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M 2,3,4 business n industry

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tanuja nair
tanuja nair

BU syllabus - I SEM MBA - Business & Industry. Module 2,3 & 4

Education
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Module -2 Essentials of business & industry
• Meaning of business – an individual or group of individuals who are engaged in the buying and selling of goods or products. • - A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Organized and planned activities of individuals to produce n sell goods n services for a profit. • Nature – the overall activities a company does to create, market n sell a product or service. Which area the company is mainly focussing on in bus is called its nature of business.
• Role of bus -The role of a business is to produce and distribute goods and services to satisfy a public need or demand. For eg. CSR activities to help weaker sections of society. • Businesses are also expected to maintain a certain level of responsibility in the way they run their operations. A company can be viewed as ethically irresponsible if it knowingly brings harm to the environment or if its business tactics cause employees to be treated unfairly.
• Any business is a risky endeavour with an uncertain life expectancy. It has been, and should remain, a driver of innovation, a creator of wealth, a harbinger of economic freedom. The core mission of a profit- driven enterprise is not to fulfil some philanthropic duty. But neither is it solely to maximize short-term shareholder value. • Fundamental role of business remains the same. Expectations from business has changed. • People lost trust in business because of fraud, corruption and poor performance. • For eg. Henry Ford once told, ‘making money for shareholders is not the be all and end all of business.’
• He said, ‘Businesses employ large armies of people at high wages and reduce the selling price of the car. So that lots of people can buy the car at cheap rates. And in the process of doing that, money will fall into your hands.
Basic business functions • Operations • Finance • Marketing
Operations • Key function of business. • Concerned with producing goods and services. • Both tangible and intangible products • Aim of business is to produce and supply to meet customer demand. • To manage and control the supply chain • Need the support of marketing and finance
Finance • To get financial resources and allocate it to different parts of the organization. • Managing cash flow, budgeting, asset management and financial statements. • Critical function – determine success of the organization.
Marketing • Promotion of goods and services • To ensure it is available to all customers • First, need to understand requirement of customers. • Making sure products meet the standards • Develop strategies – marketing, advertising etc. • To increase awareness, promotion etc.
Business function vs business process • Business function is a key organizational unit to, has responsibilities and performs activities to carry out the business’s mission. • Each function is an organizational unit and performs a type of activities. • Business process is a set of activities using the business functions to carry out the organization's mission.
Business process • Is a series of interrelated steps performed by stakeholders to achieve a business goal. • Each step in a business process is a task assigned to an employee. • For eg. Business process management, process automation etc.
Importance of business process • Needed in large organizations • A process is a lifeline in any business helps to streamline individual activities, makes sure resources are used in the optimum way.
• A well defined business process – • Helps to identify which tasks are important to achieve your business goals • Increases efficiency • Improves communication amongst people, departments and functions • Makes people accountable • Optimum use of resources • Reduces chaos in day-to-day operations • Standardizes the tasks
• Example of a business process: • Hiring process of an HR department
Benefits of applying business process • Reduces risks – helps to fix errors • Reduce duplication of tasks • Minimizes costs – zero wastage • Improved teamwork • Makes organization dynamic • Improves productivity • Higher efficiency and makes organization more adaptive • Optimal use of resources
Internal & external influences • Micro environment • Macro environment
The environment • Organizations cannot exist and operate in a vacuum. They are a part of the larger business environment. • This environment is divided into two categories – micro and macro environment.
Macro environment
Macro environment • 8 different forces are there in macro environment which indirectly affect business and company has no control over them. • Economic factors, demographic factors, technological factors, natural factors, political factors, legal factors, socio-cultural factors, ethical factors
• Macro environment is more general environment. It affects all business groups, how they perform, make decisions, make strategies. • It is a dynamic environment. Keeps on changing. Company has no control over these factors but it is affected by these factors.
• Economic factors – have affect on company’s production and on the decision-making process of your customers. • Interest rates • Exchange rates • Recession • Inflation • Taxes • Demand/supply
• Demographic forces – • Market is affected by demographic forces. These are age, education level, cultural characteristics, country, region, lifestyle etc. • Income • Age • Geographic, region • Educational level
• Technological factors – • Related to skills and ability applied in production. • Materials and technology a particular product requires. • Essential factor and has a huge impact on how your business is run. • Affects tools, equipment, maintenance etc. • Internet • Automation • 3D technology • Engine performance • Security • Power of computers etc.
• Natural/ environment – business must take into account the planet and its resources. • Some resources can be renewed- forests, agricultural products • Some resources cannot be renewed – coal, minerals, oil etc. both are needed in production. • Climate change • Pollution • Weather • Availability of resources • Environmental laws • Survival of animals and plants
• Political and legal factors – • Market develops according to the political and legal environment. • Business has to make decisions as per the political and legal situation in their regions. • Copyright law • Employment law • Fraud law • Discrimination law • Health and safety law • Import/export law
• Social and cultural forces – • Business produces products that can have a strong impact on society. For eg. Your production has to remove all harmful practices that is harmful to society. It must become socially responsible. • Purchasing habits • Religion and beliefs • Awareness about health • Level of education • Size of family • Growth rate of population • Life expectancy • lifestyles
• Ethical factor- • People are more educated, more aware of what is right and what is wrong. • They are demanding business do its business activities in an honest way. • Laws, rules and regulations have become more strict. • Punishments are more severe now. • Business cannot escape from being unethical in todays world.
Micro environment
Micro environment factors • Are those factors are within the immediate environment around the company. • Company has control over these factors and are also affected by them. • They directly influence the company.
• Customers – • The kind of customers a company has will affect the marketing campaigns produced by business. • Your customers can be B2C,B2B, international, local etc. • Customers affect – stability of demand • Sales growth • Profits • Intensity of competition • Today, it is easy to manufacture product, but difficult to sell.
• Suppliers – suppliers can affect business. They can influence how successful your business will be. • They are a key link in the delivery of product. • Provides resources to business – raw materials, inputs, parts, tools etc. • Supplier’s or vendor’s quality and reliability is a must for smooth running of business. • Help to determine price – increase or decrease • Resellers – when business sells its product through a reseller or middlemen like wholesaler, retailer, than success of your marketing depends on them. • They are the link between you and customer. • They determine – promotion, sale, distribution, marketing etc.
• Competitors – what competitors do in the market affect your business. • Their products, marketing strategies all matter to you because it will affect your product sales. • What kind of product they sell, at what price etc. will affect you. • Product competition • Marketing strategy • Brand competition
• General Public – means the general group of people. • Public opinion is important for a company. It can be a threat or an opportunity for the company. • Public opinion about a company or its brand can spread very fast from person to person. • Public opinion or consumer publics can make or mar a business.
• Media publics – various media like broadcast or print or internet media can public negative news about company. This can affect company negatively, tarnish its reputation. Its share price may come down. • Local publics – are the local people in a particular areas or around factories. They usually take up issues of environmental pollution. Like river water gets polluted with discharge from factories, smoke from chimneys pollutes the air etc. such issues can lead to closing of factories or stricter environmental laws.
• Marketing Intermediaries- • Are those firms or individuals who help the company in the promotion, selling and distribution of their goods to final buyers. • Middlemen – agents/brokers who help the company get customers. • Physical distribution (warehousing and distribution) firms that help the company to stock and move their products from origin to their destination. • Marketing service agencies like advertising agencies, market research firms etc help the company to target and promote their products in the right markets.
• Company – • Means the employees, stakeholders, unions, board of directors. • How the employees perform their work, how the BOD functions affects the business. • Trade unions with their demands can affect business. • People within the company can also affect the business.
Different forms of enterprise • 6 forms of enterprise • Sole proprietorship firm • Partnership firm • Company • Limited liability partnership • One person companies • Small companies
• Sole proprietorship firm- • Simplest and easiest way to start an enterprise. • A single owner starts the enterprise. Not much documentation is required to start. • The sole owner employs people, buys assets, buys intellectual property and opens bank account etc. • This kind of enterprise has not much chance of growth. It is a one-man show and if any partners are taken than there is chance of growth. Than its structure changes into partnership firm. • Lenders are not ready to lend money to a sole proprietorship firm as more risk is there when a single person is running the firm. • If any losses arise, the owner has to repay from his personal funds.(unlimited liability)
• Partnership firm- • When one or more partners enter into a partnership to start an enterprise it is called partnership firm. • A partnership deed is signed by the partners. The deed should clearly state the name of the firm, what business it is, names of the partners, how much capital each partner has contributed, how the profits or losses will be shared amongst them, the duties, the rights, powers and obligations of each partner etc. • One of the partners will be the managing director and the particulars of salaries and other payments to the partners are mentioned in the deed. • The advantage of partnership is that risk is shared amongst the partners but if losses arise all the partners have to repay creditors.
• Company – • A company is a legal entity formed by the association of a group of people. It can be a natural or legal association formed with a objective. All the members have a common objective. • A company may be private limited company or public limited company. • A public limited company is a company listed on the stock exchange and the stocks are traded publicly. • A private limited company is not listed in the stock exchange and neither are the shares traded. It is held privately by its members. • The members of the company appoint directors to manage the company, they are called Board of Directors (BOD).
• A private limited company can be formed with a minimum of two members and maximum of fifty members. • For public limited company a minimum of seven members is required and no limit to maximum members. • To register a company, a memorandum of association has to be filed with the Register of Companies. • The memorandum should have details like name of the company, what is its business activities, details of its members, its address etc. • The articles of association should mention the rules and regulations, the rights, duties and liabilities of its members.
• When members increase, a private limited company can turn into public limited company. • The major advantage of company is that the members liability is limited to how much he invests in the company. His personal property is not affected. • For todays modern times, company form of organization is most suitable because ownership (members) is separated from management (BOD). • The members can become directors and also outsiders can become directors.
• Limited liability partnership – • Limited liability partnership (LLP) is a company formed with limited liability but its members can change it into traditional partnership company. • In LLP, the liability is for the full assets of the company. But individual liability is limited. That means personal assets of members are protected from liability.
• One-person company (OPC) – • Entrepreneurial ventures will become a corporate with the one-person company. • It can be registered with a single member and at least one director.
• Small companies – • Are usually small businesses, which cannot grow into large companies because of strict regulations and high fees to register.
Types of productive systems • Two categories – • Intermittent production system • Continuous production system
Intermittent production system • Project production flows • Jobbing production flows • Batch production flows Intermittent means something that starts and than stops. It may be at regular intervals or irregular intervals. Goods are produced based on customer’s orders on a small scale and it can large varieties of products. The design of product goes on changing as per order. So this system is flexible. General purpose machines are used. For eg. A goldsmith ‘s job
Project production flows • The company accepts a single project or contract. • The order has to be completed in a particular time period and at an estimated cost. • For eg. Construction of airports, dams, roads etc • Features – • The resources required changes with the project. • Many agencies are involved and their jobs are interrelated. • Delays can happen in completion of the project. • The schedule of the project changes, so inspection is required.
Jobbing production flows • In jobbing production flows, the company accepts the job of producing one or few units of the product strictly as per the customer’s specifications. • The job is done in a given time period and at a fixed cost. The cost is fixed at the time of signing the contract. • For eg. Services given by repair shops, tailoring shops, manufacturer of special machine tools etc. • Features – production takes place in small lots. • Production is done as per customer’s expectations. • Highly skilled labour is required for these specialized jobs.
Batch production flows • Here the production happens according to specific orders or as per demand forecast. • Production of items takes place in batches. • Manufacturing of product is divided into different jobs. • All the jobs of one batch of production must be completed before starting the second batch. • For e.g. Manufacture of drugs, medicines etc. • Features – products are made and stocked till demand arises. • General purpose machines are used. • Detailed production planning and control is required.
Continuous production system • Mass production flows • Process production flows • Continuous production means it happens constantly without much halts. • Standardised goods are produced constantly as per demand. • They are not produced as per the customer’s orders. • They are produced in large scale and stocked for selling. • The input, output, production process is standardized.
• Examples – production of food industry happens on a large scale. • Production and processing of crude oil into fuel is also an example. • Features – flow of production is continuous and not intermittent. • Standardized products as per quality standards. • Produced as per demand • Standardized production process and schedule • Types – Mass production flows • Process production flows
Mass production flows • Many companies follow this type of production. They produce different varieties of products in large scale and stores them in warehouses till demand arises. • Mass production of toothpastes, soaps etc • Very little supervision is required and very few instructions too • Materials are mostly handled by machines and the flow of materials is continuous.
Process Production Flows • Here single product is produced and stored in the warehouse till demand arises • Flexibility is not there. • Highly mechanized production system • Examples of plants producing cement, paper, sugar, steel etc. • Single product is produced. • Low-skilled labour • Materials flow is continuous usually on conveyor belts • Production has to be planned and scheduled before. • Full production system produces one product.
Feudal system • A feudal system (also known as feudalism) is a type of social and political system in which landholders provide land to tenants in exchange for their loyalty and service. In Europe it was between nobles and peasants.
• Guilds were the association of craftsmen or merchants who followed same craft and profession. Guilds usually existed in the medieval period. The main aim of forming guilds was to protect the interests of the members.
The domestic/putting-out/outsourcing systems • Domestic system, also called putting-out system, production system widespread in 17th-century western Europe in which merchant-employers “put out” materials to rural producers who usually worked in their homes but sometimes laboured in workshops or in turn put out work to others.
• The putting-out system is a means of subcontracting work. Historically, it was also known as the workshop system and the domestic system. In putting-out, work is contracted by a central agent to subcontractors who complete the work in off-site facilities, either in their own homes or in workshops with multiple craftsmen. It was used in the English and American textile industries, in shoemaking, lock-making trades, and making parts for small firearms from the Industrial Revolution until the mid-19th century. After the invention of the sewing machine in 1846, the system lingered on for the making of ready- made men's clothing.[1]
• The domestic system was suited to pre-urban times because workers did not have to travel from home to work, which was quite unfeasible due to the state of roads and footpaths, and members of the household spent many hours in farm or household tasks. Early factory owners sometimes had to build dormitories to house workers, especially girls and women. Putting-out workers had some flexibility to balance farm and household chores with the putting-out work, this being especially important in winter.
• The development of this trend is often considered to be a form of proto- industrialization, and remained prominent until the Industrial Revolution of the 19th century. • At that point, it underwent name and geographical changes. However, bar some technological advancements, the putting-out system has not changed in essential practice. Contemporary examples can be found in China, India, and South America, and are not limited to the textiles industry.
• The factory system is a method of manufacturing using machinery and division of labour. This is because of the high capital cost of machinery and factory buildings, factories were typically privately owned by wealthy individuals who employed the operative labour.
Causes and Consequences of industrialization • Industrialization is the transformation of a society from agrarian to a manufacturing or industrial economy. • Industrialization is characterized by manual individual labour being replaced by mechanized mass production and craftsmen are replaced by assembly line. • Economy is transformed from mainly agricultural goods to manufactured goods. • Leads to more economic growth, more efficient use of labour and more use of technological innovations to solve problems. • Industrialization leads to increased incomes and rise in living standards.
• Early Industrialization started in Europe and North America and slowly spread to other countries. • The second world war also led to industrialization. • Than Industrial revolution happened. What manufacturing that used to take place in people’s homes started happening in factories. • Manufacturing facilities, fabrication and processing all started. • Different types of machinery was invented, steam engine was a key invention.
• Industrialization contributes to negative outcomes such as environmental pollution. • Leads to differences in income between labour class and owners. • Industrialization also contributes to the deterioration (reduces) of health among workers, crime and other societal problems. • IT industrialization means where IT services become more standardized. • Services become highly automated, repeatable, scalable and reliable, and that meet the needs of many organizations. • IT services grew and was a link between agriculture and manufacture.
Evolution of Business & Industry in India • Structure of Indian society- • Society- a group of people living in a region or country, sharing common customs, laws and organizations. • Indian society is ancient – began in Indus valley civilization. • Early dark skinned people – Dravidians who build temples, cities and art works. • Than came fair skinned people – Aryans who gave India Vedic literature, Sanskrit epics, Hinduism, caste system and founded small kingdoms.
• India is a secular democracy and is home to many religions – Hinduism, Islam, Christianity, Buddhism, Jainism, Sikhism etc. • Most religions have many rituals and customs and celebrate festivals with music, dance and feasting shared by all communities. • Indian society today is multi-ethnic, multi-cultural, multi- lingual and multi-religious.
• Present Indian Society – • Indian culture is a mix of many cultures influenced and shaped by our ancient history. • Modern society people have knowledge of and use advanced technology. Modern society is characterized by many sub cultures. • Knowledge is shared through books, internet, films etc. • People are mostly literate and modern society is more complex, individuals have specialized roles and well connected. • Multi-cultural – food, dress, arts, music & dance forms, crafts, different type of houses, different building materials etc. art of pottery, city culture, Vedic literature etc. • Multi- religions and multi- religious beliefs exist.
• Demographic details of Indian society – • 17.5% of the world population • 60% of Indian population lives in UP, West Bengal, Maharashtra, Bihar, MP & Tamil Nadu. • 50% is below 25 years and 65% is below 35 years of age. • Most Densely populated state is UP, than Maharashtra, and followed by Bihar
Linguistic Diversity • 1652 languages are there but Constitution only recognizes 22 major languages. • Indo-Aryans are found mainly in Northern & Western India. • Dravidians are found many in South India. • Tribals – primitive tribes, art of pottery, uncivilised, example-Santhals of Nagpur, Bhils of Rajasthan, Todas of Nilgiris etc.
• Infrastructural development is less in transport, communication and banking especially in BIMARU states. • Unemployment rates are high especially in Kerala, Goa and Tamil Nadu. • Industrialization is picking up in most states but weak in Kerala and Andhra. • Income inequalities seen more in Bihar, MP, Rajasthan, UP • Gender ratio unequal, mostly in favour of males. In Kerala females are more in number than males. • Life expectancy rates – is low in UP, Bihar & MP especially for females. In Andhra, TN & Karnataka life expectancy rates are high.
