (unemployment allowances )
Causes of slow growth of National
Income
Economic
Factors
Political
Factors
Social Factors
• Excessive
dependency on
agriculture
• Poor industrial
development
• Capital
Deficiency
• Poor
development of
infra
• Population
• Defective
social
organisation
• Illiteracy
• British Rule
• Partition
• Corruption
Suggestions to raise National
income
 Development of agriculture sector
 Development of industrial sector
 Population control
 Increase the rate of investment
 Development of infrastructure
 Education
 Higher growth of foreign trade
 Social equity
 Proper utilization of resources
 Balanced growth of sectors
Competitor Analysis
Porter suggests, “ its goals, assumptions, and current
strategy will influence the likelihood, timing, nature and
intensity of competitor’s reactions. Its strengths and
weaknesses will determine its ability to initiate or react to
strategic moves and to deal with environmental or industry
events that occurs.
It contains:-
1. Who are the competitors of the firm?
2. What are the current strategies of
competitors?
3. What are their future goals?
4. How are the competitors likely to respond to
the strategies of others?
5. Assumptions (About itself, and about the industry)
6. Capabilities
7. Value Chain :- Inbound logistics (receiving, storing),
operations, marketing, sales and services; HR, infra, etc.
UNIT II
• Economic Environment: Nature, significance
and elements, economic systems, economic
policy and economic conditions.
• Industrial Policy of 1991. Economic
Reforms : IDRA and licensing Liberalization,
Globalization and Privatization, EXIM, Monetary
and Fiscal policy, Economic Reforms and Social
justice, Inflation Business cycles, the new policy.
Economic Environment
It consists of micro level factors related to the means of
production and distribution of wealth.
And it includes:
 Economic Structure
 Industries
 Agriculture
 Trade policies
 National Income
 Balance of payments and Balance of trade
1. Economic system: It is a system which provides living to the
people.
• Capitalism (Privately owned, limited govt.
interference )
• Socialism
• Mixed Economy
2. Economic policies :
• Monetary Policy (Provide finance to the industries, To
generate high employment)
• Fiscal Policy (mobilizing resources, optimal allocation
of resources, possible stability of prices, equality n
income distribution)
• Industrial Policy
Structure of the Economy:
The structure of economy contains factors
such as contribution of different sectors like
primary, secondary and tertiary sectors, large,
medium small and tiny sectors to the economy,
and their linkages, integration with the world
economy, etc.
2. Trade Policy (Export and Import Policies, World
organisations)
3. Foreign Exchange Policy (Currency conversion rate)
4. Fiscal Policy (expenditure and revenue)
5. Monetary Policy (CRR and SLR)
Economic Policies
1. Industrial Policy: it can even define the scope
and role of different sector like private, public,
joint, cooperative, or large, medium, etc. it
may influence the location of industrial
undertakings, choice of technology, scale of
product mix & so on.
Before 1991, the scope of private sector,
particularly of large enterprises was very
limited.
 Industrial policy resolutions of 1948 and 1956
 Industries development and regulations act,
1951
 Critical review of pre1991 industrial policy and
liberalization trends
 New Industrial Policy, 1991
Industrial policy resolutions of 1948
and 1956
On 6th April 1948, Govt. of India divided industries into four
categories:
1. Industries where state had a monopoly: Arms and
ammunition, atomic energy and rail transport
2. Mixed Sector : six different industries were specified –
Coal, Iron and steel, aircraft manufacture, ship building,
manufacture of telephone, telegraph and wireless and
mineral oils.
3. The field of Govt. control : 18 industries; automobiles,
heavy chemicals, machinery, fertilizers, etc.
4. The field of private enterprises: All other industries not
included in the above three categories were left open to
the private sector.
Industries Development and
Regulations Act, 1951
The 1956 resolution laid down the following
objectives for the industrial policy:
1. To accelerate the rate of growth and to speed
up industrialization
2. To develop heavy industries and machine
making industries
3. To expand public sector
4. To reduce disparities in income and wealth
5. To build up a large and growing cooperative
sector
6. To prevent monopolies
The resolution of 1956 divided industries into
three categories :
1. Monopoly of the state
2. Mixed sector and private enterprises
3. Industries left for private sector
New Industrial Policy
The industrial policy announced on July 24, 1991, which
heralded the economic reforms in India, has expanded the
scope of private sector by opening up most of the industries for
the private sector.
The scope of private sector has been expanded by drastically
reducing the no. of industries reserved for the public sector and
dismantling the barriers to entry and growth.
The salient features of the new policy:-
• To build on the gains already made
• To correct the distortions or weakness that may have crept in
• To maintain a sustained growth in productivity
• To attain international competition
Delicensing : 18 Industries were freed from licensing, the no.
was reduced later to six.
Removal of MRTPA restrictions
Liberalization of foreign investment: FDI is allowed in
industries (expect Few)
Industrial Policy changes
Pre -1991 policy Current policy Industrial licensing was
rule
 Public sector monopoly
 MRTP Act restrictions
 FDI allowed only in
selected industries with
ceiling 40% of equity
 Reservation for small
scale sector industries
 Licensing is an
exception
 Industries are open for
private sector
 No such restrictions
 FDI allowed in large no.
of industries
 Reservation list is being
pruned
Fiscal Policy
Fiscal policy is that part of Govt. policy which is concerned
with raising revenue through taxation and other means and
deciding on the level of expenditure. It operates through
the budget.
Sources of revenue for the union:
 Taxes (Individuals and corporate)
 Duties and customs
 Duties on liquor, opium, Indian hemp and other drugs
 Fares and freight
 Stamp Duty
 Court Fees
Structure &
nature of
Economy
Economic
Conditions
Economic
Policies
Global linkage
• Level of
development of
economy
• Inter- sectoral
linkages
• Income levels
• Distribution of
income
• GDP
•
Demand/Supply
• Foreign
exchange
reserves options
• Industrial
Policy
• Trade policy
• Monetary policy
• Fiscal Policy
• Foreign
Exchange Policy
• Nature of cross
border trade
flows
• WTO, IMF,
World Banks,
Trade blocks.