• High birth rates and death rates especially in BIMARU states. • Urbanisation – rapid urbanisation in Goa, Mizoram and less of urbanisation in Bihar, MP • Poverty – was high more than 35% now reduced to 20%. But still high in MP, Orissa and Bihar. • Regional variations are high – literacy rates are high in Kerala, Mizoram, Tripura & Goa and low in Bihar, Rajasthan, Jharkhand.
Glimpse of Economic activity in ancient times • Ancient Indian Economy- • Indus valley civilization – Bronze Age, Urban economy • Gangetic civilization/ Vedic civilization- Iron Age, agricultural economy
• Indus Valley civilization – • More importance to overseas trade. Seen in the canal and docking facilities in coastal city of Lothal. • In the Indus valley civilization, main economy was trade because of major advancements in transport technology. • Many boats and bullock carts were used. • Large sea-going boats and flat-bottomed boats were used. • Bullock cart shows they were used for inland trade as a mode of transport. • Many trade networks were there. • Like Afghanistan, coastal areas of Persia, northern and central India, Egypt
• The Indus valley people mainly traded with Sumerian merchants. • Many items were exported like surplus grains, pottery, ivory combs, pearls, and semi-precious stones. • Indus valley farmers grew wheat, barley, peas, melons, sesame and dates. • Cotton was first developed in 2000 BC and Indus valley people were the first to convert cotton into yarn and weaving it into cloth.
Vedic civilization • Aryans entered northern part of India in 1500 BC. • They started a new economy on the banks of Ganges river. • Aryans are nomadic and cattle rearing is their chief occupation. • Cattle and cows were considered sacred and appeared in Rig Veda. Goddesses was compared to cows and Gods to bulls. • They learned to use iron. As they settled down, they started agriculture. They learned rice cultivation. • So, they become a more settled society
• And Aryan society became organised on the caste system. • In their economy division of labour also happened as per the caste system. • Aryans became educated and became priests, rulers, peasants, warriors, merchants and lower rank became shudras. • Occupations were based on the caste system. • Their food was mainly grains, milk and milk products, cakes and fruits and vegetables.
• Meat mainly eaten by upper class of people. • Rig Veda mentions animal sacrifices and meat being offered to Gods. • Horses and chariots were introduced. • Aryans lived in wooden and straw huts. • Yagnas were important. • Money was unknown. Trade was done mainly by bartering in cow and other valuables. • Became a highly civilized society with agricultural economy and surplus is traded.
Maurya Empire • Under Chandragupta Maurya, the Maurya empire flourished. • Internal and external trade, agriculture and economic activities flourished and expanded in India. • There was an efficient system of finance, security and administration. • Under Ashoka’s reign, half a century of peace and security was there. • In South Asia, political unity and military security was there. Trade, commerce and agricultural productivity increased.
• Farmers were free from paying taxes and giving harvests to regional kings. • Instead, a fair and strict national system of collecting taxes was there as per the principles of Arthashastra. • There was a single currency established. A network of governors and administrators were there. A civil system was set up to provide security and justice to traders and farmers.
British Raj • It was the rule of the British Crown on the Indian subcontinent from 1858 to 1947. • The British East India company set up trading posts in Bombay, Calcutta and Madras. • At first, Mughal rulers kept these European traders under control. • But by 1707, Mughal empire started collapsing. Many small states with their own rulers broke away from Mughal control. • Robert Clive was the main British soldier who established the military and political supremacy of the East India company in south India and Bengal. He secured India’s wealth for the British crown.
• Robert Clive defeated Sirajudaula in the Battle of Plassey and became governor of Bengal. • He launched military campaigns against the French and prevented them from expanding. • Slowly, British East India company took control over India. • As the Mughal empire became weak, the British East India company became strong economically and politically. • Started their own military force with Indian soldiers as sepoys led by the British.
• 96% of the company’s force were Indian sepoys. They were given less salary and treated badly. They were given no promotion. British considered themselves superior and did not respect Indian cultures and religious beliefs. • The British took many raw materials produced in India like sugar, jute, tea, cotton and spices. Shipped them to England made finished goods from them. And sold it to Indians at high prices.
• Sepoys revolted against the British in 1857. The British suppressed the rebellion and abolished the British East India Company. • India became a British colony and the Queen Victoria became Empress of India. • Turning point in Indian history.
• Mughal rulers became puppets in the hands of the British. • India produced raw materials for British manufacturing and to buy British manufactured goods. • For example, India’s handloom industry was put out of business because of British Textiles. Indian market was flooded with cheap readymade cloth. • Indian farmers forced to grow cash crops to pay for British imports like tea, coffee, pepper and cotton. As Indian farmers grew less food, famines became frequent.
• A lot of economic restrictions happened. Small states forced to pay dues to the British for military protection. • Peasant landowners had to pay tax in cash. They were forced to take money from moneylenders, who seized their lands for non-payment. • Indian economy suffered, local businesses collapsed. • Transport advanced under the British. World’s third largest rail network was set up. • Rail was used to transport raw material from interior to the ports and manufactured goods back. • Plantation crops were tea, coffee, indigo, cotton and opium. British shipped opium to China exchanged it for tea which they sold in England.
• Along with railroads, road networks, telephone, telegraph, dams, bridges and irrigation canals helped Indian economy to modernize. • The British brought about social changes. They build schools and colleges especially for higher caste Indians. More stress to learn English language. • They improved health and sanitary conditions too. • They abolished social evils like child marriage, sati etc.
Swadeshi Movement • The Swadeshi movement was an economic strategy which was aimed at removing the British from India and to improve the economic conditions in India. • Swadeshi movement started in 1852 till 1911. • It was part of Indian Independence movement and was one of the most successful movements against the British rule. • The movement began in 1905, August, when some Indians opposed the partition of Bengal. • Swadeshi movement was the focus of Mahatma Gandhi.
• The Swadeshi movement was started as a movement to boycott all foreign goods and buy only Indian made goods. • On 7th august, 1905 a massive meeting was held in Calcutta to boycott foreign goods, salt, sugar. • The movement spread to Poona, Bombay, Punjab and Madras. • Swadeshi movement laid stress on ‘self rule’ or ‘self reliance’. • Also, Indian children were not allowed to British schools and lead to the boycott of the British education system.
• During this time many National schools were set up including national college of Bengal was founded. • More Indians turned into entrepreneurs during this time. Many textile mills, soap factories, tanneries, banks, insurance companies, shops etc came up. • Swadeshi movement encouraged mass participation by society. First time women took part in this boycott. • It was an extremist movement lead by Bal Gangadhar Tilak. • Swadeshi movement became extremist movement because of the misery and suffering caused due to the famines and the plague.
• Gandhiji’s vision of Swadeshi movement was 1. Force British to quit India 2. By using only nonviolent means 3. Train people to practice self control 4. Make people more responsible and practice self governance. 5. To make society and economy of India more organized so that basic needs like food, clothing, shelter, health, education are all met satisfactorily. The Swadeshi movement united people against British rule. Made Indians more self reliable.
Post Independence Era • Since 1947, India had progressed a lot and incomes, growth and standards of living has increased. • Since 1951, India had grown as a planned economy. • At the time of independence, India’s population was 340 million but its literacy rate was very low only 12%. • In 1947, India’s GDP was only 3% of the world’s GDP. • By 2018, India overtook France to become the 5th largest economy in the world. Today, India is only behind USA, China, Japan and Germany.
• Landmark changes happened • Focus of planning was on agriculture and social development – reduce poverty and provide housing. • Also focus on manufacturing industries, especially heavy industries to form backbone of our economy. • Over the years, there has been a change in Indian economic structure, agriculture contribution to GDP reduced from 60 to 26%. Service sector’s contribution to GDP increased from 30 to 75%.
• In 1991, India came under the pressure of IMF and World Bank to open its economy. • It saw de-licensing, massive reduction in tariffs etc. FDI limit was relaxed. The liberalization process started in the nineties, which saw massive growth in the services sector. • The Industrial policy 1991, was a major economic reform and opened the sector to private sector participation and foreign investment. • Till 2019, India has been consistently growing at the rate of 6%. • Liberalization has increased growth and boosted foreign exchange reserves. India has become one of the world’s top three preferred investment destinations.
• To provide food at affordable rates, the Food Corporation of India and the public distribution system was formed. The PDS system got food grains at pre- determined prices from farmers and supplied it through ration shops. The government also build stock of food to tide over emergency situations like famine, floods etc. • By increasing foreign exchange reserves and by increasing food grains, employment will increase and poverty can be reduced. • The poor face the problem of financial inclusion, credit is not available for them. Informal credit systems are there but charge a high rate of interest. This leads to farmer deaths and puts the poor into debt and bonded labour.
• Average Indian’s income also grew. • It was around Rs.7500 during 1950-51, grew to Rs. 41,000 during 2011-12 and further to Rs. 96,000 during 2018-19. • The agriculture sector continues to be an important sector and provides food to more than half of the population. The value of agriculture, forestry and allied sectors increased from 1950s to 2011-12. • The Green revolution during the 1960’s was a game changer. Their was adoption of modern technology, modern methods of farming. Use of fertilizers and high yielding seeds increased agricultural productivity and food grain production.
• In the 50s, it was 48 million tonnes and by 2017 it had increased to a massive 241 million tonnes. • India continues to be the largest producer of wheat, rice, various fruits and vegetables in the world and also a leader in milk production. • Till the present, unemployment and poverty remain chronic problems. • Government has implemented many anti-poverty programs. • GOI has started programs in the following:
• Self employment program – skill India program • Wage employment program – fair wages • Food security program – PDS system • Social security program – Pension, Health Insurance and Medical Benefit, Disability Benefit, Maternity Benefit and Gratuity. • Urban poverty alleviation program The most important is the PDS from the time of independence. Sampoorna Grameen Rozgar Yojana (1997), Integrated Rural Housing program, Pradhan Mantri Gram Sadak Yojana and the most recent one National Rural Employment Guarantee Act (NREGA,2006).
• The social security schemes benefitted only the organized employees. Most of the Indian population is in the unorganized sector, who did not benefit from these schemes. • In India, social security schemes are non-institutional because of its caste system, self sufficient village economy, joint family system, religious background and because of its charitable nature. • In India, 90% of the families earn their living from the unorganized sector. So they need social security. • Protection from sickness, old age, maternity, accident, death and from unemployment.
• Social assistance – giving benefits to weaker sections of the society (mothers, disabled, old people etc). For example – national old age pension scheme, national maternity benefit scheme etc. • Social insurance – financed by contributors, provided by State. To help workers to plan for their future, to have reserves for any emergencies. For eg. LIC schemes, ESI scheme, contributory PF scheme.
• Post liberalization era, economic inequality had increased, corporates became richer and poor became poorer. • An initiative undertaken has been adoption of backward villages by corporates to develop them. • For example – Maan School by Infosys • Corporates develop local areas around the factories, can access cheap resources and hire local talent and lower their costs of operations too.
• Unorganised sector Rashtriya Swasthya Bima Yojanna • It includes BPL families, construction workers, auto drivers, licensed railway porters, domestic workers, mine workers, rag pickers etc. • Rs 750 per member in each family to be borne by Central & state governments. Covers cashless attendance for all covered ailments, hospitalization expenses and to cover pre-existing diseases. • For organised sector – Employee State insurance, PF for employees, workmen’s compensation act, maternity benefit etc.
License Permit Raj • In 1947, India became a new country after partition but there was a lot of poverty. The Indian Constitution gave the right to vote to all adults. And it was the first democracy to give the right to vote to all Indians. This was a big achievement. India was a Constitutional republic or a liberal democracy right from birth. • For its economic development, India undertook central planning of it’s economy with a lot of controls on prices and quantities to achieve a socialist pattern of society. • Rajagopalachari who founded the Swatantra party, coined the term Quota-Permit-Licence Raj to describe the Indian model of socialism.
How Licence Raj developed in India? • In 1948, Industrial policy, the government established its monopoly in defence, railroads, atomic energy, minerals, iron & steel industries, aircraft manufacturing, ship building, telephone and telegraph industries. • In 1956, industrial policy, the government’s monopoly was further extended to 17 industries. • In 1956, Life Insurance business became nationalised. • In 1969, large commercial banks became nationalised.
• In 1970, the Monopolies and Restrictive Trade Practices Act was introduced. This restricted the businesses of firms with more than Rs 200 million assets. This was done to control the concentration of economic power in the hands of private business men and to protect public interests. • In 1973, General Insurance Business was nationalised. • Many public sector companies came about like Hindustan Insecticides, SAIL, ONGC, Air India, Ashoka Hotel corporation etc.
Key Features of Licence Raj • New companies required licences to start new companies either to increase production or come out with new products. • They had to get approval from government for laying off workers or to close down operations. • The government did not allow imports with high tariffs and banned the import of certain products. For e.g. the import tariff for cars was 125% in 1960. in 1985, India has the highest level of tariffs in the world. • The government overregulated the private sector, nationalized the heavy industry and build state-owned enterprises in jute mills to hotels to steel plants.
• Impact of Licence Raj affected India’s growth. When compared to other developing countries, India’s growth rate was the least in the 60s and slightly better in the 80s. • The GDP growth rate improved in the 80s because of the 1980s reforms – liberalisation of industry and trade and because of more borrowing from abroad. • This external borrowing bridged the gap between exports and imports but increased foreign debt. • Balance of payments problem occurred.
Impact of Licence Raj • The impact of Licence Raj was very bad on India. India’s growth rate of industrial production was the lowest compared to South Korea, Taiwan, Singapore, Thailand, Pakistan, Hong Kong and Indonesia. • India’s GDP was also the least from 1960-80 when compared to all of these countries. India’s was 3.5 less than that of Pakistan’s 4.4. all the other countries was 9 or 8
1980 - 1990 • GDP improved to 5.6% during the 1980s. Because of the 1980s reforms • The external .orrowing bridged the gap between exports and imports and helped raise the GDP. It also contributed to overall growth. • But, India went into more foreign debt. • By 1985, India’s BOP crises increased. • In 1979, the second shock was the oil crises. This happened because of Iran-Iraq war, oil production decreased and led to an increase in oil prices. • This crises was severe, and the value of India’s imports doubled during 1978-82. 1980-1983 global recession happened and India’s exports suffered because of this. •
Major reforms of 1980 • The number of items in OGL (open general list) had been Increased. Items like sewing machines, food preparations, chocolates etc. From 79 capital goods in the OGL list in 1976 to 1320 items in 1990. • The monopoly of government in imports was reduced. (canalised imports).Due to increased domestic production of POL (petroleum, oil, lubricants), success of Green revolution reduced import of grains and decanalisation of certain items. Decanalisation means items which only government could import were no longer government’s monopoly. Earlier, crude oil, petrol, cement, rubber were canalised- only imported by government.
• This decanalisation was good for Indian businessmen and entrepreneurs, they could import machinery and materials. Export incentives were given. Industrial controls were relaxed. • REP licenses were given to exporters, they could freely import without restrictions. • In spite of all measures, external borrowing was increasing and pushing India into more debt. Resulted in large fiscal deficit. Led to the June 1991 crises.
June 1991 crises • BOP crises happened because of too much borrowing and uncontrolled expenditure. The main causes of the BOP crises are • Break up of Soviet – India had rupee trade with the Soviets. This stopped when the Soviet broke up. • Iraq – Kuwait war – when Kuwait was captured by Iraq in 1990. Iraq and Kuwait were major source for Indian imports. Oil production stopped in Iran and Iraq's oil supply was cut. Pushed up oil prices. • Slow growth of important trading partners – world growth slowed down, this slowed growth of India’s important trading partners. Exports reduced especially in US.
• Political uncertainty and instability – period from November 1989 to May 1991, lot of political uncertainty and instability was there. Because of three coalition governments and three Prime Ministers. Delay in handling BOP crises. • Loss of investors confidence – foreign investors not ready to invest in India because of the political uncertainty and because of BOP crises. • Fiscal indiscipline – throughout the 80s the Government could not balance revenue and expenditure. This reduced rupee value and led to inflation in the economy.
• Increase in non-oil imports- trend was imports increased more than exports. • Rise in external debt – more of borrowing led to critical situation in India. India’s foreign exchange reserves greatly reduced. • India had to emergency loan from IMF and World Bank. This temporarily reduced BOP crises. • Led to P.V Narasimbha Rao’s economic reform process.
1991 Economic Reforms
• The economic reforms of 1991 was introduced to stabilize the macroeconomic environment and to make adjustments in India’s economic structure. • Short run objectives were to balance the BOP and to control inflation. Long run objectives were to change the structure of institutions. Structural reforms were made in trade, industry and the public sector.
Objectives of reforms • To bring about rapid improvement in the quality of the people. • Rapid growth in incomes and productive employment. • To reduce poverty and to increase growth, invest in roads, farms, irrigation, industry, power and people.
Major reforms of 1991 • Fiscal reforms • Monetary and financial sector reforms • Reforms in capital markets • Industrial policy reforms • Trade policy reforms • Promote foreign investment • Improve exchange rate policy
Major reforms of 1991 • Fiscal reforms – to reduce the fiscal deficit by controlling expenditure and increasing revenues of the Government. Reduce too much consumption. • Some of the initiatives in the budget of 1991-92 was reduce fertilizer subsidy, remove subsidy on sugar, and to accept the Tax reforms recommended by Raja Chelliah Committee. • Tax reforms were better compliance in case of Income tax, excise duty and customs duty. To make tax structure more transparent and stable. Basically, to increase revenues.
• Monetary reforms – • To improve the interest rates and lending rates and to make the banking system more efficient. • Reduce Statutory Liquidity Ratio (SLR rate) and Cash reserve ratio (CRR rate) as per the Narasimham committee. • Interest rates were decontrolled – earlier RBI used to control interest rates. Rates used to vary depending on the size of the loan and for which sector it was used. Now interest rates were liberalised. • Greater competition among the public sector, private sector and foreign banks were encouraged. And administrative restrictions were reduced.
• Banks were given freedom to relocate branches and open specialized branches. • Guidelines given to open new private sector banks. • Capital market reforms – • As per the recommendations of the Narasimham committee many reforms were introduced in capital markets. • To remove direct government control and have a transparent regulatory system. • Securities and Exchange Board of India (SEBI) was given statutory recognition. • SEBI was supposed to create an environment wherein adequate resources can be raised through the securities market and efficiently allocated.
• Industrial Policy reforms – • To make the domestic industry more competitive, these reforms were introduced. • To deregulate industry and make the industrial economy more efficient and competitive. • Licensing was completely removed in almost all industries except 18 industries. • The MRTP act was taken back so that large companies need not approval of government for diversification or expansion. • In public sector, private sector participation was allowed. Only in strategic industries, government control remained like atomic energy, defence, etc.
• The public sector was given greater autonomy and professional management in order to generate profits. • An MOU was made between the public enterprise and the concerned Ministry, wherein the targets which the enterprise had to achieve were set up. • Government’s share in PSE were disinvested.
• Trade policy reforms – • Main focus was to bring more openness in trade. • New initiatives taken in trade policy was to increase exports and reduce restrictions and licensing on foreign trade. • Imports and exports were made more free from restrictions. • The list of freely importable items was made longer. All intermediate and capital goods were made free from import restrictions. Only for 71 items import restrictions were there. • As per Chelliah Committee report import duties were drastically reduced.
• Customs duties and tariffs were reduced too. • Trading houses – the 1991 policy allowed export houses and other trading houses to import a wide range of items. • To promote exports, Government allowed trading houses to be set up with 51% foreign equity.
• Promoting foreign investment – • In post-reform period many measures were taken to promote foreign investment. • Government announced a specified list high technology and high priority industries where automatic permission was given for foreign investment up to 51%. Later limit was raised to 74% and than 100% for most industries. • Foreign Investment Promotion Board (FIPB) was set up to negotiate with international firms and approve FDI in select areas. • Steps were taken to promote Foreign Institute Investment (FII) in India.
• Improve exchange rate policy – • One of the important measures to improve BOP crises was to devalue the rupee. • First, in July 1991, rupee was devalued by 20%. • This was to reduce inflation and make exports more competitive. • So, 1991 reforms benefitted the formal sector greatly. We see significant boom in many sectors. • Like civil aviation and telecom have benefitted from deregulation reforms.
• But economic reforms and liberalization is still to be carried out for the informal sector. Which includes the urban poor like rickshaw pullers, street vendors, agricultural sector, MSMEs- Micro, Small & Medium enterprises and tribal. • Their has been slow growth and stagnation in these sectors. • So, more need of reforms in informal sector.
Impact of Reforms • Positive impact- • With reforms, India overcame its worst economic crisis in just two years. • By rupee devaluation and other structural reforms BOP crisis got over and FDI and FII inflows increased into India. • India also integrated its economy to the global economy. • Exports have doubled also from 1990 to 2000. • Reforms led to increased competition in sectors like banking, more customer choices and increased efficiency too.
• Many private companies entered various sectors. • Due to reforms, production of goods and services increased, this reduced inflation. • Poverty reduced from 36% in 1993 to 26% in 2000. rural areas and urban areas poverty declined. • Increase in air travel as civil aviation sector expanded due to reforms.
• Government adopted ‘Open Skies Policy’ to promote competition in civil aviation and private players entered aviation industry in 1991. • India developed a name in the global market and number of foreign tourists to India increased. • Many sectors became internationally competitive like auto components, pharmaceutical, software, telecommunications, professional services, biotechnology etc.
• Because of these reforms, more of foreign goods entered India and also foreign technology came into India too. For example – cell phone technology. • Evolution of cell phones
• The automobile industry expanded, almost all brands of motor vehicles were available and prices of motor vehicles reduced too. • The biggest beneficiary of the economic reforms is the telecommunication sector. Vast expansion is seen in this sector. Earlier, too much regulation and government monopoly was there in there in this sector. Now it is one of the most competitive sectors. The National Telecom Policy of 1994, opened up this sector.
• Negative impact – • These economic reforms were mainly for the formal sector. Agriculture, urban informal sector, forest dependent communities (tribal) did not benefit from these reforms. • This led to uneven growth and unequal distribution of wealth among the people. • The gap between the rich and poor increased. • The organized manufacturing sector achieved economic liberalization because of these reforms. But the additional employment generated was very little.
• Infrastructure development was more in the developed states but less in the backward states. • Social sectors like education and health were neglected. Though they are important, no focus was on them. Result, low level of growth in education and the health sectors. • Economic reforms have increased growth in the country but failed to generate more employment. Unemployment is still a chronic problem in India. Rural unemployment rate and urban unemployment rate has increased.
Entrepreneurship Culture in India • What is entrepreneurship?
• Getting new ideas about something and expressing a desire to do something about it. • It is the process of creating something new by devoting the necessary time, money and effort to it. • Ready to take the financial, psychological and social risks and receive the resulting rewards of monetary, personal satisfaction and independence with it.
• Entrepreneur: • To employ the economic resources properly. • To establish institutions • And, to make the institutions profitable, maintain it properly. • Ready to take risks • Definition: Entrepreneur • Derived from French word, • Means to take responsibility or initiative of doing something. • Utilizes capital, labour, and other wealth in such a way that its price increases more than before.
• So entrepreneur is considered as an agent of production and use all the factors of production. He should provide continuous management, must have judgement, persist also and should have knowledge of the world and of the business.
Elements of Entrepreneurial culture • People are more focused and empowered. • Through innovation and change they want to create something of value. • They give more attention to details. • Believe in hands on management • Believe in doing the right thing • Freedom to grow and to fail • Commitment and personal responsibility • Emphasis on the future and to better it.
Is entrepreneur a manager? • An entrepreneur is a person who wants to do something new to help society. • A manager supervises daily activities of an institution. • Time consideration – manager wants to do everything immediately. He uses daily, weekly or yearly reports to evaluate the results of his work. • An entrepreneur works for longer period of time. He develops policies to achieve long term growth of his organization.
• Risk – manager avoids risk and is conservative but still he wants growth of his organization. • Entrepreneur is ready to take medium risk. He evaluates the risk and sees what opportunities he has to get more profits. • Structure – a manager depends on the organizational structure to conduct his activities. • Entrepreneur always wants to improve the structure. He keeps trying to adjust the structure to the changing business environment.
Entrepreneurship Culture in India • Entrepreneurship culture means when a group of individuals suppressed their individual interests in order to achieve group success. Group success will eventually help to achieve individual interests too.
Entrepreneurship culture in India • India’s entrepreneurial spirit is quite strong as it is the third country amongst the fastest growing start-up countries in the world. • First country is US than UK. • Digitalisation has greatly helped in developing the entrepreneurial spirit in India. As we see so much growth in India’s online market. • The focus is to make ‘Bharat’ self sufficient. • With more focus on the semi-urban and rural areas.
Government Initiatives • To develop an entrepreneurial culture, Government has started many initiatives. • ‘Start Up India’ campaign is to start start-ups in all districts, panchayats, small towns etc. • Atal Innovation Mission (AIM) which includes Self Employment and Talent Utilization (SETU) to provides a platform to promote world-class innovation Hubs, start-up businesses and other means of self employment. • With main focus on technology-driven businesses.
• Such initiatives are bringing together academicians, entrepreneurs and researchers to collaborate and come out with innovations which will drive economic growth and motivate more people to become entrepreneurs.
Changing Economic Landscape • With more and more developments in digitalisation, there is increased usage of internet and digital penetration has increased. • Both in rural India and urban India, consumers are doing online purchases and online transactions. • This has opened up many opportunities for technology driven start-ups. • Not only e-commerce, banking, finance, retail, logistics, rural education, consulting and many other fields are getting benefitted.
• Banks are developing more and more consumer friendly simple tools to encourage online transactions. • Many easy interfaces like BHIM, UTI, Paytm etc. are being used by consumers today. • Plenty of opportunities are there to encourage entrepreneurs like educating rural India. Online education is going to become more and more strong in coming years.
Women entrepreneurs • With the right environment and tools, it is predicted that the next generation will be the generation of entrepreneurs. • More and more women are becoming entrepreneurs today. • Many successful women-run start ups are LimeRoad, Kaaryah, Zivame, YourStory etc. • Nidhi Agarwal, founder of Kaaryah, a fashion portal for women’s wear raised funds from Tata Sons Chairman Ratan Tata during 2016.
• The greatest driver of entrepreneurial growth has been the mental courage of Indians to go for ventures, risk taking capability, innovative thinking, and the passion to improve with trial and errors.
The Major Challenge • The major challenge for start ups is raising funds or finding investors. • Entrepreneurs should not run after investors. Instead they should focus on developing a good product with a right business plan. • Investors always look for viable and scalable plans with low risks. But they also look for people who have done the groundwork well. • The second major challenge is to get the right set of people to work on your plan. Planning for the human resource with the required finance, administration and marketing skills.
• For technology-based start ups, technology is the biggest challenge for them. • Technology is developing at such a rapid pace that companies need to update all the time and keep improving their products. • Start ups are increasing shifting their focus from developed markets like US,UK. Instead, they are exploring Asian countries like Vietnam, Thailand, Indonesia as the new consumer markets.
• To create an effective conducive environment for entrepreneurs , it is better for educational institutions especially those institutions that offer technology and management education should train their students to become job creators and not only job takers. • Angel investors support research driven innovations.
Current trends in Indian Entrepreneurship culture • In todays dynamic, thriving Indian economy, the SMME’s, Start ups, first generation entrepreneurs, and family run businesses are looking to expand their businesses. • In the last decade, major transformations have happened in Indian entrepreneurship segment. • Which has been the rise of technology enabled systems and services, business friendly approach of Government, stable taxation policies, GST, better access to FDI, easy access to investments etc.
• The top 5 trends are – • Digitalisation & Automation • Business Collaborations • Focus on Customer service • Diversification • More focus on R&D
Digitalisation & Automation • Digitalisation and automation is affecting many sectors, but it has affected even small start ups and entrepreneurs too. • Earlier, adopting the latest technology business processes was considered to be done by big players only. • But now digitalisation and automation is going to a part of every business operations, even small start ups and small entrepreneurs are adopting modern technology.
Business Collaborations • Nowadays, consumers have so much choice with both Indian and International brands being available. • Consumers can now easily access products both offline and online. This means more competition for entrepreneurs and start ups to survive. • To beat the competition they go for business collaborations. Through collaborations, companies get the additional competence and resources and more business opportunities for entrepreneurs. This has resulted in a win-win situation for both customers and companies.
Focus on Customer service • Because of competition, modern entrepreneurs and businesses have realised that they must provide focused customer service. They should engage more with customers, to build more loyalty among them. • To stand out amongst competition, businesses have realised that customer service approach to expand and grow. • This trend is favourable for customers, changed their buying patterns and has increased growth.
Diversification • To beat competition, entrepreneurs and businesses are diversifying more into related and unrelated areas of their business. • Entrepreneurs have focused more niche products and service offerings, gone for collaborations, done outsourcing in non-core areas of their business. • Companies are diversifying into areas not related to their main business. Also, companies are going for multiple businesses. This has given more opportunities to entrepreneurs. • Helps business people to handle risks like when there is slowdown in economy. Diversification can give more returns too.
More focus on R&D • Businesses today have realised that they have to be continuously learning and innovating. As they can access the latest technology like digitalisation, automation, global knowledge etc. • This trend will increase as more and more companies are investing time and resources to study, implement and improve their product and service offerings. This helps entrepreneurs to grow and expand.
• India has shown more entrepreneurial potential in recent years than other countries. • It started from IT outsourcing in 1990s to the recent successful technology start ups like Flipkart, Oyo, Ola, Paytm etc. • India has become a start up hub and a breeding ground for innovative entrepreneurs.
Industrial Policy 2014 • Objectives – • On a priority basis promote the manufacturing sector. • To develop Chhattisgarh same as the ‘Make in India’ campaign. ‘Make in Chhattisgarh’ • To bring Chhattisgarh state on par to other developed states of the country by 2024. • To encourage the states to go for entrepreneurship and provide them more opportunities for employment.
• To bring about industrial development in the new sectors. • To promote exports and to attract foreign investments, set up Special Economic zones and the required infrastructure. • To provide economic incentives to backward industries in order to achieve balanced industrial development. • To set up industries which are environment friendly and which use skilled manpower like IT, Bio technology, agriculture & food processing, new & renewable energy etc.
• To provide more economic benefits to weaker sections like SC,ST, differently abled persons, retired soldiers etc. • To allow participation of private sector in construction and maintenance of industrial infrastructure. • To ensure industries participate in skill development of locals. • To make use of available mineral and forest resources. • To increase warehousing facilities for agricultural products especially in rural areas.
Strategy • Actions undertaken ‘Under Ease of Doing Business’ • Simplify the application process and documents required. • Wherever possible promoting ‘self certification’ of documents. • Giving time lines for completion of a set of procedures. • Wherever possible doing online execution of approvals and permits. • State wise PMG (project monitoring group) web portals set up to solve any issues regarding setting up of industrial and infrastructural projects.
• Setting up ‘Land Bank’ to provide 10,000 hectares of land for various industries. • Industries like bicycle manufacturing, pharmaceuticals, textiles, electronic industries etc. were included as ‘Priority’ under this policy. • The chief minister cluster development scheme was started under this policy to provide 5 crore subsidy to set up industrial parks in private sector. • Same as ‘Make in India’ campaign ‘make in Chhattisgarh’ was started to give priority to manufacturing units. • More employment opportunities would be provided in Chhattisgarh.
• Special incentive schemes were set up to rehabilitate sick and closed industries. • Fiscal incentives given to promote investments in industries, to strengthen SMME’s in product quality, technological up gradation, for marketing facilities etc. • To set up Single Window System for approvals and clearances at the state level and district level. It was called ‘Mitaan’ to get clearances for industrial investments like certificates, NOC, approvals etc. • Establish effective systems at State and district levels for monitoring, evaluation and grievance redressal.
• Departmental officers would be nominated as ‘Udyog Mitra’ for individual industrial units at State and district level with an investment of more than INR 10 crores. • These officers provide guidance and support to get the benefits of various schemes right from initial stage to establishment stage.
• Labour laws were simplified. • Industries in Special Economic zones are exempted from the labour laws. • To implement the labour reforms, Task force meetings used to be held regularly. Officials from labour department, department of Industries and from Industrial associations used to represent these meetings.
• Number of labour courts was increased in those districts where rapid industrial development was taking place. • To develop HR, ‘Right to Skill Development Act 2013’ was implemented for the youth. Some of the initiatives was to get placements for vocationally trained youth, diploma holders and graduate engineers.
• Marketing assistance was given to micro and small enterprises under this policy. To protect the marketing interests of MSMEs. • For entrepreneurship development, state level entrepreneurship programs were organized. • A new course on Entrepreneurship was developed which provided practical training and industrial tours.
• Entrepreneurs were supported in getting training from prestigious institutes like “Entrepreneurship Development Institute” Ahmedabad. • To promote direct exports, Export facilitation centres were established. Air cargo facility was also set up for customs clearances. • Focus was on developing Karnataka, Telangana, Tamil Nadu and Chhattisgarh by this policy to achieve rapid industrial development in these states.
Bagedari sector • Is the unorganised sector. • Consisting of mostly small partnership and proprietorship firms and self employed persons. • largely ignored sector • Example of Bagedari – your neighbourhood kirana shop.
Reforms process • Liberalization happened in 1991. • Focus was more on the corporate sector and public sector. • But a major portion of national income and national savings is generated by the non-corporate sector or bagedari sector.
• Bagedari sector consists of the partnership and proprietorship firms. • Reforms have to focus on issues of this sector too. • Contribution of Bagedari sector to national income – • 1980-81 31.92% • 1990-91 32.34% • 1994-95 31.5% • 1996-97 34.83% • So, bagedari sector plays a major role in Indian economy.
• The activities of the Bagedari sector is dominant. • It is one of the fastest growing sectors in the Indian economy. • They contribute more than 40% to national savings and pay their taxes too. • They contribute 35% to the National income and have a share of more than 75% in the service sector. • Like trade, transport, hotel, restaurants, construction, and services like doctors, lawyers, architects, accountants etc. • But focus has been only on government and corporate sector.
Importance of Bagedari sector • Unorganised sector forms a large part of the Bagedari sector. • In US, major portion of the national income comes from the corporate sector. • But in India, 50% of the total manufacturing activities is carried out by the Bagedari sector. • This sector is the largest segment in terms of national income, savings and employment.
• The Bagedari sector experiences fluctuations in income because of competition from the organised sector, government rules and regulations. • Experts have said pension and social security benefits should be provided to this sector. • But sadly, Government has not focused on this sector. • But this sector is subject to same regulations as the corporate sector.
• So, “Bagedari sector” means unincorporated firms or non-corporate sector or unregistered sector. • Which consists of partnership or proprietorship firms, HUFs (Hindu Undivided Families), and the self employed. • Sole proprietorship is a single business unit owned and controlled by a single person. Also called sole trading concern.
• The person who manages the business unit is called a sole trader. • The single entrepreneur alone enjoys both profits and losses in the business. • He is the founder and controller of the business. • It is easy to set up and manage as no legal formalities are there.