Public, Private, Joint &
Cooperative sectorsPUBLIC ENTERPRISES:-
A govt. company means any company in which not less
than 51% of the paid up capital is held by the Govt.
Indian Companies Act,
1956
In the industrial policy resolution of the govt., some
companies came to cover a spectrum of activities in
basic and strategic industries like, steel, coal,
minerals and metals, petroleum, heavy engineering,
chemicals, etc.
Ex. GAIL, BHEL, etc.
 Govt. Ownership
 Govt. Control and Management
 Wide coverage of Activities
 Govt. Financing
 Public Welfare
Objectives of Public Enterprises
 To mobilize public savings
 To provide Employment
 To control Monopoly
 To build country’s Infrastructure
 To provide basic necessities to masses at
reasonable price
Merits of Government
Enterprises
 Complete Govt. control
 Responsible to Legislature
 Efficient Management
 Fulfillment of Social Objectives
 Contribution to Govt. Revenue
 Little scope for Misuse of Funds
Demerits of Government
Enterprises
 Excessive Govt. Control
 Lack of Competent staff
 Lack of Flexibility
 Inconsistent Policies (Govt. Change)
 Delay in Decisions
Privatization and Disinvestment
Privatization: The transferring of public sector
industries to private sector by selling, franchising, leasing,
contracting, etc.
According to D.R. Pendse, Privatization is a process that
reduces the involvement of the state or the public sector in
the nation’ economic activities.
Measures of Privatization
1. Ownership Measures :
 Total Denationalization: It implies a complete
transfer of ownership of a public enterprise to private
hands.
 Joint venture: The range of private ownership can
vary from 25-50% or even more.
 Liquidation: it implies a sale of assets to some who
may use them for the same purpose or some other
purpose.
 Workers Cooperative: ownership of the
enterprises is transferred to workers who may form a
cooperative to run the enterprise.
2. Organisation Measures
 Holding Companies: decisions are in the hand
of directors
 Leasing: Ownership remains with Govt.
 Restructuring : Financial and Basic
Restructuring
3. Operational Measures
These measures are intended to improve efficiency of the
organization. They inject the spirit of commercialization.
Objectives of Privatization
1. Ideological Objectives: The foremost object of
privatization is to strengthen and deepen capitalism by wider share
ownership. Providing greater choice as well as freedom to
consumers.
2. Economic Objectives: To increase the efficiency and
competitive power of enterprises, To make optimum use of
economic resources. To increase productivity.
3. Fiscal Objectives: To reduce deficit financing and public
deficit, To reduce burden on govt.
4. Administrative Objectives
5. Social Objectives
Success depends on:-
1. Political willingness
2. Freedom of entry
3. Rare chances of fraud
4. Measurable outcome
5. Equity
According to the public enterprises survey on the
basis of self evaluation by 96 PSE, 53 were
rated excellent, 23 Very good, 12 fair and only
8 were rated poor.
Measures adopted for
Privatization
1. Contraction of public sector
2. Sale of shares of public enterprises
3. Disinvestment in existing public sector
4. Sick Industries : Sick industrial companies act, 1985
Benefits of Privatization
 Reduction in budgetary deficits
 Less Political intervention
 Improvement in economic and technical
efficiency
 Globalization
Arguments against Privatization
 Monopoly
 Favorable projects
 Industrial Sickness
 No safety of weaker section
Obstacles of Privatization in
India
 Opposition by laborers
 Problem of financing
 Inefficiency of Pvt. Sector
 Increased efficiency of public sector
 Political pressure
Monetary Policy
Monetary policy refers to the use of instruments
within the control of the central bank to influence
the level of aggregate demand for goods and
services or to influence the trends in certain
sectors of the economy.
 Bank Rate : 7.75%
CRR : 4%
SLR : 21.5%
Repo Rate : 6.75%
Reverse Repo Rate : 5.75%
Measures of Money Aggregates
 M1 : Currency with the public + DD + other
deposits with RBI.
 M2 : M1 + Post office savings + Certificate
deposits with banks
 M3 : M1 + time deposits with the banks
 M4 : M3 + post office deposits
Instruments of Monetary
Policy
 Bank Rate policy
 Open market operations
 Reserve Ratios
 SLR
Fiscal Policy
Fiscal policy is that part of government
policy which is concerned with raising
revenue through taxation and other
means and deciding on the level of
expenditure.
The constitution of India provides that:
1. No tax can levied or collected expect by authority of law.
2. No expenditure can be incurred for public funds expect in the
manner provided in the constitution.
3. The executive authorities must spend public money only in the
manner sanctioned by parliament in the case of the union and the
state by the state legislature in the case of a state.
All receipts and disbursements of the union govt. are kept under
:
1. Consolidated fund of India
2. Public account of India
Structure of Budget
Budget
Revenue Expenditure
(Receipts)
(Disbursements)
Revenue Receipts Revenue Expenditure
Capital Receipts Capital Expenditures
EXIM Policy
For development and regulation of foreign trade in
1962, Foreign trade (development and
regulation) Act was passed under which export
and import policy is framed and trade is
regulated. Under this policy all exports and
imports have been framed from controls.
Pre reform period (Import
policy)
1. Import restrictions
2. Import substitutions
3. Import Liberalization in 1980’s
 Policy for import of capital goods ( open general
license)
 Policy of import of raw materials
 Import policy for registered exporters
 Policy for export/trading houses(2 cr. & 10 cr. in ‘88-
90)
 Policy for import of technology
Pre reform period (Export policy)
Three phases of Export Policy:
1. Phase I : It was believed that exports from
developing countries faced a stagnant world
demand and nothing much could be done to
increase them. Some of these policies:
◦ Export controls in the case of important foreign exchange
earning like, jute, tea cotton textiles, oil seeds, etc
2. Phase II : Can be considered to have begun in
1973 and lasted for about a decade.
3. Phase III: saw a more positive approach to
export promotion strategy, exports were
themselves were now being seen as an integral
part of Industrial policy.