Share of Bagedari sector in Service sector • In wholesale and retail activities, hotels and restaurants, road transportation, real estate, and in business services like medical, legal, architects etc. generated more than 80% of the national income. • In the last few years, organised retail and organised food industry has been growing very fast. • This has affected the Bagedari sector.
Savings from Bagedari sector • 80% of the savings in India comes from household sector. Which includes the wage earning households and mixed income. • 44% of household savings comes from farm households. • So bagedari sector provides a lot of savings to the Indian economy. • Money from this sector, can be used in other sectors. • Savings from Bagedari sector accounts for 10% of the total domestic capital formation.
A major wealth creator • Bagedari sector generates around 35% of the national income and around 35% of the national savings. • Therefore, the small unregistered small partnership and proprietorship firms is a major wealth creator in our economy. • In spite of all these benefits from the bagedari sector, the reforms process has ignored this non-corporate sector.
Focus of Reforms • Mainly on governments and corporates and their interfaces • On Industrial policy( licensing, monopolies and restrictive trade practices and foreign investment) • Foreign exchange & trade policy ( negative list for imports/exports, imports and tariffs) • Capital markets ( pricing of shares, regulations on merchant banking/ mutual funds/ foreign institutional investments)
• Banking ( interest rates deregulation, policy for capital formation, private banks deregulated) • Tax structure ( reduction in tax rates, tax incentives for FDI, reduction in exemptions) • Foreign investments ( 100% or 50% allowed + equity allowed, technology imports, usage of foreign brands etc.) • Investments ( privatisation, tariffs)
Two major areas of the reforms process • Government is controlling only strategic industries and allowing private sector to enter most of the other sectors because of market reforms. • Focus on foreign firms and domestic firms ( family owned) and to create level competitive field for both. • So, even through Bagedari sector is contributing to national income and national savings and is a major wealth creator but its name is not mentioned in the reforms agenda.
What needs to be done for this sector? • Identify what needs to be done for largest unorganised sector. • What are the relevant issues affecting this sector? Which is very important to make this sector efficient and productive. • And which will help to modernize our economy.
Financing the Bagedari sector • Bagedari financing is a big problem. • Usually, get funds from private money lenders. Who charge a high rate of interest. At least twice that of commercial banks. • That is why wholesalers and retailers have large margins. They borrow funds at open market interest rates. • Especially, seen in the case of FMCG products. • Manufacturers earn more profit than retailers.
• In the case of cash crops and vegetables, the gap between producer’s prices and consumer’s prices is 70 – 80%. • To the producer’s prices the trader’s margin, warehousing costs, transportation cost – all such financial costs are added. • So trade, transportation and other professional services conducted in the bagedari sector have to borrow funds at very high rate of interest.
• In spite of these burdens this sector is still profitable. • That shows how the single owners are very entrepreneurs. • The reforms should solve the problem of financing for trade, transport, hotels, dhabas, restaurants spread throughout India and other activities in the bagedari sector.
• Governments and banks are not ready to finance such bagedari activities because they do not have enough marketing information and knowledge of the bagedari sector. • The non-banking finance companies (NBFCs) are the best organizations to finance the bagedari sector. As they are market savvy and they know about the bagedari customers and how to recover money from them.
• If commercial banks lend credit to NBFCs at 18% interest. These NBFCs can give funds to bagedari sector at 22%. • Which is very less compared to the market rate of interest of 30 to 36%. • The government banks also can provide funds to NBFCs. Who in turn can give credit to Bagedari sector.
• The reforms have not focussed on such issues. • Instead, they have tried to regulate the NBFCs more in order to make sure adequate capital is available. • They have not realised the contributions of NBFCs and how much market information they have. • Too much of regulations on NBFCs have driven most of them to extinction. • Example of NBFCs – Bajaj Finance, LIC housing finance, Muthoot finance, Shriram transport finance etc.
• Global companies like GE Capital, Citibank are taking care of retail financing of automobiles and also the white goods trade. • Global companies have deep pockets so can take of premium customers too. • But retail traders, wholesalers, distributors of FMCG products, distributors who distribute white goods have to depend on private money lenders who charge a high rate of interest.
Social security benefits for Bagedari sector • State provides no social security benefits to the Bagedari sector. • Even when the bagedari sector’s firm contributes to pension scheme like Jeevan Suraksha for their employees. Their contributions are not considered tax deductible. • Whereas, government and corporate sector ( which generates much less wealth) contributes to their employees retirement funds. Their contributions are considered tax deductible!
Legislation & Regulation in Bagedari sector • Bagedari sector’s activities are mainly regional and it is mainly regulated by the state government. • A list of regulations are applied on this sector. • Commercial taxes, road tax, entertainment tax, excise duty on liquor, urban land ceiling, shops and establishment act, laws governing the educational and medical institutions, money lending and contracts. • Most of these regulations are forced upon the bagedari sector and is unfriendly and disrupts the working of this sector.
• The street corner groceries shop has to keep the following people happy. Municipal authorities, food and adulteration officers, local police, telephone and electricity company people, sales tax, factory inspectors etc. • A transporter of goods from one location to another, sends money through drivers and cleaners to pay bribes at check posts. • Restaurants like Darshinis of Bangalore, the Udupis of Mumbai, and the dhabas spread all over India must cater to the demanding officials. • The entrepreneurial spirit of this sector has been controlled to much by central, state and local governments.
Slow Indian Legal System • That, this sector survives and contributes a lot of wealth shows the strong will to succeed of this sector. • There is too much delay in the Indian Legal system. Lot of time and money is wasted because of these delays. • Two million cases are pending in Supreme court, High court and in the lower courts. • One long pending case has entered the Guinness Book of Records as the longest pending case. • A keeper of a temple filed a case in 1205 AD and the case was settled in 1966- 761 years later.
• This is not all the time. Generally, Indian courts settle cases within five to fifteen years. • In such a situation, the Bagedari sector which has very less financial flexibility suffers the most. • It cannot think of filing cases because of lack of funds, and because of the legal delays. • So, the bagedari sector tries to get things done by force. Takes law into their hands to get their rights. • When the bagedari sector is at fault it is also treated in the same way by the law.
• Reforms should have taken care of this issue. • Like creating courts which only deal with the problems of the Bagedari sector. • These courts should be fully computerised and function like family courts. • Another alternative, is to involve communities to resolve problems of this sector through arbitration. • Arbitration is a procedure where disputes are settled through private resolution. The dispute is submitted by the concerned parties to arbitrators who make a
• Final decision on the dispute. Instead of going to the court the parties go to arbitrators. • For example – in stock exchanges disputes among member brokers are settled through arbitration. The concerned parties have to accept the final decision.
Child labour and Reforms • Children and women packing matchsticks in Sivakasi ( Tamil Nadu), • preparing slates and pencils in Mandsur (MP), quarrying in Haryana, or washing in the tanneries of Ambur (Tamil Nadu), rolling beedies in Belgaum and Mangalore (Karnataka), helping diamond cutters in Surat, constructing buildings in urban and semi urban areas, washing plates and serving customers in restaurants all over India and working as mechanics and helpers in automobile garages – all this employment comes under the Bagedari sector.
• Reforms are silent on these activities. • Offers simple solution like abolish child labour or increase government funding for primary education. • Government does not discuss alternatives like giving tax holiday to the Bagedari sector which sponsors part time education of the child labour. • Local schools can offer evening classes to such children. • This is one way how government can provide educational opportunities to such children without affecting their employment without spending of much money.
MNCs and Bagedari sector • Many items are manufactured by small and tiny sectors. • Like soaps, toothpaste, shoes etc. are made by the small sectors. • But MNCs have taken up these businesses right from the time the States reorganization happened in 1956. • Like Hindustan Lever is into soaps, Colgate Palmolive is into toothpastes, Bata is in shoes etc. • This has not allowed even Tata company from entering into these business activities.
• And also, Bagedari sector has to face competition from these global companies too. • The crucial issue in the reforms process is what will be the future of the Bagedari sector when the economy has opened up to global companies in manufacturing, transport, trade, construction, hotels and restaurants etc.
• In the future, should the small partnership/ proprietorship firms become corporates? • Will the future make the self-employed wage earners? • Like street cobblers being employed by Adidas and Nike. • And roadside tailors being employed by Van Heusen, • And mom and pop readymade stores being employed by Walmart, J C Penny. • Is it fair competition? Because of globalisation and • FDI Bagedari sector has to compete with MNCs?
What could happen in the future • Udupis and Iranis and other such small restaurants and dhabas run by Bagedars will have to face competition from MacDonald’s and KFC’s. • Street corner grocers and wholesale dealers will have to compete with Wal-Mart and Sears. • Small contractors doing road construction work will have to compete with global construction firms. • Transport operators having a fleet of one to five trucks will have to compete with Federal Express and Greyhound. • Local fishermen with their small boats have to compete with global fishing companies with their trawlers.
• Bagedars are not afraid of competition. • But if they have access to bank funds and are subject to cleaner control by regulators they can give stiff competition to the big companies. • In the developed world, many examples are there where small companies have succeeded in competing with global companies. • It should be a level competition for all. • But political parties are silent on this issue. • None of the political parties have thought about the future role of Bhagidar sector.
• There is no debate even on this issue by the political parties. • Government sponsored and lobby favoured seminars and debates are common. • But what about the bagedari sector which provides a third of national savings and national income? • Lobbying – means big companies who have huge resources and wealth influence the government to get favourable prices for their products. • For example - Reliance
• This sector cannot be ignored as it is the most productive and efficient in the private sector. • This sector was doing well even in the sixties and seventies. • By focussing only on the corporate sector, the government thinks it can modernise the Indian economy. • But if they should focus on the Bagedari sector than only will the Indian economy become modernised.
• Instead of listening to the complaints of the associations of the corporates. • They should listen to the complaints of the associations of the Bagedari sector like Nasik Vyapari Mandal, Tindivanam Transport operators, Renigunta restaurant owners etc. • For example a small village Kadavari in between the borders of Tamil Nadu and Kerala – in 1998, the 80 odd families in the village set up their own power station. With their hard earned resources and they did not take help of the government. The state electricity board declared that they had broken the law!
Start ups and MSME sector • What is a Start up? • When business is started on a new idea it is called a start up. It would be an innovative idea. • They get funds from investors only. • What is a SME? • Small Medium Enterprises have traditionally helped to run the service sector and manufacturing sector. • SMEs are started to get profit. They get funds from banks and NBFCs. • There is no innovation in SMEs.
• SMEs business is started based on the need in the market and on the number of customers. • Definition of Start up – a start up is a unit of business and will be considered a start up for ten years from its registration. • Any innovative technology will be considered a start up, in development and processing business, or production of commercial products due to some latest technology. • Turnover of the financial year does not exceed 100 crores.
• Definition of SMEs – • Small enterprise – an industry with an investment of 10 crores and an annual turnover of 50 crores is considered to be a small enterprise. Applicable for both manufacturing and service sectors. • Medium enterprise – an industry with an investment of 30 crores and an annual turnover of 100 crores is considered a medium enterprise.
• Start ups are started to bring a new business idea into existence. • First idea is to start the business profits are thought later. • Whereas, SME is started for profit only. • SME can be just setting up a shop or setting up a medium level plant. • From day one you expect profits from SMEs. • But from start ups you can’t expect profits from day one.
• Start ups are labour-intensive. And joint work has to be done by a number of people. • An SME can be a shop or a medium level factory. • In SME a person can work alone and make profits. • But not in a start up. Because start up is not a shop.
Fund raising • Both SME and start ups require money. • Start ups can get funds from private investors and also from government up Start-Up India. • SMEs are started with own funds. To start a business, loans can be taken from Mudra Loan scheme of government. • But most of the money SME has to invest itself. • When SMEs want to expand, they can get loans from many financial institutions.
Large scale enterprise • Large scale enterprise can range from a single proprietor business to a large corporation that employs thousands of people across different countries. • Based on the scale of business, organisations can be classified as micro enterprise, small scale enterprise, large scale enterprise, public enterprise and multinational corporations.
• Industries which require huge amount of infrastructure, manpower, capital and other assets is called large scale enterprise. • In India, large scale enterprise are those with fixed assets of more than Rs 10 crores. • The Indian economy relies heavily on these large scale enterprises for the growth of economy, for generation of foreign money and for creation of jobs opportunities.
Large scale industries • In India, large scale industries includes different types of industries. • Following heavy industries fall under large scale industries – • Iron & Steel industry • Textile industry • Automobile industry • Telecom industry
• Over the past two decades, Information and Technology industry has developed into an industry which generates huge amount of revenues and also provides job opportunities. So, some economists consider it as large scale industry. • Some other manufacturing industries which use native and imported technology are considered as large scale industries like fertiliser, natural gas, coal, metal extraction, tourism, engineering etc.
• Globalization has been good for some large scale industries which have attracted international customers, increased foreign trade and gone for technology tie ups.
Export oriented companies • Export oriented companies are mainly concerned with the export of goods and services. • Export oriented units (EOU) export their entire production of goods. • EOUs can engage in manufacturing, services, development of software, repair, remodelling, reengineering, include making of gold/silver/ platinum jewellery and articles.
• The Export Oriented Scheme (EOU) was introduced in 1981. • It is complementary to SEZs. • EOUs follow the same production style as SEZ. But they offer more facilities like source of raw materials, ports of export, facilities in remote areas, availability of technological skills, provides more land for projects.
Objectives of EOUs • The main objective is to increase exports, earn foreign exchange, transfer of latest technology, get foreign direct investments, generate more employment. • Major sectors in EOUs – granite, textiles/garments, food processing, chemicals, computer hardware, coffee, pharmaceuticals, gems & jewellery, engineering goods, electrical & electronics, aqua and pearl culture.
• EOU activities – in the beginning EOUs mainly concentrated in textiles and yarns, food processing, electronics, chemicals, plastics, granites and mineral ores. • Nowadays, EOUs are also into manufacturing, services, development of software, trading, repair, remodelling etc. also into agro processing, aqua culture, animal husbandry, floriculture etc.
• Need for special licence – in the following sectors, an EOU owner needs to take a licence. • Arms and ammunition • Explosives and allied items of defence equipment • Defence aircraft and warships • Atomic substances • Narcotics and hazardous substances • Distillation and brewing of alcoholic drinks • Cigarettes/cigars and manufactured tobacco substitutes
Choosing the EOU location • EOUs can be set up anywhere in the country and do manufacturing and production of software, floriculture, horticulture, agriculture, aquaculture, pisciculture, poultry etc. • But in large cities, where the population is more than one million like Bangalore, Cochin the proposed EOU location should be at least 25 km away from the standard urban area limits unless the area has been labelled as an “industrial area”
• But non-polluting EOUs like electronics, computer software and printing are exempt from these restrictions when choosing their location. • Apart from these location restrictions from the local zonal office and state government EOUs also have to fulfil environmental rules and regulations. • If the new EOU unit is not suitable from environmental point of view. Than the Ministry of Environment, Government of India has the right to cancel this proposal.
EOU unit has some obligations • EOU has to achieve the minimum NFEP (Net Foreign Exchange Earnings as a percentage of Exports) and the minimum EP ( Export Performance) as per the provisions of the EXIM policy which varies from sector to sector. • That means the units with investment of plant and machinery of Rs 5 crore and above are required to achieve positive NFEP and export goods which are worth US$ 3.5 million or 3 times the CIF value of imported capital goods, which ever is higher for a period of 5 years.
• CIF – Cost, Freight, Insurance which is the expense paid by the seller. • The seller has to cover the costs, insurance and freight of the buyer’s order when it is in transit. • The seller has to export the goods to the port mentioned in the sales contract. • NFEP is calculated together for 5 years from the start of commercial production.
• For electronics hardware sector minimum NFEP has to be “positive” and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods whichever is higher.
Bonding period of EOU • The EOU units are licensed to manufacture the goods within a bond period. • As per the EXIM policy, the bond period is initially for a period of five years. • Which can be extended to another five years by the Development Commissioner. • On the request of an EOU unit, the bond period can be further extended for five years by the Chief Commissioner of Customs.
Changes in EOU scheme from April 7th 2006 • Covers the export of goods which is one and half percent of FOB value • To help in the smooth operations of EOUs, the Development Commissioner has fixed time limits to deal with the matters of the EOUs. • The EOU units in the textile sector can dispose of left over material up to 2% of CIF (Cost, Insurance, Freight) value of imports. • For every consignment it is time consuming and complex to dispose left over material. Now they have allowed disposal of leftover material on the basis of previous years imports.
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M 2,3,4 business n industry

  • 1. Module -2 Essentials of business & industry
  • 2. • Meaning of business – an individual or group of individuals who are engaged in the buying and selling of goods or products. • - A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Organized and planned activities of individuals to produce n sell goods n services for a profit. • Nature – the overall activities a company does to create, market n sell a product or service. Which area the company is mainly focussing on in bus is called its nature of business.
  • 3. • Role of bus -The role of a business is to produce and distribute goods and services to satisfy a public need or demand. For eg. CSR activities to help weaker sections of society. • Businesses are also expected to maintain a certain level of responsibility in the way they run their operations. A company can be viewed as ethically irresponsible if it knowingly brings harm to the environment or if its business tactics cause employees to be treated unfairly.
  • 4. • Any business is a risky endeavour with an uncertain life expectancy. It has been, and should remain, a driver of innovation, a creator of wealth, a harbinger of economic freedom. The core mission of a profit- driven enterprise is not to fulfil some philanthropic duty. But neither is it solely to maximize short-term shareholder value. • Fundamental role of business remains the same. Expectations from business has changed. • People lost trust in business because of fraud, corruption and poor performance. • For eg. Henry Ford once told, ‘making money for shareholders is not the be all and end all of business.’
  • 5. • He said, ‘Businesses employ large armies of people at high wages and reduce the selling price of the car. So that lots of people can buy the car at cheap rates. And in the process of doing that, money will fall into your hands.
  • 6. Basic business functions • Operations • Finance • Marketing
  • 7. Operations • Key function of business. • Concerned with producing goods and services. • Both tangible and intangible products • Aim of business is to produce and supply to meet customer demand. • To manage and control the supply chain • Need the support of marketing and finance
  • 8. Finance • To get financial resources and allocate it to different parts of the organization. • Managing cash flow, budgeting, asset management and financial statements. • Critical function – determine success of the organization.
  • 9. Marketing • Promotion of goods and services • To ensure it is available to all customers • First, need to understand requirement of customers. • Making sure products meet the standards • Develop strategies – marketing, advertising etc. • To increase awareness, promotion etc.
  • 10. Business function vs business process • Business function is a key organizational unit to, has responsibilities and performs activities to carry out the business’s mission. • Each function is an organizational unit and performs a type of activities. • Business process is a set of activities using the business functions to carry out the organization's mission.
  • 11. Business process • Is a series of interrelated steps performed by stakeholders to achieve a business goal. • Each step in a business process is a task assigned to an employee. • For eg. Business process management, process automation etc.
  • 12. Importance of business process • Needed in large organizations • A process is a lifeline in any business helps to streamline individual activities, makes sure resources are used in the optimum way.
  • 13.
  • 14. • A well defined business process – • Helps to identify which tasks are important to achieve your business goals • Increases efficiency • Improves communication amongst people, departments and functions • Makes people accountable • Optimum use of resources • Reduces chaos in day-to-day operations • Standardizes the tasks
  • 15. • Example of a business process: • Hiring process of an HR department
  • 16. Benefits of applying business process • Reduces risks – helps to fix errors • Reduce duplication of tasks • Minimizes costs – zero wastage • Improved teamwork • Makes organization dynamic • Improves productivity • Higher efficiency and makes organization more adaptive • Optimal use of resources
  • 17. Internal & external influences • Micro environment • Macro environment
  • 18. The environment • Organizations cannot exist and operate in a vacuum. They are a part of the larger business environment. • This environment is divided into two categories – micro and macro environment.
  • 20. Macro environment • 8 different forces are there in macro environment which indirectly affect business and company has no control over them. • Economic factors, demographic factors, technological factors, natural factors, political factors, legal factors, socio-cultural factors, ethical factors
  • 21. • Macro environment is more general environment. It affects all business groups, how they perform, make decisions, make strategies. • It is a dynamic environment. Keeps on changing. Company has no control over these factors but it is affected by these factors.
  • 22. • Economic factors – have affect on company’s production and on the decision-making process of your customers. • Interest rates • Exchange rates • Recession • Inflation • Taxes • Demand/supply
  • 23. • Demographic forces – • Market is affected by demographic forces. These are age, education level, cultural characteristics, country, region, lifestyle etc. • Income • Age • Geographic, region • Educational level
  • 24. • Technological factors – • Related to skills and ability applied in production. • Materials and technology a particular product requires. • Essential factor and has a huge impact on how your business is run. • Affects tools, equipment, maintenance etc. • Internet • Automation • 3D technology • Engine performance • Security • Power of computers etc.
  • 25. • Natural/ environment – business must take into account the planet and its resources. • Some resources can be renewed- forests, agricultural products • Some resources cannot be renewed – coal, minerals, oil etc. both are needed in production. • Climate change • Pollution • Weather • Availability of resources • Environmental laws • Survival of animals and plants
  • 26. • Political and legal factors – • Market develops according to the political and legal environment. • Business has to make decisions as per the political and legal situation in their regions. • Copyright law • Employment law • Fraud law • Discrimination law • Health and safety law • Import/export law
  • 27. • Social and cultural forces – • Business produces products that can have a strong impact on society. For eg. Your production has to remove all harmful practices that is harmful to society. It must become socially responsible. • Purchasing habits • Religion and beliefs • Awareness about health • Level of education • Size of family • Growth rate of population • Life expectancy • lifestyles
  • 28. • Ethical factor- • People are more educated, more aware of what is right and what is wrong. • They are demanding business do its business activities in an honest way. • Laws, rules and regulations have become more strict. • Punishments are more severe now. • Business cannot escape from being unethical in todays world.
  • 29.
  • 31. Micro environment factors • Are those factors are within the immediate environment around the company. • Company has control over these factors and are also affected by them. • They directly influence the company.
  • 32. • Customers – • The kind of customers a company has will affect the marketing campaigns produced by business. • Your customers can be B2C,B2B, international, local etc. • Customers affect – stability of demand • Sales growth • Profits • Intensity of competition • Today, it is easy to manufacture product, but difficult to sell.
  • 33. • Suppliers – suppliers can affect business. They can influence how successful your business will be. • They are a key link in the delivery of product. • Provides resources to business – raw materials, inputs, parts, tools etc. • Supplier’s or vendor’s quality and reliability is a must for smooth running of business. • Help to determine price – increase or decrease • Resellers – when business sells its product through a reseller or middlemen like wholesaler, retailer, than success of your marketing depends on them. • They are the link between you and customer. • They determine – promotion, sale, distribution, marketing etc.
  • 34. • Competitors – what competitors do in the market affect your business. • Their products, marketing strategies all matter to you because it will affect your product sales. • What kind of product they sell, at what price etc. will affect you. • Product competition • Marketing strategy • Brand competition
  • 35. • General Public – means the general group of people. • Public opinion is important for a company. It can be a threat or an opportunity for the company. • Public opinion about a company or its brand can spread very fast from person to person. • Public opinion or consumer publics can make or mar a business.
  • 36. • Media publics – various media like broadcast or print or internet media can public negative news about company. This can affect company negatively, tarnish its reputation. Its share price may come down. • Local publics – are the local people in a particular areas or around factories. They usually take up issues of environmental pollution. Like river water gets polluted with discharge from factories, smoke from chimneys pollutes the air etc. such issues can lead to closing of factories or stricter environmental laws.
  • 37. • Marketing Intermediaries- • Are those firms or individuals who help the company in the promotion, selling and distribution of their goods to final buyers. • Middlemen – agents/brokers who help the company get customers. • Physical distribution (warehousing and distribution) firms that help the company to stock and move their products from origin to their destination. • Marketing service agencies like advertising agencies, market research firms etc help the company to target and promote their products in the right markets.
  • 38. • Company – • Means the employees, stakeholders, unions, board of directors. • How the employees perform their work, how the BOD functions affects the business. • Trade unions with their demands can affect business. • People within the company can also affect the business.
  • 39. Different forms of enterprise • 6 forms of enterprise • Sole proprietorship firm • Partnership firm • Company • Limited liability partnership • One person companies • Small companies
  • 40. • Sole proprietorship firm- • Simplest and easiest way to start an enterprise. • A single owner starts the enterprise. Not much documentation is required to start. • The sole owner employs people, buys assets, buys intellectual property and opens bank account etc. • This kind of enterprise has not much chance of growth. It is a one-man show and if any partners are taken than there is chance of growth. Than its structure changes into partnership firm. • Lenders are not ready to lend money to a sole proprietorship firm as more risk is there when a single person is running the firm. • If any losses arise, the owner has to repay from his personal funds.(unlimited liability)
  • 41. • Partnership firm- • When one or more partners enter into a partnership to start an enterprise it is called partnership firm. • A partnership deed is signed by the partners. The deed should clearly state the name of the firm, what business it is, names of the partners, how much capital each partner has contributed, how the profits or losses will be shared amongst them, the duties, the rights, powers and obligations of each partner etc. • One of the partners will be the managing director and the particulars of salaries and other payments to the partners are mentioned in the deed. • The advantage of partnership is that risk is shared amongst the partners but if losses arise all the partners have to repay creditors.
  • 42. • Company – • A company is a legal entity formed by the association of a group of people. It can be a natural or legal association formed with a objective. All the members have a common objective. • A company may be private limited company or public limited company. • A public limited company is a company listed on the stock exchange and the stocks are traded publicly. • A private limited company is not listed in the stock exchange and neither are the shares traded. It is held privately by its members. • The members of the company appoint directors to manage the company, they are called Board of Directors (BOD).
  • 43. • A private limited company can be formed with a minimum of two members and maximum of fifty members. • For public limited company a minimum of seven members is required and no limit to maximum members. • To register a company, a memorandum of association has to be filed with the Register of Companies. • The memorandum should have details like name of the company, what is its business activities, details of its members, its address etc. • The articles of association should mention the rules and regulations, the rights, duties and liabilities of its members.
  • 44. • When members increase, a private limited company can turn into public limited company. • The major advantage of company is that the members liability is limited to how much he invests in the company. His personal property is not affected. • For todays modern times, company form of organization is most suitable because ownership (members) is separated from management (BOD). • The members can become directors and also outsiders can become directors.
  • 45. • Limited liability partnership – • Limited liability partnership (LLP) is a company formed with limited liability but its members can change it into traditional partnership company. • In LLP, the liability is for the full assets of the company. But individual liability is limited. That means personal assets of members are protected from liability.
  • 46. • One-person company (OPC) – • Entrepreneurial ventures will become a corporate with the one-person company. • It can be registered with a single member and at least one director.
  • 47. • Small companies – • Are usually small businesses, which cannot grow into large companies because of strict regulations and high fees to register.
  • 48. Types of productive systems • Two categories – • Intermittent production system • Continuous production system
  • 49. Intermittent production system • Project production flows • Jobbing production flows • Batch production flows Intermittent means something that starts and than stops. It may be at regular intervals or irregular intervals. Goods are produced based on customer’s orders on a small scale and it can large varieties of products. The design of product goes on changing as per order. So this system is flexible. General purpose machines are used. For eg. A goldsmith ‘s job
  • 50. Project production flows • The company accepts a single project or contract. • The order has to be completed in a particular time period and at an estimated cost. • For eg. Construction of airports, dams, roads etc • Features – • The resources required changes with the project. • Many agencies are involved and their jobs are interrelated. • Delays can happen in completion of the project. • The schedule of the project changes, so inspection is required.
  • 51. Jobbing production flows • In jobbing production flows, the company accepts the job of producing one or few units of the product strictly as per the customer’s specifications. • The job is done in a given time period and at a fixed cost. The cost is fixed at the time of signing the contract. • For eg. Services given by repair shops, tailoring shops, manufacturer of special machine tools etc. • Features – production takes place in small lots. • Production is done as per customer’s expectations. • Highly skilled labour is required for these specialized jobs.
  • 52. Batch production flows • Here the production happens according to specific orders or as per demand forecast. • Production of items takes place in batches. • Manufacturing of product is divided into different jobs. • All the jobs of one batch of production must be completed before starting the second batch. • For e.g. Manufacture of drugs, medicines etc. • Features – products are made and stocked till demand arises. • General purpose machines are used. • Detailed production planning and control is required.
  • 53. Continuous production system • Mass production flows • Process production flows • Continuous production means it happens constantly without much halts. • Standardised goods are produced constantly as per demand. • They are not produced as per the customer’s orders. • They are produced in large scale and stocked for selling. • The input, output, production process is standardized.
  • 54. • Examples – production of food industry happens on a large scale. • Production and processing of crude oil into fuel is also an example. • Features – flow of production is continuous and not intermittent. • Standardized products as per quality standards. • Produced as per demand • Standardized production process and schedule • Types – Mass production flows • Process production flows
  • 55. Mass production flows • Many companies follow this type of production. They produce different varieties of products in large scale and stores them in warehouses till demand arises. • Mass production of toothpastes, soaps etc • Very little supervision is required and very few instructions too • Materials are mostly handled by machines and the flow of materials is continuous.
  • 56. Process Production Flows • Here single product is produced and stored in the warehouse till demand arises • Flexibility is not there. • Highly mechanized production system • Examples of plants producing cement, paper, sugar, steel etc. • Single product is produced. • Low-skilled labour • Materials flow is continuous usually on conveyor belts • Production has to be planned and scheduled before. • Full production system produces one product.
  • 57. Feudal system • A feudal system (also known as feudalism) is a type of social and political system in which landholders provide land to tenants in exchange for their loyalty and service. In Europe it was between nobles and peasants.
  • 58. • Guilds were the association of craftsmen or merchants who followed same craft and profession. Guilds usually existed in the medieval period. The main aim of forming guilds was to protect the interests of the members.
  • 59. The domestic/putting-out/outsourcing systems • Domestic system, also called putting-out system, production system widespread in 17th-century western Europe in which merchant-employers “put out” materials to rural producers who usually worked in their homes but sometimes laboured in workshops or in turn put out work to others.
  • 60. • The putting-out system is a means of subcontracting work. Historically, it was also known as the workshop system and the domestic system. In putting-out, work is contracted by a central agent to subcontractors who complete the work in off-site facilities, either in their own homes or in workshops with multiple craftsmen. It was used in the English and American textile industries, in shoemaking, lock-making trades, and making parts for small firearms from the Industrial Revolution until the mid-19th century. After the invention of the sewing machine in 1846, the system lingered on for the making of ready- made men's clothing.[1]
  • 61. • The domestic system was suited to pre-urban times because workers did not have to travel from home to work, which was quite unfeasible due to the state of roads and footpaths, and members of the household spent many hours in farm or household tasks. Early factory owners sometimes had to build dormitories to house workers, especially girls and women. Putting-out workers had some flexibility to balance farm and household chores with the putting-out work, this being especially important in winter.
  • 62. • The development of this trend is often considered to be a form of proto- industrialization, and remained prominent until the Industrial Revolution of the 19th century. • At that point, it underwent name and geographical changes. However, bar some technological advancements, the putting-out system has not changed in essential practice. Contemporary examples can be found in China, India, and South America, and are not limited to the textiles industry.
  • 63. • The factory system is a method of manufacturing using machinery and division of labour. This is because of the high capital cost of machinery and factory buildings, factories were typically privately owned by wealthy individuals who employed the operative labour.
  • 64. Causes and Consequences of industrialization • Industrialization is the transformation of a society from agrarian to a manufacturing or industrial economy. • Industrialization is characterized by manual individual labour being replaced by mechanized mass production and craftsmen are replaced by assembly line. • Economy is transformed from mainly agricultural goods to manufactured goods. • Leads to more economic growth, more efficient use of labour and more use of technological innovations to solve problems. • Industrialization leads to increased incomes and rise in living standards.
  • 65. • Early Industrialization started in Europe and North America and slowly spread to other countries. • The second world war also led to industrialization. • Than Industrial revolution happened. What manufacturing that used to take place in people’s homes started happening in factories. • Manufacturing facilities, fabrication and processing all started. • Different types of machinery was invented, steam engine was a key invention.
  • 66. • Industrialization contributes to negative outcomes such as environmental pollution. • Leads to differences in income between labour class and owners. • Industrialization also contributes to the deterioration (reduces) of health among workers, crime and other societal problems. • IT industrialization means where IT services become more standardized. • Services become highly automated, repeatable, scalable and reliable, and that meet the needs of many organizations. • IT services grew and was a link between agriculture and manufacture.
  • 67. Evolution of Business & Industry in India • Structure of Indian society- • Society- a group of people living in a region or country, sharing common customs, laws and organizations. • Indian society is ancient – began in Indus valley civilization. • Early dark skinned people – Dravidians who build temples, cities and art works. • Than came fair skinned people – Aryans who gave India Vedic literature, Sanskrit epics, Hinduism, caste system and founded small kingdoms.
  • 68.
  • 69. • India is a secular democracy and is home to many religions – Hinduism, Islam, Christianity, Buddhism, Jainism, Sikhism etc. • Most religions have many rituals and customs and celebrate festivals with music, dance and feasting shared by all communities. • Indian society today is multi-ethnic, multi-cultural, multi- lingual and multi-religious.
  • 70. • Present Indian Society – • Indian culture is a mix of many cultures influenced and shaped by our ancient history. • Modern society people have knowledge of and use advanced technology. Modern society is characterized by many sub cultures. • Knowledge is shared through books, internet, films etc. • People are mostly literate and modern society is more complex, individuals have specialized roles and well connected. • Multi-cultural – food, dress, arts, music & dance forms, crafts, different type of houses, different building materials etc. art of pottery, city culture, Vedic literature etc. • Multi- religions and multi- religious beliefs exist.
  • 71. • Demographic details of Indian society – • 17.5% of the world population • 60% of Indian population lives in UP, West Bengal, Maharashtra, Bihar, MP & Tamil Nadu. • 50% is below 25 years and 65% is below 35 years of age. • Most Densely populated state is UP, than Maharashtra, and followed by Bihar
  • 72. Linguistic Diversity • 1652 languages are there but Constitution only recognizes 22 major languages. • Indo-Aryans are found mainly in Northern & Western India. • Dravidians are found many in South India. • Tribals – primitive tribes, art of pottery, uncivilised, example-Santhals of Nagpur, Bhils of Rajasthan, Todas of Nilgiris etc.
  • 73. • Infrastructural development is less in transport, communication and banking especially in BIMARU states. • Unemployment rates are high especially in Kerala, Goa and Tamil Nadu. • Industrialization is picking up in most states but weak in Kerala and Andhra. • Income inequalities seen more in Bihar, MP, Rajasthan, UP • Gender ratio unequal, mostly in favour of males. In Kerala females are more in number than males. • Life expectancy rates – is low in UP, Bihar & MP especially for females. In Andhra, TN & Karnataka life expectancy rates are high.
  • 74. • High birth rates and death rates especially in BIMARU states. • Urbanisation – rapid urbanisation in Goa, Mizoram and less of urbanisation in Bihar, MP • Poverty – was high more than 35% now reduced to 20%. But still high in MP, Orissa and Bihar. • Regional variations are high – literacy rates are high in Kerala, Mizoram, Tripura & Goa and low in Bihar, Rajasthan, Jharkhand.