New Trade Policy : The reform
period
 Freer Exports and Imports
 Trading Houses (Export house – 20cr, star export house-
100cr, trading house-500cr, star trading house-2,500cr
and premium trading house- 10,000cr)
 SEZs
 Export oriented units (EOUs) in 1981
 Agriculture Export Zones
• Free trade and ware housing zones (FTWZs in 2004)
• Five thrust sectors (Agriculture, handicrafts, handlooms, gems and
jewellery & Leather and footwear)
• Vishesh Krishi Upaj Yojana
Special Economic Zones (SEZs)
• A designated duty free enclave
• No license required for import
• Manufacturing and service activities allowed
• No routine examination by custom authorities of EXIM cargo.
• Subsidies on Electricity, labor
• Exemption from Taxes (customs, Central excise, service tax,
VAT, entry Tax)
• No dividend distribution tax
Key Regulators
 Central Govt.: Overall authority for governing, notifying the
SEZ & granting the letter of approval.
 State Govt.: Receives and forwards the proposal with
recommendations to the BOA
 BOA: Considers proposals for setting up SEZ and units in SEZ
 SEZ Authority: Undertakes measures for the development
operation and management of the SEZ
 Development commissioner: For administrative control of the
SEZ
Capital Market
• Industrial Securities Market
• New Issues Market ( IPO, Offer For Sale, Pvt. Placement,
Bonus Issues, Right Issue)
• Stock Exchange
• Development Financial Institutions (DFI)
• IDBI, UTI, ICICI
• Financial Intermediaries (Merchant Banking, MF,
Venture capital companies)
• Govt. Securities
UNIT III – Technological Environment
Technological Environment
Technology is one of the important determinants of success of firm
as well as economic and social development of a nation.
Technology (hard and soft) includes the tools – both machines and
ways of thinking.
Technology should be described as “systematic knowledge for the
manufacture of a product, for the application of a process or for the
rendering of a service and does not extend transactions involving
mere sale”.
Multinational Corporations
• The essential nature of the MNC lies in the fact
that its managerial headquarters are located in one
country while the enterprise carries out operations in
a no. of other countries as well.
Some other benchmarks: Produce abroad as well as in the Headquarters
country
 Operate in a certain minimum no. of nations
 Derive some minimum % of its income from
foreign operations.
 Have a certain minimum ratio of foreign to total
no. of employees
Global Fortune 500 co.
Walmart
Exxon Mobil
Chevron
Berkshire Hathway
Top Global Fortune 500 Indian co.
Merits of MNCs
 Increase the investment level & employment of
countries.
 Transfer of technology
 Transfer of personnel
 Increase their exports & Decrease the Imports
 To get the benefits of low cost of production
 Help in integrating of national economies
 Increase competitions and break domestic
monopoly
Code of Conduct
 Respect the national sovereignty of host country and
observe their domestic laws, regulations and administrative
 Adhere to host nations’ economic goals, development
objectives and sociocultural values
 Respect human rights
 Not interfere in internal political affairs or in
intergovernmental relations
 Not engaged in corrupt practices
 Payment of taxes, healthy competition, consumer and
environmental protection
 Disclose relevant information to host country govt.
GATT (General Agreement on Tariff
and Trade)
 During great depression of 1930’s the international
trade was badly affected and various countries
imposed import restrictions for .safeguarding their
economies
 It results in sharp decline in world trade
 In 1945, USA put forward many proposals for
extending international trade and employment
 On October 30th , 1947, 23 countries at Geneva
signed an agreement
Principles adopted by GATT A contracting party’s trade policies must treat all
GATT members equally
 No member country shall discriminate between
the members of GATT in the conduct of
international trade
 Members of GATT agree to apply the principle of
‘most favored nation’ to all import and export
duties
Global Trade Organizations:
WTO
◦ Established 1995; ~142 countries
◦ Objectives:
 facilitate liberalization of trade;
 eliminate most favored trade status arrangements;
 encourage competition;
 help with development of developing countries.
◦ Advocate of multi-lateral agreements
Continue…
• WTO deals with the global rules of trade between nations. Its
main function is to ensure that trade flows as smoothly,
predictably and freely as possible.
• Its an organisation for liberalizing trade, a forum for govt. to
negotiate trade agreements and a place for settle trade
disputes
• The WTO has larger membership than GATT, with the
numbers being 162
Principles of WTO
 Non Discrimination
 Free trade promotion
 Stability in the trading system
 Promotion of fair competition
GATT WTO
 GATT was ad hoc and
provisional
 GATT had contracting
parties
 GATT allowed existing
domestic legislation to
continue even if it
violated a GATT
agreement
 GATT was less
powerful, dispute
system was slow less
efficient.
 WTO and its agreements
are permanent
 WTO has members
 WTO doesn’t permit this
 WTO is more powerful
than GATT, dispute
settlement mechanism
is faster and more
efficient, very difficult to
block the rulings
World Bank
The world bank is an internationally supported
bank that provides financial and technical
assistance to developing countries for
development programs with the stated goal of
reducing poverty.
President : Jim Yong King
Members : 188 Countries
Headquarters : Washington DC
Formation : July 1944
Points to remember…
 It is one of the two Bretton Woods
institutions which were created in 1944
 It is a component of World Bank Group
 World Bank Group is part of the United
Nations system.
 It comprises two institutions:
 International Bank for Reconstruction And
Development (IBRD)
 International Development Association (IDA)
Continue…
 IBRD lending to developing countries is
financed by selling AAA rated bonds.
 IDA is world’s largest source of interest
free loans and grant assistance to the
poorest countries.
WTO: Benefits proclaimed for
India
 Benefits from expansion in trade
 Benefits from phasing out of MFA
 Improved prospects for agricultural exports
 Benefits from multilateral rules and disciplines
5.International Economic
environment
 FEMA vs. FERA
 BOT vs. BOP
 Foreign Exchange
 Capital a/c
 Current a/c
FERA: Foreign Exchange
Regulations Act
 This act sought to regulate certain aspects of the conduct
of business outside the country by Indian companies and in
India by foreign companies.