  • 75. Glimpse of Economic activity in ancient times • Ancient Indian Economy- • Indus valley civilization – Bronze Age, Urban economy • Gangetic civilization/ Vedic civilization- Iron Age, agricultural economy
  • 76. • Indus Valley civilization – • More importance to overseas trade. Seen in the canal and docking facilities in coastal city of Lothal. • In the Indus valley civilization, main economy was trade because of major advancements in transport technology. • Many boats and bullock carts were used. • Large sea-going boats and flat-bottomed boats were used. • Bullock cart shows they were used for inland trade as a mode of transport. • Many trade networks were there. • Like Afghanistan, coastal areas of Persia, northern and central India, Egypt
  • 77. • The Indus valley people mainly traded with Sumerian merchants. • Many items were exported like surplus grains, pottery, ivory combs, pearls, and semi-precious stones. • Indus valley farmers grew wheat, barley, peas, melons, sesame and dates. • Cotton was first developed in 2000 BC and Indus valley people were the first to convert cotton into yarn and weaving it into cloth.
  • 78. Vedic civilization • Aryans entered northern part of India in 1500 BC. • They started a new economy on the banks of Ganges river. • Aryans are nomadic and cattle rearing is their chief occupation. • Cattle and cows were considered sacred and appeared in Rig Veda. Goddesses was compared to cows and Gods to bulls. • They learned to use iron. As they settled down, they started agriculture. They learned rice cultivation. • So, they become a more settled society
  • 79. • And Aryan society became organised on the caste system. • In their economy division of labour also happened as per the caste system. • Aryans became educated and became priests, rulers, peasants, warriors, merchants and lower rank became shudras. • Occupations were based on the caste system. • Their food was mainly grains, milk and milk products, cakes and fruits and vegetables.
  • 80. • Meat mainly eaten by upper class of people. • Rig Veda mentions animal sacrifices and meat being offered to Gods. • Horses and chariots were introduced. • Aryans lived in wooden and straw huts. • Yagnas were important. • Money was unknown. Trade was done mainly by bartering in cow and other valuables. • Became a highly civilized society with agricultural economy and surplus is traded.
  • 81. Maurya Empire • Under Chandragupta Maurya, the Maurya empire flourished. • Internal and external trade, agriculture and economic activities flourished and expanded in India. • There was an efficient system of finance, security and administration. • Under Ashoka’s reign, half a century of peace and security was there. • In South Asia, political unity and military security was there. Trade, commerce and agricultural productivity increased.
  • 82. • Farmers were free from paying taxes and giving harvests to regional kings. • Instead, a fair and strict national system of collecting taxes was there as per the principles of Arthashastra. • There was a single currency established. A network of governors and administrators were there. A civil system was set up to provide security and justice to traders and farmers.
  • 83. British Raj • It was the rule of the British Crown on the Indian subcontinent from 1858 to 1947. • The British East India company set up trading posts in Bombay, Calcutta and Madras. • At first, Mughal rulers kept these European traders under control. • But by 1707, Mughal empire started collapsing. Many small states with their own rulers broke away from Mughal control. • Robert Clive was the main British soldier who established the military and political supremacy of the East India company in south India and Bengal. He secured India’s wealth for the British crown.
  • 84. • Robert Clive defeated Sirajudaula in the Battle of Plassey and became governor of Bengal. • He launched military campaigns against the French and prevented them from expanding. • Slowly, British East India company took control over India. • As the Mughal empire became weak, the British East India company became strong economically and politically. • Started their own military force with Indian soldiers as sepoys led by the British.
  • 85. • 96% of the company’s force were Indian sepoys. They were given less salary and treated badly. They were given no promotion. British considered themselves superior and did not respect Indian cultures and religious beliefs. • The British took many raw materials produced in India like sugar, jute, tea, cotton and spices. Shipped them to England made finished goods from them. And sold it to Indians at high prices.
  • 86. • Sepoys revolted against the British in 1857. The British suppressed the rebellion and abolished the British East India Company. • India became a British colony and the Queen Victoria became Empress of India. • Turning point in Indian history.
  • 87. • Mughal rulers became puppets in the hands of the British. • India produced raw materials for British manufacturing and to buy British manufactured goods. • For example, India’s handloom industry was put out of business because of British Textiles. Indian market was flooded with cheap readymade cloth. • Indian farmers forced to grow cash crops to pay for British imports like tea, coffee, pepper and cotton. As Indian farmers grew less food, famines became frequent.
  • 88. • A lot of economic restrictions happened. Small states forced to pay dues to the British for military protection. • Peasant landowners had to pay tax in cash. They were forced to take money from moneylenders, who seized their lands for non-payment. • Indian economy suffered, local businesses collapsed. • Transport advanced under the British. World’s third largest rail network was set up. • Rail was used to transport raw material from interior to the ports and manufactured goods back. • Plantation crops were tea, coffee, indigo, cotton and opium. British shipped opium to China exchanged it for tea which they sold in England.
  • 89. • Along with railroads, road networks, telephone, telegraph, dams, bridges and irrigation canals helped Indian economy to modernize. • The British brought about social changes. They build schools and colleges especially for higher caste Indians. More stress to learn English language. • They improved health and sanitary conditions too. • They abolished social evils like child marriage, sati etc.
  • 90. Swadeshi Movement • The Swadeshi movement was an economic strategy which was aimed at removing the British from India and to improve the economic conditions in India. • Swadeshi movement started in 1852 till 1911. • It was part of Indian Independence movement and was one of the most successful movements against the British rule. • The movement began in 1905, August, when some Indians opposed the partition of Bengal. • Swadeshi movement was the focus of Mahatma Gandhi.
  • 91. • The Swadeshi movement was started as a movement to boycott all foreign goods and buy only Indian made goods. • On 7th august, 1905 a massive meeting was held in Calcutta to boycott foreign goods, salt, sugar. • The movement spread to Poona, Bombay, Punjab and Madras. • Swadeshi movement laid stress on ‘self rule’ or ‘self reliance’. • Also, Indian children were not allowed to British schools and lead to the boycott of the British education system.
  • 92. • During this time many National schools were set up including national college of Bengal was founded. • More Indians turned into entrepreneurs during this time. Many textile mills, soap factories, tanneries, banks, insurance companies, shops etc came up. • Swadeshi movement encouraged mass participation by society. First time women took part in this boycott. • It was an extremist movement lead by Bal Gangadhar Tilak. • Swadeshi movement became extremist movement because of the misery and suffering caused due to the famines and the plague.
  • 93. • Gandhiji’s vision of Swadeshi movement was 1. Force British to quit India 2. By using only nonviolent means 3. Train people to practice self control 4. Make people more responsible and practice self governance. 5. To make society and economy of India more organized so that basic needs like food, clothing, shelter, health, education are all met satisfactorily. The Swadeshi movement united people against British rule. Made Indians more self reliable.
  • 94. Post Independence Era • Since 1947, India had progressed a lot and incomes, growth and standards of living has increased. • Since 1951, India had grown as a planned economy. • At the time of independence, India’s population was 340 million but its literacy rate was very low only 12%. • In 1947, India’s GDP was only 3% of the world’s GDP. • By 2018, India overtook France to become the 5th largest economy in the world. Today, India is only behind USA, China, Japan and Germany.
  • 95. • Landmark changes happened • Focus of planning was on agriculture and social development – reduce poverty and provide housing. • Also focus on manufacturing industries, especially heavy industries to form backbone of our economy. • Over the years, there has been a change in Indian economic structure, agriculture contribution to GDP reduced from 60 to 26%. Service sector’s contribution to GDP increased from 30 to 75%.
  • 96. • In 1991, India came under the pressure of IMF and World Bank to open its economy. • It saw de-licensing, massive reduction in tariffs etc. FDI limit was relaxed. The liberalization process started in the nineties, which saw massive growth in the services sector. • The Industrial policy 1991, was a major economic reform and opened the sector to private sector participation and foreign investment. • Till 2019, India has been consistently growing at the rate of 6%. • Liberalization has increased growth and boosted foreign exchange reserves. India has become one of the world’s top three preferred investment destinations.
  • 97. • To provide food at affordable rates, the Food Corporation of India and the public distribution system was formed. The PDS system got food grains at pre- determined prices from farmers and supplied it through ration shops. The government also build stock of food to tide over emergency situations like famine, floods etc. • By increasing foreign exchange reserves and by increasing food grains, employment will increase and poverty can be reduced. • The poor face the problem of financial inclusion, credit is not available for them. Informal credit systems are there but charge a high rate of interest. This leads to farmer deaths and puts the poor into debt and bonded labour.
  • 98. • Average Indian’s income also grew. • It was around Rs.7500 during 1950-51, grew to Rs. 41,000 during 2011-12 and further to Rs. 96,000 during 2018-19. • The agriculture sector continues to be an important sector and provides food to more than half of the population. The value of agriculture, forestry and allied sectors increased from 1950s to 2011-12. • The Green revolution during the 1960’s was a game changer. Their was adoption of modern technology, modern methods of farming. Use of fertilizers and high yielding seeds increased agricultural productivity and food grain production.
  • 99. • In the 50s, it was 48 million tonnes and by 2017 it had increased to a massive 241 million tonnes. • India continues to be the largest producer of wheat, rice, various fruits and vegetables in the world and also a leader in milk production. • Till the present, unemployment and poverty remain chronic problems. • Government has implemented many anti-poverty programs. • GOI has started programs in the following:
  • 100. • Self employment program – skill India program • Wage employment program – fair wages • Food security program – PDS system • Social security program – Pension, Health Insurance and Medical Benefit, Disability Benefit, Maternity Benefit and Gratuity. • Urban poverty alleviation program The most important is the PDS from the time of independence. Sampoorna Grameen Rozgar Yojana (1997), Integrated Rural Housing program, Pradhan Mantri Gram Sadak Yojana and the most recent one National Rural Employment Guarantee Act (NREGA,2006).
  • 101. • The social security schemes benefitted only the organized employees. Most of the Indian population is in the unorganized sector, who did not benefit from these schemes. • In India, social security schemes are non-institutional because of its caste system, self sufficient village economy, joint family system, religious background and because of its charitable nature. • In India, 90% of the families earn their living from the unorganized sector. So they need social security. • Protection from sickness, old age, maternity, accident, death and from unemployment.
  • 102. • Social assistance – giving benefits to weaker sections of the society (mothers, disabled, old people etc). For example – national old age pension scheme, national maternity benefit scheme etc. • Social insurance – financed by contributors, provided by State. To help workers to plan for their future, to have reserves for any emergencies. For eg. LIC schemes, ESI scheme, contributory PF scheme.
  • 103. • Post liberalization era, economic inequality had increased, corporates became richer and poor became poorer. • An initiative undertaken has been adoption of backward villages by corporates to develop them. • For example – Maan School by Infosys • Corporates develop local areas around the factories, can access cheap resources and hire local talent and lower their costs of operations too.
  • 104. • Unorganised sector Rashtriya Swasthya Bima Yojanna • It includes BPL families, construction workers, auto drivers, licensed railway porters, domestic workers, mine workers, rag pickers etc. • Rs 750 per member in each family to be borne by Central & state governments. Covers cashless attendance for all covered ailments, hospitalization expenses and to cover pre-existing diseases. • For organised sector – Employee State insurance, PF for employees, workmen’s compensation act, maternity benefit etc.
  • 105. License Permit Raj • In 1947, India became a new country after partition but there was a lot of poverty. The Indian Constitution gave the right to vote to all adults. And it was the first democracy to give the right to vote to all Indians. This was a big achievement. India was a Constitutional republic or a liberal democracy right from birth. • For its economic development, India undertook central planning of it’s economy with a lot of controls on prices and quantities to achieve a socialist pattern of society. • Rajagopalachari who founded the Swatantra party, coined the term Quota-Permit-Licence Raj to describe the Indian model of socialism.
  • 106. How Licence Raj developed in India? • In 1948, Industrial policy, the government established its monopoly in defence, railroads, atomic energy, minerals, iron & steel industries, aircraft manufacturing, ship building, telephone and telegraph industries. • In 1956, industrial policy, the government’s monopoly was further extended to 17 industries. • In 1956, Life Insurance business became nationalised. • In 1969, large commercial banks became nationalised.
  • 107. • In 1970, the Monopolies and Restrictive Trade Practices Act was introduced. This restricted the businesses of firms with more than Rs 200 million assets. This was done to control the concentration of economic power in the hands of private business men and to protect public interests. • In 1973, General Insurance Business was nationalised. • Many public sector companies came about like Hindustan Insecticides, SAIL, ONGC, Air India, Ashoka Hotel corporation etc.
  • 108. Key Features of Licence Raj • New companies required licences to start new companies either to increase production or come out with new products. • They had to get approval from government for laying off workers or to close down operations. • The government did not allow imports with high tariffs and banned the import of certain products. For e.g. the import tariff for cars was 125% in 1960. in 1985, India has the highest level of tariffs in the world. • The government overregulated the private sector, nationalized the heavy industry and build state-owned enterprises in jute mills to hotels to steel plants.
  • 109. • Impact of Licence Raj affected India’s growth. When compared to other developing countries, India’s growth rate was the least in the 60s and slightly better in the 80s. • The GDP growth rate improved in the 80s because of the 1980s reforms – liberalisation of industry and trade and because of more borrowing from abroad. • This external borrowing bridged the gap between exports and imports but increased foreign debt. • Balance of payments problem occurred.
  • 110. Impact of Licence Raj • The impact of Licence Raj was very bad on India. India’s growth rate of industrial production was the lowest compared to South Korea, Taiwan, Singapore, Thailand, Pakistan, Hong Kong and Indonesia. • India’s GDP was also the least from 1960-80 when compared to all of these countries. India’s was 3.5 less than that of Pakistan’s 4.4. all the other countries was 9 or 8
  • 111. 1980 - 1990 • GDP improved to 5.6% during the 1980s. Because of the 1980s reforms • The external .orrowing bridged the gap between exports and imports and helped raise the GDP. It also contributed to overall growth. • But, India went into more foreign debt. • By 1985, India’s BOP crises increased. • In 1979, the second shock was the oil crises. This happened because of Iran-Iraq war, oil production decreased and led to an increase in oil prices. • This crises was severe, and the value of India’s imports doubled during 1978-82. 1980-1983 global recession happened and India’s exports suffered because of this. •
  • 112. Major reforms of 1980 • The number of items in OGL (open general list) had been Increased. Items like sewing machines, food preparations, chocolates etc. From 79 capital goods in the OGL list in 1976 to 1320 items in 1990. • The monopoly of government in imports was reduced. (canalised imports).Due to increased domestic production of POL (petroleum, oil, lubricants), success of Green revolution reduced import of grains and decanalisation of certain items. Decanalisation means items which only government could import were no longer government’s monopoly. Earlier, crude oil, petrol, cement, rubber were canalised- only imported by government.
  • 113. • This decanalisation was good for Indian businessmen and entrepreneurs, they could import machinery and materials. Export incentives were given. Industrial controls were relaxed. • REP licenses were given to exporters, they could freely import without restrictions. • In spite of all measures, external borrowing was increasing and pushing India into more debt. Resulted in large fiscal deficit. Led to the June 1991 crises.
  • 114. June 1991 crises • BOP crises happened because of too much borrowing and uncontrolled expenditure. The main causes of the BOP crises are • Break up of Soviet – India had rupee trade with the Soviets. This stopped when the Soviet broke up. • Iraq – Kuwait war – when Kuwait was captured by Iraq in 1990. Iraq and Kuwait were major source for Indian imports. Oil production stopped in Iran and Iraq's oil supply was cut. Pushed up oil prices. • Slow growth of important trading partners – world growth slowed down, this slowed growth of India’s important trading partners. Exports reduced especially in US.
  • 115. • Political uncertainty and instability – period from November 1989 to May 1991, lot of political uncertainty and instability was there. Because of three coalition governments and three Prime Ministers. Delay in handling BOP crises. • Loss of investors confidence – foreign investors not ready to invest in India because of the political uncertainty and because of BOP crises. • Fiscal indiscipline – throughout the 80s the Government could not balance revenue and expenditure. This reduced rupee value and led to inflation in the economy.
  • 116. • Increase in non-oil imports- trend was imports increased more than exports. • Rise in external debt – more of borrowing led to critical situation in India. India’s foreign exchange reserves greatly reduced. • India had to emergency loan from IMF and World Bank. This temporarily reduced BOP crises. • Led to P.V Narasimbha Rao’s economic reform process.
  • 118. • The economic reforms of 1991 was introduced to stabilize the macroeconomic environment and to make adjustments in India’s economic structure. • Short run objectives were to balance the BOP and to control inflation. Long run objectives were to change the structure of institutions. Structural reforms were made in trade, industry and the public sector.
  • 119. Objectives of reforms • To bring about rapid improvement in the quality of the people. • Rapid growth in incomes and productive employment. • To reduce poverty and to increase growth, invest in roads, farms, irrigation, industry, power and people.
  • 120. Major reforms of 1991 • Fiscal reforms • Monetary and financial sector reforms • Reforms in capital markets • Industrial policy reforms • Trade policy reforms • Promote foreign investment • Improve exchange rate policy
  • 121. Major reforms of 1991 • Fiscal reforms – to reduce the fiscal deficit by controlling expenditure and increasing revenues of the Government. Reduce too much consumption. • Some of the initiatives in the budget of 1991-92 was reduce fertilizer subsidy, remove subsidy on sugar, and to accept the Tax reforms recommended by Raja Chelliah Committee. • Tax reforms were better compliance in case of Income tax, excise duty and customs duty. To make tax structure more transparent and stable. Basically, to increase revenues.