 The main objective of FERA, framed against the
background of severe foreign exchange problem and the
controlled economic regime, was conservation and proper
utilization of the foreign exchange resources of the country.
 FERA had 81 sections.
 There were substantial delays in implementing FERA. By
June 1979, only about half of the companies directed to
dilute the foreign holdings.
Important concessions :
 Companies with foreign shareholding were allowed
to increase foreign equity to 51%
 Companies to get Reserve bank’s permission before
raising working capital was revoked
 Sec 28 and 29 revoked, Companies can use
trademarks in India
 Sec 31 was revoked , this allowed companies to deal
in immovable property in India
 Export and import Gold and Silver was exempted
from FERA implying that these commodities were now
to be governed by Exim policy.
FEMA expands to Foreign Exchange Management Act,
which was promulgated in the year 1999, to repeal and replace
the earlier act. The act applies to the whole country and to all
the branches and agencies of the body corporate operating
outside India, whose owner or controller is an Indian resident
and also any violation committed by the person covered under
the Act, outside India.
The main objective of the act is to facilitate foreign trade and
to encourage systematic development and maintenance of
forex market in the country. There are total seven chapters
contained in the act which are divided into 49 sections, out of
which 12 sections deal with the operational part while
the remaining 37 sections cover penalties, contravention,
appeals, adjudication and so on.
FERA to FEMA
 FERA created flourishing black market in foreign
exchange. It brought into the economic dictionary the
word “ Hawala”.
 There was a demand for a substantial modification of
FERA in the light of ongoing economic liberalization
and improving foreign exchange reserves position.
 There was a need to remove the provisions of FERA
and have a forward looking legislation covering
foreign exchange matters.
 FERA was not suitable for liberalization policy. Though
certain amendments were made in 1993 but they
were not sufficient.
Cont…
• The objective of FERA was to conserve foreign
exchange resources which badly affected the
comfortable foreign exchange reserves.
• To facilitate the external trade and payment.
• Regulation of foreign capital in India.
• To make strong and developed foreign exchange
market.
• The new law is more transparent in its
application. It has laid down the areas where
special permission of the RBI and GOI is required.
• The FEMA came into force on 1st June 2000.
FEMA 2000 FERA 1973
 There are 49 sections out
of which 12 section related
to operational part.
 Civil Law
 The Act applies to all
branches, offices and
branches outside India
Owned or controlled by a
person resident in India
 Limited to three times the
some involved if it is
quantifiable.
 The object is to encourage
external trade
 There are 81 sections out
of which 32 section related
to operational part.
 Criminal Law
 The Act applied to all
citizens of India and to
branches and agencies
outside India
 Five times of the sum
involved + imprisonment is
most of the cases.
 The object was to control,
regulate and prohibits
Foreign exchange
transactions
Current Account Transactions
• Any person may sell or draw foreign exchange to or from an
authorized person if such sale or draw is a current account
transaction
• The central government may, in public interest and in
consultation with the RBI, impose such reasonable restrictions for
current account transactions as may be required from time to
time
Roles of Government in
BusinessGovernment performs many different roles in an economy.
Conventionally, it was presumed that role of government is
to sustain the law and order, protect a country from
external attacks, provide social security, take care of public
utilities and maintain peace within a nation. Government
has command over all resources in an economy. Over time
these roles have taken a concrete shape to bring about
development and growth of an economy as well business.
 Regulatory Role
 Entrepreneurial Role
 Promotional Role
 Planning Role
The government acts as an entrepreneur and participates in
economic activities through its own ownership in form of
public sector ventures like
• Transportation Indian Railway Catering and Tourism Corporation
Ltd,
• Communication MTNL, BSNL;
• Electricity and Power
• Companies like BHEL
Entrepreneurial role of government is encouraged owing to
the following reasons:
• For social welfare
• For balanced regional growth
• For capital intensive growth
• For providing consultancy to private sector
Government of India acts as a planner to secure optimum
utilization of resources. In 1950, Planning Commission was set up
by Government of India with an objective for mobilization of
resources and to formulate the plans for the development of the
nation. The following motives of planning commissions are:-
• To increase the productivity and high GDP
• To achieve high per capita income and national income
• To generate employment
• To reduce inequality among different sections
• To achieve the laid objectives
• To attain social justice

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Business environment

  • 2. Business Environment Business Environment refers to all those INTERNAL & EXTERNAL factors which impact the functioning and performance of a firm and its decision making, strategies. In a broad sense, both internal & external factors impacting the business in its common usage it often refers to the external factors. External Environment : Business opportunities and threats to Business. Internal Environment : Strengths and Weaknesses of the org.
  • 3. Types of Environment  Internal Environment : Controllable factors (Physical facilities, personnel, marketing mix, etc.)  External Environment : Uncontrollable (competitors, economic, social factors, Govt., legal, etc.)
  • 4. Internal Environment  Vision, Mission and Objectives  Management structure and Nature  Internal relationship  HR  Company image and Brand  Miscellaneous Factors
  • 5. External Environment Micro Environment  Suppliers  Customers  Competitors  Market Intermediaries  Financiers  Public Macro Environment  Global Environment  Threat of Entry (Govt. policy, economy, product differentiation, capital, monopoly)  Threats of Substitutes  Bargaining power
  • 6. Nature, scope and objectives of Business  Business is a sum total of activities concerned with production & distribution of goods & services for satisfying the needs of society & also for raising social welfare. ◦ Activities related to the Production of Goods ◦ Activities related to the Distribution of Goods ◦ Activities related to the Provision of Services ◦ Activities related to the Provision of Finance
  • 7. Characteristics  Transfer of Ownership  Scope of Activities (Services)  Profit Motive  Continuous  Economic Institution  Ethical & Lawful  Creative & Dynamic  Global Business
  • 8. Objectives of Business Organic Objectives : Survival Growth Prestige Economic Objectives : Profit Creating & Retaining Customers Optimum utilization of Resources Innovation Human Objectives : Psychological Needs Motivating Employees HR Development Social Objectives: Consumers Suppliers Employees Creditors Share holders Environment Govt.
  • 9. Types of Business  Extractive ( Extraction of materials from Natural elements) i.e. Fishing, Mining, Oil Exploration  Manufacturing (Heavy Ind., Consumer goods Ind.) i.e. Iron & Steel, Cement, Chemicals  Construction i.e. Road, Dams, Railways, Bridges, Harbors  Service i.e. Banking, Insurance, Transportation, Advertising a. Industry (Production)
  • 10. b. Distribution  Trade Buying & Selling  Banking Finance  Transport Moving goods  Insurance Risk Covering  Ware Housing Storing Goods
  • 11. Environmental Analysis Environmental analysis is the process of monitoring economic, competitive, technological, socio-cultural, demographic and political settings to determine opportunities or threats t the firm. According to William F Glueck, Environmental analysis consists of identifying and analyzing environmental influences individually and collectively to determine their potential effects on an org.
  • 12. Characteristics of Environmental Analysis  Continuous Process  Exploratory Process  Holistic Process Objectives of Environmental Analysis  Understanding the environment  Input-output Relationship  Appropriate strategy formulation  To predict future developments
  • 13. Limitations of Environmental analysis Unexpected events  Not a sufficient guarantor  Inaccurate Data  Too much information  Overcautious approach
  • 14.  Management (Planning, Organizing, Motivating, Staffing, Controlling)  Marketing Systems (Dealers, Suppliers, demand, MIS)  Financial Ratios (Liquidity (current ratio), Leverage(debt- asset ratio), activity(inventory turn over ratio), profitability (Net profit margin))  Production/Operations (process, capacity, inventory, work force, quality)
  • 15. National Income Accounting It refers to the money value of all the final goods and services produced in the domestic territory of a country including the net factor income from abroad.
  • 16. Methods of measuring National Income Product Method/Value added method • Agriculture • Forestry • Fishing • Manufacturing • Real Estate Income Method (wages) • Gas/Electricity • Transport • Communication • Banking Expenditure + Commodity Flow • Construction
  • 17. Different Sectors in India 1. Primary Sector (19.7%) (Agriculture, Forestry, fishing, mining) 2. Secondary Sector (26.2%) (Manufacturing, power gen, gas ) 3. Tertiary Sector (54.1%)(Services, real estate) (2005-06)
  • 18. Difficulties in measurement  Non-monetary transactions (agri output consumed at home)  Absence of accounts  Lack of statistical data  Consumable articles (agri output consumed at home)  Govt. treatment  Double Counting  Transfer payments (unemployment allowances )
  • 19. Causes of slow growth of National Income Economic Factors Political Factors Social Factors • Excessive dependency on agriculture • Poor industrial development • Capital Deficiency • Poor development of infra • Population • Defective social organisation • Illiteracy • British Rule • Partition • Corruption
  • 20. Suggestions to raise National income  Development of agriculture sector  Development of industrial sector  Population control  Increase the rate of investment  Development of infrastructure  Education  Higher growth of foreign trade  Social equity  Proper utilization of resources  Balanced growth of sectors
  • 21. Competitor Analysis Porter suggests, “ its goals, assumptions, and current strategy will influence the likelihood, timing, nature and intensity of competitor’s reactions. Its strengths and weaknesses will determine its ability to initiate or react to strategic moves and to deal with environmental or industry events that occurs.
  • 22. It contains:- 1. Who are the competitors of the firm? 2. What are the current strategies of competitors? 3. What are their future goals? 4. How are the competitors likely to respond to the strategies of others? 5. Assumptions (About itself, and about the industry) 6. Capabilities 7. Value Chain :- Inbound logistics (receiving, storing), operations, marketing, sales and services; HR, infra, etc.
  • 23. UNIT II • Economic Environment: Nature, significance and elements, economic systems, economic policy and economic conditions. • Industrial Policy of 1991. Economic Reforms : IDRA and licensing Liberalization, Globalization and Privatization, EXIM, Monetary and Fiscal policy, Economic Reforms and Social justice, Inflation Business cycles, the new policy.
  • 24. Economic Environment It consists of micro level factors related to the means of production and distribution of wealth. And it includes:  Economic Structure  Industries  Agriculture  Trade policies  National Income  Balance of payments and Balance of trade
  • 25. 1. Economic system: It is a system which provides living to the people. • Capitalism (Privately owned, limited govt. interference ) • Socialism • Mixed Economy 2. Economic policies : • Monetary Policy (Provide finance to the industries, To generate high employment) • Fiscal Policy (mobilizing resources, optimal allocation of resources, possible stability of prices, equality n income distribution) • Industrial Policy
  • 26. Structure of the Economy: The structure of economy contains factors such as contribution of different sectors like primary, secondary and tertiary sectors, large, medium small and tiny sectors to the economy, and their linkages, integration with the world economy, etc.
  • 27. 2. Trade Policy (Export and Import Policies, World organisations) 3. Foreign Exchange Policy (Currency conversion rate) 4. Fiscal Policy (expenditure and revenue) 5. Monetary Policy (CRR and SLR)
  • 28. Economic Policies 1. Industrial Policy: it can even define the scope and role of different sector like private, public, joint, cooperative, or large, medium, etc. it may influence the location of industrial undertakings, choice of technology, scale of product mix & so on. Before 1991, the scope of private sector, particularly of large enterprises was very limited.
  • 29.  Industrial policy resolutions of 1948 and 1956  Industries development and regulations act, 1951  Critical review of pre1991 industrial policy and liberalization trends  New Industrial Policy, 1991
  • 30. Industrial policy resolutions of 1948 and 1956 On 6th April 1948, Govt. of India divided industries into four categories: 1. Industries where state had a monopoly: Arms and ammunition, atomic energy and rail transport 2. Mixed Sector : six different industries were specified – Coal, Iron and steel, aircraft manufacture, ship building, manufacture of telephone, telegraph and wireless and mineral oils. 3. The field of Govt. control : 18 industries; automobiles, heavy chemicals, machinery, fertilizers, etc. 4. The field of private enterprises: All other industries not included in the above three categories were left open to the private sector.