  • 122. • Monetary reforms – • To improve the interest rates and lending rates and to make the banking system more efficient. • Reduce Statutory Liquidity Ratio (SLR rate) and Cash reserve ratio (CRR rate) as per the Narasimham committee. • Interest rates were decontrolled – earlier RBI used to control interest rates. Rates used to vary depending on the size of the loan and for which sector it was used. Now interest rates were liberalised. • Greater competition among the public sector, private sector and foreign banks were encouraged. And administrative restrictions were reduced.
  • 123. • Banks were given freedom to relocate branches and open specialized branches. • Guidelines given to open new private sector banks. • Capital market reforms – • As per the recommendations of the Narasimham committee many reforms were introduced in capital markets. • To remove direct government control and have a transparent regulatory system. • Securities and Exchange Board of India (SEBI) was given statutory recognition. • SEBI was supposed to create an environment wherein adequate resources can be raised through the securities market and efficiently allocated.
  • 124. • Industrial Policy reforms – • To make the domestic industry more competitive, these reforms were introduced. • To deregulate industry and make the industrial economy more efficient and competitive. • Licensing was completely removed in almost all industries except 18 industries. • The MRTP act was taken back so that large companies need not approval of government for diversification or expansion. • In public sector, private sector participation was allowed. Only in strategic industries, government control remained like atomic energy, defence, etc.
  • 125. • The public sector was given greater autonomy and professional management in order to generate profits. • An MOU was made between the public enterprise and the concerned Ministry, wherein the targets which the enterprise had to achieve were set up. • Government’s share in PSE were disinvested.
  • 126. • Trade policy reforms – • Main focus was to bring more openness in trade. • New initiatives taken in trade policy was to increase exports and reduce restrictions and licensing on foreign trade. • Imports and exports were made more free from restrictions. • The list of freely importable items was made longer. All intermediate and capital goods were made free from import restrictions. Only for 71 items import restrictions were there. • As per Chelliah Committee report import duties were drastically reduced.
  • 127. • Customs duties and tariffs were reduced too. • Trading houses – the 1991 policy allowed export houses and other trading houses to import a wide range of items. • To promote exports, Government allowed trading houses to be set up with 51% foreign equity.
  • 128. • Promoting foreign investment – • In post-reform period many measures were taken to promote foreign investment. • Government announced a specified list high technology and high priority industries where automatic permission was given for foreign investment up to 51%. Later limit was raised to 74% and than 100% for most industries. • Foreign Investment Promotion Board (FIPB) was set up to negotiate with international firms and approve FDI in select areas. • Steps were taken to promote Foreign Institute Investment (FII) in India.
  • 129. • Improve exchange rate policy – • One of the important measures to improve BOP crises was to devalue the rupee. • First, in July 1991, rupee was devalued by 20%. • This was to reduce inflation and make exports more competitive. • So, 1991 reforms benefitted the formal sector greatly. We see significant boom in many sectors. • Like civil aviation and telecom have benefitted from deregulation reforms.
  • 130. • But economic reforms and liberalization is still to be carried out for the informal sector. Which includes the urban poor like rickshaw pullers, street vendors, agricultural sector, MSMEs- Micro, Small & Medium enterprises and tribal. • Their has been slow growth and stagnation in these sectors. • So, more need of reforms in informal sector.
  • 131. Impact of Reforms • Positive impact- • With reforms, India overcame its worst economic crisis in just two years. • By rupee devaluation and other structural reforms BOP crisis got over and FDI and FII inflows increased into India. • India also integrated its economy to the global economy. • Exports have doubled also from 1990 to 2000. • Reforms led to increased competition in sectors like banking, more customer choices and increased efficiency too.
  • 132. • Many private companies entered various sectors. • Due to reforms, production of goods and services increased, this reduced inflation. • Poverty reduced from 36% in 1993 to 26% in 2000. rural areas and urban areas poverty declined. • Increase in air travel as civil aviation sector expanded due to reforms.
  • 133. • Government adopted ‘Open Skies Policy’ to promote competition in civil aviation and private players entered aviation industry in 1991. • India developed a name in the global market and number of foreign tourists to India increased. • Many sectors became internationally competitive like auto components, pharmaceutical, software, telecommunications, professional services, biotechnology etc.
  • 134. • Because of these reforms, more of foreign goods entered India and also foreign technology came into India too. For example – cell phone technology. • Evolution of cell phones
  • 135. • The automobile industry expanded, almost all brands of motor vehicles were available and prices of motor vehicles reduced too. • The biggest beneficiary of the economic reforms is the telecommunication sector. Vast expansion is seen in this sector. Earlier, too much regulation and government monopoly was there in there in this sector. Now it is one of the most competitive sectors. The National Telecom Policy of 1994, opened up this sector.
  • 136. • Negative impact – • These economic reforms were mainly for the formal sector. Agriculture, urban informal sector, forest dependent communities (tribal) did not benefit from these reforms. • This led to uneven growth and unequal distribution of wealth among the people. • The gap between the rich and poor increased. • The organized manufacturing sector achieved economic liberalization because of these reforms. But the additional employment generated was very little.
  • 137. • Infrastructure development was more in the developed states but less in the backward states. • Social sectors like education and health were neglected. Though they are important, no focus was on them. Result, low level of growth in education and the health sectors. • Economic reforms have increased growth in the country but failed to generate more employment. Unemployment is still a chronic problem in India. Rural unemployment rate and urban unemployment rate has increased.
  • 138. Entrepreneurship Culture in India • What is entrepreneurship?
  • 139. • Getting new ideas about something and expressing a desire to do something about it. • It is the process of creating something new by devoting the necessary time, money and effort to it. • Ready to take the financial, psychological and social risks and receive the resulting rewards of monetary, personal satisfaction and independence with it.
  • 140. • Entrepreneur: • To employ the economic resources properly. • To establish institutions • And, to make the institutions profitable, maintain it properly. • Ready to take risks • Definition: Entrepreneur • Derived from French word, • Means to take responsibility or initiative of doing something. • Utilizes capital, labour, and other wealth in such a way that its price increases more than before.
  • 141. • So entrepreneur is considered as an agent of production and use all the factors of production. He should provide continuous management, must have judgement, persist also and should have knowledge of the world and of the business.
  • 142. Elements of Entrepreneurial culture • People are more focused and empowered. • Through innovation and change they want to create something of value. • They give more attention to details. • Believe in hands on management • Believe in doing the right thing • Freedom to grow and to fail • Commitment and personal responsibility • Emphasis on the future and to better it.
  • 143. Is entrepreneur a manager? • An entrepreneur is a person who wants to do something new to help society. • A manager supervises daily activities of an institution. • Time consideration – manager wants to do everything immediately. He uses daily, weekly or yearly reports to evaluate the results of his work. • An entrepreneur works for longer period of time. He develops policies to achieve long term growth of his organization.
  • 144. • Risk – manager avoids risk and is conservative but still he wants growth of his organization. • Entrepreneur is ready to take medium risk. He evaluates the risk and sees what opportunities he has to get more profits. • Structure – a manager depends on the organizational structure to conduct his activities. • Entrepreneur always wants to improve the structure. He keeps trying to adjust the structure to the changing business environment.
  • 145. Entrepreneurship Culture in India • Entrepreneurship culture means when a group of individuals suppressed their individual interests in order to achieve group success. Group success will eventually help to achieve individual interests too.
  • 146. Entrepreneurship culture in India • India’s entrepreneurial spirit is quite strong as it is the third country amongst the fastest growing start-up countries in the world. • First country is US than UK. • Digitalisation has greatly helped in developing the entrepreneurial spirit in India. As we see so much growth in India’s online market. • The focus is to make ‘Bharat’ self sufficient. • With more focus on the semi-urban and rural areas.
  • 147. Government Initiatives • To develop an entrepreneurial culture, Government has started many initiatives. • ‘Start Up India’ campaign is to start start-ups in all districts, panchayats, small towns etc. • Atal Innovation Mission (AIM) which includes Self Employment and Talent Utilization (SETU) to provides a platform to promote world-class innovation Hubs, start-up businesses and other means of self employment. • With main focus on technology-driven businesses.
  • 148. • Such initiatives are bringing together academicians, entrepreneurs and researchers to collaborate and come out with innovations which will drive economic growth and motivate more people to become entrepreneurs.
  • 149. Changing Economic Landscape • With more and more developments in digitalisation, there is increased usage of internet and digital penetration has increased. • Both in rural India and urban India, consumers are doing online purchases and online transactions. • This has opened up many opportunities for technology driven start-ups. • Not only e-commerce, banking, finance, retail, logistics, rural education, consulting and many other fields are getting benefitted.
  • 150. • Banks are developing more and more consumer friendly simple tools to encourage online transactions. • Many easy interfaces like BHIM, UTI, Paytm etc. are being used by consumers today. • Plenty of opportunities are there to encourage entrepreneurs like educating rural India. Online education is going to become more and more strong in coming years.
  • 151. Women entrepreneurs • With the right environment and tools, it is predicted that the next generation will be the generation of entrepreneurs. • More and more women are becoming entrepreneurs today. • Many successful women-run start ups are LimeRoad, Kaaryah, Zivame, YourStory etc. • Nidhi Agarwal, founder of Kaaryah, a fashion portal for women’s wear raised funds from Tata Sons Chairman Ratan Tata during 2016.
  • 152. • The greatest driver of entrepreneurial growth has been the mental courage of Indians to go for ventures, risk taking capability, innovative thinking, and the passion to improve with trial and errors.
  • 153. The Major Challenge • The major challenge for start ups is raising funds or finding investors. • Entrepreneurs should not run after investors. Instead they should focus on developing a good product with a right business plan. • Investors always look for viable and scalable plans with low risks. But they also look for people who have done the groundwork well. • The second major challenge is to get the right set of people to work on your plan. Planning for the human resource with the required finance, administration and marketing skills.
  • 154. • For technology-based start ups, technology is the biggest challenge for them. • Technology is developing at such a rapid pace that companies need to update all the time and keep improving their products. • Start ups are increasing shifting their focus from developed markets like US,UK. Instead, they are exploring Asian countries like Vietnam, Thailand, Indonesia as the new consumer markets.
  • 155. • To create an effective conducive environment for entrepreneurs , it is better for educational institutions especially those institutions that offer technology and management education should train their students to become job creators and not only job takers. • Angel investors support research driven innovations.
  • 156. Current trends in Indian Entrepreneurship culture • In todays dynamic, thriving Indian economy, the SMME’s, Start ups, first generation entrepreneurs, and family run businesses are looking to expand their businesses. • In the last decade, major transformations have happened in Indian entrepreneurship segment. • Which has been the rise of technology enabled systems and services, business friendly approach of Government, stable taxation policies, GST, better access to FDI, easy access to investments etc.
  • 157. • The top 5 trends are – • Digitalisation & Automation • Business Collaborations • Focus on Customer service • Diversification • More focus on R&D
  • 158. Digitalisation & Automation • Digitalisation and automation is affecting many sectors, but it has affected even small start ups and entrepreneurs too. • Earlier, adopting the latest technology business processes was considered to be done by big players only. • But now digitalisation and automation is going to a part of every business operations, even small start ups and small entrepreneurs are adopting modern technology.
  • 159. Business Collaborations • Nowadays, consumers have so much choice with both Indian and International brands being available. • Consumers can now easily access products both offline and online. This means more competition for entrepreneurs and start ups to survive. • To beat the competition they go for business collaborations. Through collaborations, companies get the additional competence and resources and more business opportunities for entrepreneurs. This has resulted in a win-win situation for both customers and companies.
  • 160. Focus on Customer service • Because of competition, modern entrepreneurs and businesses have realised that they must provide focused customer service. They should engage more with customers, to build more loyalty among them. • To stand out amongst competition, businesses have realised that customer service approach to expand and grow. • This trend is favourable for customers, changed their buying patterns and has increased growth.
  • 161. Diversification • To beat competition, entrepreneurs and businesses are diversifying more into related and unrelated areas of their business. • Entrepreneurs have focused more niche products and service offerings, gone for collaborations, done outsourcing in non-core areas of their business. • Companies are diversifying into areas not related to their main business. Also, companies are going for multiple businesses. This has given more opportunities to entrepreneurs. • Helps business people to handle risks like when there is slowdown in economy. Diversification can give more returns too.
  • 162. More focus on R&D • Businesses today have realised that they have to be continuously learning and innovating. As they can access the latest technology like digitalisation, automation, global knowledge etc. • This trend will increase as more and more companies are investing time and resources to study, implement and improve their product and service offerings. This helps entrepreneurs to grow and expand.
  • 163. • India has shown more entrepreneurial potential in recent years than other countries. • It started from IT outsourcing in 1990s to the recent successful technology start ups like Flipkart, Oyo, Ola, Paytm etc. • India has become a start up hub and a breeding ground for innovative entrepreneurs.
  • 164. Industrial Policy 2014 • Objectives – • On a priority basis promote the manufacturing sector. • To develop Chhattisgarh same as the ‘Make in India’ campaign. ‘Make in Chhattisgarh’ • To bring Chhattisgarh state on par to other developed states of the country by 2024. • To encourage the states to go for entrepreneurship and provide them more opportunities for employment.
  • 165. • To bring about industrial development in the new sectors. • To promote exports and to attract foreign investments, set up Special Economic zones and the required infrastructure. • To provide economic incentives to backward industries in order to achieve balanced industrial development. • To set up industries which are environment friendly and which use skilled manpower like IT, Bio technology, agriculture & food processing, new & renewable energy etc.
  • 166. • To provide more economic benefits to weaker sections like SC,ST, differently abled persons, retired soldiers etc. • To allow participation of private sector in construction and maintenance of industrial infrastructure. • To ensure industries participate in skill development of locals. • To make use of available mineral and forest resources. • To increase warehousing facilities for agricultural products especially in rural areas.
  • 167. Strategy • Actions undertaken ‘Under Ease of Doing Business’ • Simplify the application process and documents required. • Wherever possible promoting ‘self certification’ of documents. • Giving time lines for completion of a set of procedures. • Wherever possible doing online execution of approvals and permits. • State wise PMG (project monitoring group) web portals set up to solve any issues regarding setting up of industrial and infrastructural projects.
  • 168. • Setting up ‘Land Bank’ to provide 10,000 hectares of land for various industries. • Industries like bicycle manufacturing, pharmaceuticals, textiles, electronic industries etc. were included as ‘Priority’ under this policy. • The chief minister cluster development scheme was started under this policy to provide 5 crore subsidy to set up industrial parks in private sector. • Same as ‘Make in India’ campaign ‘make in Chhattisgarh’ was started to give priority to manufacturing units. • More employment opportunities would be provided in Chhattisgarh.
  • 169. • Special incentive schemes were set up to rehabilitate sick and closed industries. • Fiscal incentives given to promote investments in industries, to strengthen SMME’s in product quality, technological up gradation, for marketing facilities etc. • To set up Single Window System for approvals and clearances at the state level and district level. It was called ‘Mitaan’ to get clearances for industrial investments like certificates, NOC, approvals etc. • Establish effective systems at State and district levels for monitoring, evaluation and grievance redressal.
  • 170. • Departmental officers would be nominated as ‘Udyog Mitra’ for individual industrial units at State and district level with an investment of more than INR 10 crores. • These officers provide guidance and support to get the benefits of various schemes right from initial stage to establishment stage.
  • 171. • Labour laws were simplified. • Industries in Special Economic zones are exempted from the labour laws. • To implement the labour reforms, Task force meetings used to be held regularly. Officials from labour department, department of Industries and from Industrial associations used to represent these meetings.
  • 172. • Number of labour courts was increased in those districts where rapid industrial development was taking place. • To develop HR, ‘Right to Skill Development Act 2013’ was implemented for the youth. Some of the initiatives was to get placements for vocationally trained youth, diploma holders and graduate engineers.
  • 173. • Marketing assistance was given to micro and small enterprises under this policy. To protect the marketing interests of MSMEs. • For entrepreneurship development, state level entrepreneurship programs were organized. • A new course on Entrepreneurship was developed which provided practical training and industrial tours.
  • 174. • Entrepreneurs were supported in getting training from prestigious institutes like “Entrepreneurship Development Institute” Ahmedabad. • To promote direct exports, Export facilitation centres were established. Air cargo facility was also set up for customs clearances. • Focus was on developing Karnataka, Telangana, Tamil Nadu and Chhattisgarh by this policy to achieve rapid industrial development in these states.
  • 175. Bagedari sector • Is the unorganised sector. • Consisting of mostly small partnership and proprietorship firms and self employed persons. • largely ignored sector • Example of Bagedari – your neighbourhood kirana shop.
  • 176. Reforms process • Liberalization happened in 1991. • Focus was more on the corporate sector and public sector. • But a major portion of national income and national savings is generated by the non-corporate sector or bagedari sector.
  • 177. • Bagedari sector consists of the partnership and proprietorship firms. • Reforms have to focus on issues of this sector too. • Contribution of Bagedari sector to national income – • 1980-81 31.92% • 1990-91 32.34% • 1994-95 31.5% • 1996-97 34.83% • So, bagedari sector plays a major role in Indian economy.
  • 178. • The activities of the Bagedari sector is dominant. • It is one of the fastest growing sectors in the Indian economy. • They contribute more than 40% to national savings and pay their taxes too. • They contribute 35% to the National income and have a share of more than 75% in the service sector. • Like trade, transport, hotel, restaurants, construction, and services like doctors, lawyers, architects, accountants etc. • But focus has been only on government and corporate sector.
  • 179. Importance of Bagedari sector • Unorganised sector forms a large part of the Bagedari sector. • In US, major portion of the national income comes from the corporate sector. • But in India, 50% of the total manufacturing activities is carried out by the Bagedari sector. • This sector is the largest segment in terms of national income, savings and employment.
  • 180. • The Bagedari sector experiences fluctuations in income because of competition from the organised sector, government rules and regulations. • Experts have said pension and social security benefits should be provided to this sector. • But sadly, Government has not focused on this sector. • But this sector is subject to same regulations as the corporate sector.