  • 31. Industries Development and Regulations Act, 1951 The 1956 resolution laid down the following objectives for the industrial policy: 1. To accelerate the rate of growth and to speed up industrialization 2. To develop heavy industries and machine making industries 3. To expand public sector 4. To reduce disparities in income and wealth 5. To build up a large and growing cooperative sector 6. To prevent monopolies
  • 32. The resolution of 1956 divided industries into three categories : 1. Monopoly of the state 2. Mixed sector and private enterprises 3. Industries left for private sector
  • 33. New Industrial Policy The industrial policy announced on July 24, 1991, which heralded the economic reforms in India, has expanded the scope of private sector by opening up most of the industries for the private sector. The scope of private sector has been expanded by drastically reducing the no. of industries reserved for the public sector and dismantling the barriers to entry and growth. The salient features of the new policy:- • To build on the gains already made • To correct the distortions or weakness that may have crept in • To maintain a sustained growth in productivity • To attain international competition Delicensing : 18 Industries were freed from licensing, the no. was reduced later to six. Removal of MRTPA restrictions Liberalization of foreign investment: FDI is allowed in industries (expect Few)
  • 34. Industrial Policy changes Pre -1991 policy Current policy Industrial licensing was rule  Public sector monopoly  MRTP Act restrictions  FDI allowed only in selected industries with ceiling 40% of equity  Reservation for small scale sector industries  Licensing is an exception  Industries are open for private sector  No such restrictions  FDI allowed in large no. of industries  Reservation list is being pruned
  • 35. Fiscal Policy Fiscal policy is that part of Govt. policy which is concerned with raising revenue through taxation and other means and deciding on the level of expenditure. It operates through the budget. Sources of revenue for the union:  Taxes (Individuals and corporate)  Duties and customs  Duties on liquor, opium, Indian hemp and other drugs  Fares and freight  Stamp Duty  Court Fees
  • 36. Structure & nature of Economy Economic Conditions Economic Policies Global linkage • Level of development of economy • Inter- sectoral linkages • Income levels • Distribution of income • GDP • Demand/Supply • Foreign exchange reserves options • Industrial Policy • Trade policy • Monetary policy • Fiscal Policy • Foreign Exchange Policy • Nature of cross border trade flows • WTO, IMF, World Banks, Trade blocks.
  • 37. Public, Private, Joint & Cooperative sectorsPUBLIC ENTERPRISES:- A govt. company means any company in which not less than 51% of the paid up capital is held by the Govt. Indian Companies Act, 1956 In the industrial policy resolution of the govt., some companies came to cover a spectrum of activities in basic and strategic industries like, steel, coal, minerals and metals, petroleum, heavy engineering, chemicals, etc. Ex. GAIL, BHEL, etc.
  • 38.  Govt. Ownership  Govt. Control and Management  Wide coverage of Activities  Govt. Financing  Public Welfare
  • 39. Objectives of Public Enterprises  To mobilize public savings  To provide Employment  To control Monopoly  To build country’s Infrastructure  To provide basic necessities to masses at reasonable price
  • 40. Merits of Government Enterprises  Complete Govt. control  Responsible to Legislature  Efficient Management  Fulfillment of Social Objectives  Contribution to Govt. Revenue  Little scope for Misuse of Funds
  • 41. Demerits of Government Enterprises  Excessive Govt. Control  Lack of Competent staff  Lack of Flexibility  Inconsistent Policies (Govt. Change)  Delay in Decisions
  • 42. Privatization and Disinvestment Privatization: The transferring of public sector industries to private sector by selling, franchising, leasing, contracting, etc. According to D.R. Pendse, Privatization is a process that reduces the involvement of the state or the public sector in the nation’ economic activities.
  • 43. Measures of Privatization 1. Ownership Measures :  Total Denationalization: It implies a complete transfer of ownership of a public enterprise to private hands.  Joint venture: The range of private ownership can vary from 25-50% or even more.  Liquidation: it implies a sale of assets to some who may use them for the same purpose or some other purpose.  Workers Cooperative: ownership of the enterprises is transferred to workers who may form a cooperative to run the enterprise.
  • 44. 2. Organisation Measures  Holding Companies: decisions are in the hand of directors  Leasing: Ownership remains with Govt.  Restructuring : Financial and Basic Restructuring 3. Operational Measures These measures are intended to improve efficiency of the organization. They inject the spirit of commercialization.
  • 45. Objectives of Privatization 1. Ideological Objectives: The foremost object of privatization is to strengthen and deepen capitalism by wider share ownership. Providing greater choice as well as freedom to consumers. 2. Economic Objectives: To increase the efficiency and competitive power of enterprises, To make optimum use of economic resources. To increase productivity. 3. Fiscal Objectives: To reduce deficit financing and public deficit, To reduce burden on govt. 4. Administrative Objectives 5. Social Objectives
  • 46. Success depends on:- 1. Political willingness 2. Freedom of entry 3. Rare chances of fraud 4. Measurable outcome 5. Equity According to the public enterprises survey on the basis of self evaluation by 96 PSE, 53 were rated excellent, 23 Very good, 12 fair and only 8 were rated poor.
  • 47. Measures adopted for Privatization 1. Contraction of public sector 2. Sale of shares of public enterprises 3. Disinvestment in existing public sector 4. Sick Industries : Sick industrial companies act, 1985
  • 48. Benefits of Privatization  Reduction in budgetary deficits  Less Political intervention  Improvement in economic and technical efficiency  Globalization
  • 49. Arguments against Privatization  Monopoly  Favorable projects  Industrial Sickness  No safety of weaker section
  • 50. Obstacles of Privatization in India  Opposition by laborers  Problem of financing  Inefficiency of Pvt. Sector  Increased efficiency of public sector  Political pressure
  • 51. Monetary Policy Monetary policy refers to the use of instruments within the control of the central bank to influence the level of aggregate demand for goods and services or to influence the trends in certain sectors of the economy.  Bank Rate : 7.75% CRR : 4% SLR : 21.5% Repo Rate : 6.75% Reverse Repo Rate : 5.75%
  • 52. Measures of Money Aggregates  M1 : Currency with the public + DD + other deposits with RBI.  M2 : M1 + Post office savings + Certificate deposits with banks  M3 : M1 + time deposits with the banks  M4 : M3 + post office deposits
  • 53. Instruments of Monetary Policy  Bank Rate policy  Open market operations  Reserve Ratios  SLR
  • 54. Fiscal Policy Fiscal policy is that part of government policy which is concerned with raising revenue through taxation and other means and deciding on the level of expenditure.
  • 55. The constitution of India provides that: 1. No tax can levied or collected expect by authority of law. 2. No expenditure can be incurred for public funds expect in the manner provided in the constitution. 3. The executive authorities must spend public money only in the manner sanctioned by parliament in the case of the union and the state by the state legislature in the case of a state. All receipts and disbursements of the union govt. are kept under : 1. Consolidated fund of India 2. Public account of India
  • 56. Structure of Budget Budget Revenue Expenditure (Receipts) (Disbursements) Revenue Receipts Revenue Expenditure Capital Receipts Capital Expenditures
  • 57. EXIM Policy For development and regulation of foreign trade in 1962, Foreign trade (development and regulation) Act was passed under which export and import policy is framed and trade is regulated. Under this policy all exports and imports have been framed from controls.
  • 58. Pre reform period (Import policy) 1. Import restrictions 2. Import substitutions 3. Import Liberalization in 1980’s  Policy for import of capital goods ( open general license)  Policy of import of raw materials  Import policy for registered exporters  Policy for export/trading houses(2 cr. & 10 cr. in ‘88- 90)  Policy for import of technology
  • 59. Pre reform period (Export policy) Three phases of Export Policy: 1. Phase I : It was believed that exports from developing countries faced a stagnant world demand and nothing much could be done to increase them. Some of these policies: ◦ Export controls in the case of important foreign exchange earning like, jute, tea cotton textiles, oil seeds, etc 2. Phase II : Can be considered to have begun in 1973 and lasted for about a decade. 3. Phase III: saw a more positive approach to export promotion strategy, exports were themselves were now being seen as an integral part of Industrial policy.
  • 60. New Trade Policy : The reform period  Freer Exports and Imports  Trading Houses (Export house – 20cr, star export house- 100cr, trading house-500cr, star trading house-2,500cr and premium trading house- 10,000cr)  SEZs  Export oriented units (EOUs) in 1981  Agriculture Export Zones
  • 61. • Free trade and ware housing zones (FTWZs in 2004) • Five thrust sectors (Agriculture, handicrafts, handlooms, gems and jewellery & Leather and footwear) • Vishesh Krishi Upaj Yojana
  • 62. Special Economic Zones (SEZs) • A designated duty free enclave • No license required for import • Manufacturing and service activities allowed • No routine examination by custom authorities of EXIM cargo. • Subsidies on Electricity, labor • Exemption from Taxes (customs, Central excise, service tax, VAT, entry Tax) • No dividend distribution tax
  • 63. Key Regulators  Central Govt.: Overall authority for governing, notifying the SEZ & granting the letter of approval.  State Govt.: Receives and forwards the proposal with recommendations to the BOA  BOA: Considers proposals for setting up SEZ and units in SEZ  SEZ Authority: Undertakes measures for the development operation and management of the SEZ  Development commissioner: For administrative control of the SEZ
  • 64. Capital Market • Industrial Securities Market • New Issues Market ( IPO, Offer For Sale, Pvt. Placement, Bonus Issues, Right Issue) • Stock Exchange • Development Financial Institutions (DFI) • IDBI, UTI, ICICI • Financial Intermediaries (Merchant Banking, MF, Venture capital companies) • Govt. Securities
  • 65. UNIT III – Technological Environment
  • 66. Technological Environment Technology is one of the important determinants of success of firm as well as economic and social development of a nation. Technology (hard and soft) includes the tools – both machines and ways of thinking. Technology should be described as “systematic knowledge for the manufacture of a product, for the application of a process or for the rendering of a service and does not extend transactions involving mere sale”.
  • 67. Multinational Corporations • The essential nature of the MNC lies in the fact that its managerial headquarters are located in one country while the enterprise carries out operations in a no. of other countries as well.
  • 68. Some other benchmarks: Produce abroad as well as in the Headquarters country  Operate in a certain minimum no. of nations  Derive some minimum % of its income from foreign operations.  Have a certain minimum ratio of foreign to total no. of employees
  • 69. Global Fortune 500 co. Walmart Exxon Mobil Chevron Berkshire Hathway Top Global Fortune 500 Indian co.
  • 70. Merits of MNCs  Increase the investment level & employment of countries.  Transfer of technology  Transfer of personnel  Increase their exports & Decrease the Imports  To get the benefits of low cost of production  Help in integrating of national economies  Increase competitions and break domestic monopoly
  • 71. Code of Conduct  Respect the national sovereignty of host country and observe their domestic laws, regulations and administrative  Adhere to host nations’ economic goals, development objectives and sociocultural values  Respect human rights  Not interfere in internal political affairs or in intergovernmental relations  Not engaged in corrupt practices  Payment of taxes, healthy competition, consumer and environmental protection  Disclose relevant information to host country govt.