  • 181. • So, “Bagedari sector” means unincorporated firms or non-corporate sector or unregistered sector. • Which consists of partnership or proprietorship firms, HUFs (Hindu Undivided Families), and the self employed. • Sole proprietorship is a single business unit owned and controlled by a single person. Also called sole trading concern.
  • 182. • The person who manages the business unit is called a sole trader. • The single entrepreneur alone enjoys both profits and losses in the business. • He is the founder and controller of the business. • It is easy to set up and manage as no legal formalities are there.
  • 183. Share of Bagedari sector in Service sector • In wholesale and retail activities, hotels and restaurants, road transportation, real estate, and in business services like medical, legal, architects etc. generated more than 80% of the national income. • In the last few years, organised retail and organised food industry has been growing very fast. • This has affected the Bagedari sector.
  • 184. Savings from Bagedari sector • 80% of the savings in India comes from household sector. Which includes the wage earning households and mixed income. • 44% of household savings comes from farm households. • So bagedari sector provides a lot of savings to the Indian economy. • Money from this sector, can be used in other sectors. • Savings from Bagedari sector accounts for 10% of the total domestic capital formation.
  • 185. A major wealth creator • Bagedari sector generates around 35% of the national income and around 35% of the national savings. • Therefore, the small unregistered small partnership and proprietorship firms is a major wealth creator in our economy. • In spite of all these benefits from the bagedari sector, the reforms process has ignored this non-corporate sector.
  • 186. Focus of Reforms • Mainly on governments and corporates and their interfaces • On Industrial policy( licensing, monopolies and restrictive trade practices and foreign investment) • Foreign exchange & trade policy ( negative list for imports/exports, imports and tariffs) • Capital markets ( pricing of shares, regulations on merchant banking/ mutual funds/ foreign institutional investments)
  • 187. • Banking ( interest rates deregulation, policy for capital formation, private banks deregulated) • Tax structure ( reduction in tax rates, tax incentives for FDI, reduction in exemptions) • Foreign investments ( 100% or 50% allowed + equity allowed, technology imports, usage of foreign brands etc.) • Investments ( privatisation, tariffs)
  • 188. Two major areas of the reforms process • Government is controlling only strategic industries and allowing private sector to enter most of the other sectors because of market reforms. • Focus on foreign firms and domestic firms ( family owned) and to create level competitive field for both. • So, even through Bagedari sector is contributing to national income and national savings and is a major wealth creator but its name is not mentioned in the reforms agenda.
  • 189. What needs to be done for this sector? • Identify what needs to be done for largest unorganised sector. • What are the relevant issues affecting this sector? Which is very important to make this sector efficient and productive. • And which will help to modernize our economy.
  • 190. Financing the Bagedari sector • Bagedari financing is a big problem. • Usually, get funds from private money lenders. Who charge a high rate of interest. At least twice that of commercial banks. • That is why wholesalers and retailers have large margins. They borrow funds at open market interest rates. • Especially, seen in the case of FMCG products. • Manufacturers earn more profit than retailers.
  • 191. • In the case of cash crops and vegetables, the gap between producer’s prices and consumer’s prices is 70 – 80%. • To the producer’s prices the trader’s margin, warehousing costs, transportation cost – all such financial costs are added. • So trade, transportation and other professional services conducted in the bagedari sector have to borrow funds at very high rate of interest.
  • 192. • In spite of these burdens this sector is still profitable. • That shows how the single owners are very entrepreneurs. • The reforms should solve the problem of financing for trade, transport, hotels, dhabas, restaurants spread throughout India and other activities in the bagedari sector.
  • 193. • Governments and banks are not ready to finance such bagedari activities because they do not have enough marketing information and knowledge of the bagedari sector. • The non-banking finance companies (NBFCs) are the best organizations to finance the bagedari sector. As they are market savvy and they know about the bagedari customers and how to recover money from them.
  • 194. • If commercial banks lend credit to NBFCs at 18% interest. These NBFCs can give funds to bagedari sector at 22%. • Which is very less compared to the market rate of interest of 30 to 36%. • The government banks also can provide funds to NBFCs. Who in turn can give credit to Bagedari sector.
  • 195. • The reforms have not focussed on such issues. • Instead, they have tried to regulate the NBFCs more in order to make sure adequate capital is available. • They have not realised the contributions of NBFCs and how much market information they have. • Too much of regulations on NBFCs have driven most of them to extinction. • Example of NBFCs – Bajaj Finance, LIC housing finance, Muthoot finance, Shriram transport finance etc.
  • 196. • Global companies like GE Capital, Citibank are taking care of retail financing of automobiles and also the white goods trade. • Global companies have deep pockets so can take of premium customers too. • But retail traders, wholesalers, distributors of FMCG products, distributors who distribute white goods have to depend on private money lenders who charge a high rate of interest.
  • 197. Social security benefits for Bagedari sector • State provides no social security benefits to the Bagedari sector. • Even when the bagedari sector’s firm contributes to pension scheme like Jeevan Suraksha for their employees. Their contributions are not considered tax deductible. • Whereas, government and corporate sector ( which generates much less wealth) contributes to their employees retirement funds. Their contributions are considered tax deductible!
  • 198. Legislation & Regulation in Bagedari sector • Bagedari sector’s activities are mainly regional and it is mainly regulated by the state government. • A list of regulations are applied on this sector. • Commercial taxes, road tax, entertainment tax, excise duty on liquor, urban land ceiling, shops and establishment act, laws governing the educational and medical institutions, money lending and contracts. • Most of these regulations are forced upon the bagedari sector and is unfriendly and disrupts the working of this sector.
  • 199. • The street corner groceries shop has to keep the following people happy. Municipal authorities, food and adulteration officers, local police, telephone and electricity company people, sales tax, factory inspectors etc. • A transporter of goods from one location to another, sends money through drivers and cleaners to pay bribes at check posts. • Restaurants like Darshinis of Bangalore, the Udupis of Mumbai, and the dhabas spread all over India must cater to the demanding officials. • The entrepreneurial spirit of this sector has been controlled to much by central, state and local governments.
  • 200. Slow Indian Legal System • That, this sector survives and contributes a lot of wealth shows the strong will to succeed of this sector. • There is too much delay in the Indian Legal system. Lot of time and money is wasted because of these delays. • Two million cases are pending in Supreme court, High court and in the lower courts. • One long pending case has entered the Guinness Book of Records as the longest pending case. • A keeper of a temple filed a case in 1205 AD and the case was settled in 1966- 761 years later.
  • 201. • This is not all the time. Generally, Indian courts settle cases within five to fifteen years. • In such a situation, the Bagedari sector which has very less financial flexibility suffers the most. • It cannot think of filing cases because of lack of funds, and because of the legal delays. • So, the bagedari sector tries to get things done by force. Takes law into their hands to get their rights. • When the bagedari sector is at fault it is also treated in the same way by the law.
  • 202. • Reforms should have taken care of this issue. • Like creating courts which only deal with the problems of the Bagedari sector. • These courts should be fully computerised and function like family courts. • Another alternative, is to involve communities to resolve problems of this sector through arbitration. • Arbitration is a procedure where disputes are settled through private resolution. The dispute is submitted by the concerned parties to arbitrators who make a
  • 203. • Final decision on the dispute. Instead of going to the court the parties go to arbitrators. • For example – in stock exchanges disputes among member brokers are settled through arbitration. The concerned parties have to accept the final decision.
  • 204. Child labour and Reforms • Children and women packing matchsticks in Sivakasi ( Tamil Nadu), • preparing slates and pencils in Mandsur (MP), quarrying in Haryana, or washing in the tanneries of Ambur (Tamil Nadu), rolling beedies in Belgaum and Mangalore (Karnataka), helping diamond cutters in Surat, constructing buildings in urban and semi urban areas, washing plates and serving customers in restaurants all over India and working as mechanics and helpers in automobile garages – all this employment comes under the Bagedari sector.
  • 205. • Reforms are silent on these activities. • Offers simple solution like abolish child labour or increase government funding for primary education. • Government does not discuss alternatives like giving tax holiday to the Bagedari sector which sponsors part time education of the child labour. • Local schools can offer evening classes to such children. • This is one way how government can provide educational opportunities to such children without affecting their employment without spending of much money.
  • 206. MNCs and Bagedari sector • Many items are manufactured by small and tiny sectors. • Like soaps, toothpaste, shoes etc. are made by the small sectors. • But MNCs have taken up these businesses right from the time the States reorganization happened in 1956. • Like Hindustan Lever is into soaps, Colgate Palmolive is into toothpastes, Bata is in shoes etc. • This has not allowed even Tata company from entering into these business activities.
  • 207. • And also, Bagedari sector has to face competition from these global companies too. • The crucial issue in the reforms process is what will be the future of the Bagedari sector when the economy has opened up to global companies in manufacturing, transport, trade, construction, hotels and restaurants etc.
  • 208. • In the future, should the small partnership/ proprietorship firms become corporates? • Will the future make the self-employed wage earners? • Like street cobblers being employed by Adidas and Nike. • And roadside tailors being employed by Van Heusen, • And mom and pop readymade stores being employed by Walmart, J C Penny. • Is it fair competition? Because of globalisation and • FDI Bagedari sector has to compete with MNCs?
  • 209. What could happen in the future • Udupis and Iranis and other such small restaurants and dhabas run by Bagedars will have to face competition from MacDonald’s and KFC’s. • Street corner grocers and wholesale dealers will have to compete with Wal-Mart and Sears. • Small contractors doing road construction work will have to compete with global construction firms. • Transport operators having a fleet of one to five trucks will have to compete with Federal Express and Greyhound. • Local fishermen with their small boats have to compete with global fishing companies with their trawlers.
  • 210. • Bagedars are not afraid of competition. • But if they have access to bank funds and are subject to cleaner control by regulators they can give stiff competition to the big companies. • In the developed world, many examples are there where small companies have succeeded in competing with global companies. • It should be a level competition for all. • But political parties are silent on this issue. • None of the political parties have thought about the future role of Bhagidar sector.
  • 211. • There is no debate even on this issue by the political parties. • Government sponsored and lobby favoured seminars and debates are common. • But what about the bagedari sector which provides a third of national savings and national income? • Lobbying – means big companies who have huge resources and wealth influence the government to get favourable prices for their products. • For example - Reliance
  • 212. • This sector cannot be ignored as it is the most productive and efficient in the private sector. • This sector was doing well even in the sixties and seventies. • By focussing only on the corporate sector, the government thinks it can modernise the Indian economy. • But if they should focus on the Bagedari sector than only will the Indian economy become modernised.
  • 213. • Instead of listening to the complaints of the associations of the corporates. • They should listen to the complaints of the associations of the Bagedari sector like Nasik Vyapari Mandal, Tindivanam Transport operators, Renigunta restaurant owners etc. • For example a small village Kadavari in between the borders of Tamil Nadu and Kerala – in 1998, the 80 odd families in the village set up their own power station. With their hard earned resources and they did not take help of the government. The state electricity board declared that they had broken the law!
  • 214. Start ups and MSME sector • What is a Start up? • When business is started on a new idea it is called a start up. It would be an innovative idea. • They get funds from investors only. • What is a SME? • Small Medium Enterprises have traditionally helped to run the service sector and manufacturing sector. • SMEs are started to get profit. They get funds from banks and NBFCs. • There is no innovation in SMEs.
  • 215. • SMEs business is started based on the need in the market and on the number of customers. • Definition of Start up – a start up is a unit of business and will be considered a start up for ten years from its registration. • Any innovative technology will be considered a start up, in development and processing business, or production of commercial products due to some latest technology. • Turnover of the financial year does not exceed 100 crores.
  • 216. • Definition of SMEs – • Small enterprise – an industry with an investment of 10 crores and an annual turnover of 50 crores is considered to be a small enterprise. Applicable for both manufacturing and service sectors. • Medium enterprise – an industry with an investment of 30 crores and an annual turnover of 100 crores is considered a medium enterprise.
  • 217. • Start ups are started to bring a new business idea into existence. • First idea is to start the business profits are thought later. • Whereas, SME is started for profit only. • SME can be just setting up a shop or setting up a medium level plant. • From day one you expect profits from SMEs. • But from start ups you can’t expect profits from day one.
  • 218. • Start ups are labour-intensive. And joint work has to be done by a number of people. • An SME can be a shop or a medium level factory. • In SME a person can work alone and make profits. • But not in a start up. Because start up is not a shop.
  • 219. Fund raising • Both SME and start ups require money. • Start ups can get funds from private investors and also from government up Start-Up India. • SMEs are started with own funds. To start a business, loans can be taken from Mudra Loan scheme of government. • But most of the money SME has to invest itself. • When SMEs want to expand, they can get loans from many financial institutions.
  • 220. Large scale enterprise • Large scale enterprise can range from a single proprietor business to a large corporation that employs thousands of people across different countries. • Based on the scale of business, organisations can be classified as micro enterprise, small scale enterprise, large scale enterprise, public enterprise and multinational corporations.
  • 221. • Industries which require huge amount of infrastructure, manpower, capital and other assets is called large scale enterprise. • In India, large scale enterprise are those with fixed assets of more than Rs 10 crores. • The Indian economy relies heavily on these large scale enterprises for the growth of economy, for generation of foreign money and for creation of jobs opportunities.
  • 222. Large scale industries • In India, large scale industries includes different types of industries. • Following heavy industries fall under large scale industries – • Iron & Steel industry • Textile industry • Automobile industry • Telecom industry
  • 223. • Over the past two decades, Information and Technology industry has developed into an industry which generates huge amount of revenues and also provides job opportunities. So, some economists consider it as large scale industry. • Some other manufacturing industries which use native and imported technology are considered as large scale industries like fertiliser, natural gas, coal, metal extraction, tourism, engineering etc.
  • 224. • Globalization has been good for some large scale industries which have attracted international customers, increased foreign trade and gone for technology tie ups.
  • 225. Export oriented companies • Export oriented companies are mainly concerned with the export of goods and services. • Export oriented units (EOU) export their entire production of goods. • EOUs can engage in manufacturing, services, development of software, repair, remodelling, reengineering, include making of gold/silver/ platinum jewellery and articles.
  • 226. • The Export Oriented Scheme (EOU) was introduced in 1981. • It is complementary to SEZs. • EOUs follow the same production style as SEZ. But they offer more facilities like source of raw materials, ports of export, facilities in remote areas, availability of technological skills, provides more land for projects.
  • 227. Objectives of EOUs • The main objective is to increase exports, earn foreign exchange, transfer of latest technology, get foreign direct investments, generate more employment. • Major sectors in EOUs – granite, textiles/garments, food processing, chemicals, computer hardware, coffee, pharmaceuticals, gems & jewellery, engineering goods, electrical & electronics, aqua and pearl culture.
  • 228. • EOU activities – in the beginning EOUs mainly concentrated in textiles and yarns, food processing, electronics, chemicals, plastics, granites and mineral ores. • Nowadays, EOUs are also into manufacturing, services, development of software, trading, repair, remodelling etc. also into agro processing, aqua culture, animal husbandry, floriculture etc.
  • 229. • Need for special licence – in the following sectors, an EOU owner needs to take a licence. • Arms and ammunition • Explosives and allied items of defence equipment • Defence aircraft and warships • Atomic substances • Narcotics and hazardous substances • Distillation and brewing of alcoholic drinks • Cigarettes/cigars and manufactured tobacco substitutes
  • 230. Choosing the EOU location • EOUs can be set up anywhere in the country and do manufacturing and production of software, floriculture, horticulture, agriculture, aquaculture, pisciculture, poultry etc. • But in large cities, where the population is more than one million like Bangalore, Cochin the proposed EOU location should be at least 25 km away from the standard urban area limits unless the area has been labelled as an “industrial area”
  • 231. • But non-polluting EOUs like electronics, computer software and printing are exempt from these restrictions when choosing their location. • Apart from these location restrictions from the local zonal office and state government EOUs also have to fulfil environmental rules and regulations. • If the new EOU unit is not suitable from environmental point of view. Than the Ministry of Environment, Government of India has the right to cancel this proposal.
  • 232. EOU unit has some obligations • EOU has to achieve the minimum NFEP (Net Foreign Exchange Earnings as a percentage of Exports) and the minimum EP ( Export Performance) as per the provisions of the EXIM policy which varies from sector to sector. • That means the units with investment of plant and machinery of Rs 5 crore and above are required to achieve positive NFEP and export goods which are worth US$ 3.5 million or 3 times the CIF value of imported capital goods, which ever is higher for a period of 5 years.
  • 233. • CIF – Cost, Freight, Insurance which is the expense paid by the seller. • The seller has to cover the costs, insurance and freight of the buyer’s order when it is in transit. • The seller has to export the goods to the port mentioned in the sales contract. • NFEP is calculated together for 5 years from the start of commercial production.
  • 234. • For electronics hardware sector minimum NFEP has to be “positive” and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods whichever is higher.
  • 235. Bonding period of EOU • The EOU units are licensed to manufacture the goods within a bond period. • As per the EXIM policy, the bond period is initially for a period of five years. • Which can be extended to another five years by the Development Commissioner. • On the request of an EOU unit, the bond period can be further extended for five years by the Chief Commissioner of Customs.
  • 236.
  • 237. Changes in EOU scheme from April 7th 2006 • Covers the export of goods which is one and half percent of FOB value • To help in the smooth operations of EOUs, the Development Commissioner has fixed time limits to deal with the matters of the EOUs. • The EOU units in the textile sector can dispose of left over material up to 2% of CIF (Cost, Insurance, Freight) value of imports. • For every consignment it is time consuming and complex to dispose left over material. Now they have allowed disposal of leftover material on the basis of previous years imports.