  • 72. GATT (General Agreement on Tariff and Trade)  During great depression of 1930’s the international trade was badly affected and various countries imposed import restrictions for .safeguarding their economies  It results in sharp decline in world trade  In 1945, USA put forward many proposals for extending international trade and employment  On October 30th , 1947, 23 countries at Geneva signed an agreement
  • 73. Principles adopted by GATT A contracting party’s trade policies must treat all GATT members equally  No member country shall discriminate between the members of GATT in the conduct of international trade  Members of GATT agree to apply the principle of ‘most favored nation’ to all import and export duties
  • 74. Global Trade Organizations: WTO ◦ Established 1995; ~142 countries ◦ Objectives:  facilitate liberalization of trade;  eliminate most favored trade status arrangements;  encourage competition;  help with development of developing countries. ◦ Advocate of multi-lateral agreements
  • 75. Continue… • WTO deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. • Its an organisation for liberalizing trade, a forum for govt. to negotiate trade agreements and a place for settle trade disputes • The WTO has larger membership than GATT, with the numbers being 162
  • 76. Principles of WTO  Non Discrimination  Free trade promotion  Stability in the trading system  Promotion of fair competition
  • 77. GATT WTO  GATT was ad hoc and provisional  GATT had contracting parties  GATT allowed existing domestic legislation to continue even if it violated a GATT agreement  GATT was less powerful, dispute system was slow less efficient.  WTO and its agreements are permanent  WTO has members  WTO doesn’t permit this  WTO is more powerful than GATT, dispute settlement mechanism is faster and more efficient, very difficult to block the rulings
  • 78. World Bank The world bank is an internationally supported bank that provides financial and technical assistance to developing countries for development programs with the stated goal of reducing poverty. President : Jim Yong King Members : 188 Countries Headquarters : Washington DC Formation : July 1944
  • 79. Points to remember…  It is one of the two Bretton Woods institutions which were created in 1944  It is a component of World Bank Group  World Bank Group is part of the United Nations system.  It comprises two institutions:  International Bank for Reconstruction And Development (IBRD)  International Development Association (IDA)
  • 80. Continue…  IBRD lending to developing countries is financed by selling AAA rated bonds.  IDA is world’s largest source of interest free loans and grant assistance to the poorest countries.
  • 81. WTO: Benefits proclaimed for India  Benefits from expansion in trade  Benefits from phasing out of MFA  Improved prospects for agricultural exports  Benefits from multilateral rules and disciplines
  • 82. 5.International Economic environment  FEMA vs. FERA  BOT vs. BOP  Foreign Exchange  Capital a/c  Current a/c
  • 83. FERA: Foreign Exchange Regulations Act  This act sought to regulate certain aspects of the conduct of business outside the country by Indian companies and in India by foreign companies.  The main objective of FERA, framed against the background of severe foreign exchange problem and the controlled economic regime, was conservation and proper utilization of the foreign exchange resources of the country.  FERA had 81 sections.  There were substantial delays in implementing FERA. By June 1979, only about half of the companies directed to dilute the foreign holdings.
  • 84. Important concessions :  Companies with foreign shareholding were allowed to increase foreign equity to 51%  Companies to get Reserve bank’s permission before raising working capital was revoked  Sec 28 and 29 revoked, Companies can use trademarks in India  Sec 31 was revoked , this allowed companies to deal in immovable property in India  Export and import Gold and Silver was exempted from FERA implying that these commodities were now to be governed by Exim policy.
  • 85. FEMA expands to Foreign Exchange Management Act, which was promulgated in the year 1999, to repeal and replace the earlier act. The act applies to the whole country and to all the branches and agencies of the body corporate operating outside India, whose owner or controller is an Indian resident and also any violation committed by the person covered under the Act, outside India. The main objective of the act is to facilitate foreign trade and to encourage systematic development and maintenance of forex market in the country. There are total seven chapters contained in the act which are divided into 49 sections, out of which 12 sections deal with the operational part while the remaining 37 sections cover penalties, contravention, appeals, adjudication and so on.
  • 86. FERA to FEMA  FERA created flourishing black market in foreign exchange. It brought into the economic dictionary the word “ Hawala”.  There was a demand for a substantial modification of FERA in the light of ongoing economic liberalization and improving foreign exchange reserves position.  There was a need to remove the provisions of FERA and have a forward looking legislation covering foreign exchange matters.  FERA was not suitable for liberalization policy. Though certain amendments were made in 1993 but they were not sufficient. Cont…
  • 87. • The objective of FERA was to conserve foreign exchange resources which badly affected the comfortable foreign exchange reserves. • To facilitate the external trade and payment. • Regulation of foreign capital in India. • To make strong and developed foreign exchange market. • The new law is more transparent in its application. It has laid down the areas where special permission of the RBI and GOI is required. • The FEMA came into force on 1st June 2000.
  • 88. FEMA 2000 FERA 1973  There are 49 sections out of which 12 section related to operational part.  Civil Law  The Act applies to all branches, offices and branches outside India Owned or controlled by a person resident in India  Limited to three times the some involved if it is quantifiable.  The object is to encourage external trade  There are 81 sections out of which 32 section related to operational part.  Criminal Law  The Act applied to all citizens of India and to branches and agencies outside India  Five times of the sum involved + imprisonment is most of the cases.  The object was to control, regulate and prohibits Foreign exchange transactions
  • 89. Current Account Transactions • Any person may sell or draw foreign exchange to or from an authorized person if such sale or draw is a current account transaction • The central government may, in public interest and in consultation with the RBI, impose such reasonable restrictions for current account transactions as may be required from time to time
  • 90. Roles of Government in BusinessGovernment performs many different roles in an economy. Conventionally, it was presumed that role of government is to sustain the law and order, protect a country from external attacks, provide social security, take care of public utilities and maintain peace within a nation. Government has command over all resources in an economy. Over time these roles have taken a concrete shape to bring about development and growth of an economy as well business.  Regulatory Role  Entrepreneurial Role  Promotional Role  Planning Role
  • 91.
  • 92. The government acts as an entrepreneur and participates in economic activities through its own ownership in form of public sector ventures like • Transportation Indian Railway Catering and Tourism Corporation Ltd, • Communication MTNL, BSNL; • Electricity and Power • Companies like BHEL Entrepreneurial role of government is encouraged owing to the following reasons: • For social welfare • For balanced regional growth • For capital intensive growth • For providing consultancy to private sector
  • 93.
  • 94. Government of India acts as a planner to secure optimum utilization of resources. In 1950, Planning Commission was set up by Government of India with an objective for mobilization of resources and to formulate the plans for the development of the nation. The following motives of planning commissions are:- • To increase the productivity and high GDP • To achieve high per capita income and national income • To generate employment • To reduce inequality among different sections • To achieve the laid objectives • To attain social justice