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Economy
An economy is the way a nation makes economic choices about how the nation will use its
resources to produce and distribute goods and services.
The following are the different segments of structuring the Indian economy
I.
II.
III.
Foreign trade under British Rule: India had occupied the place of eminence in the area
of foreign trade, since ancient times. But the British rule in India ended this eminence.
India was well known exporter of finished goods (Such as fine cotton, silk textiles, iron
goods, wooden goods, ivory work and precious stones). But the British rule in India
converted India into exporter of raw material and importer of finished goods.
IV.
Demographic profile during the British rule: high birth and death rate. (48 and 40 per
1000), Massive poverty. Poor literacy 16%
V.
Government and abide by their rules and regulations. The main aim of the Government
was to promote and control critically important industries and allow private ownership
only in those areas where the industries are no top priority.
2. Private ownership: Role of the public sector in the total national output is rapidly
diminishing with more and more industries coming under private ownership courtesy the
Government which is involved in their active transfer.
3. Decisive role of the market mechanism: The market mechanism for various markets is
majorly controlled by the government. Even then the markets run as per the laws
prevailing in the market. A licensing system for industries was established but it could
only correct the license and control system to some extent. With the introduction of
structural reforms in 1991-92 market controls have been deregulated to a large extent.
4. Economic planning: Even since India became independent it has been practicing
economic planning. The main purpose is to develop all sectors and sections of the
economy. The government plans the economy for a period of five years. These are called
five year plans, some targets are set to be achieved in the agricultural, industrial and other
sectors.
Economic freedom and capital formation: Since people have the right to acquire and hold
private property, this right encourages capital formation. Economic freedom provides incentive
to the people to work hard. It promotes setting up of more business units which in turn promote
capital formation.
Competition and efficient production: Healthy competition among the producers keeps the
standard of efficiency high. Because of the possibility of private profit all factors work
efficiently. Because of competition, all business units try to reduce their wastages, improve
efficiency and make optimum utilization of resource.
ECONOMIC SYSTEMS
There are four types of economies:
1. Pure Market Economy
2. Pure Command Economy
3. Traditional Economy
4. Mixed Economy
Lets review each of these types of economies.
Pure Market Economy
Consumers decide WHAT should be produced. They do this through the purchases they
make.
Businesses determine HOW the products will be produced. They must be competitive.
WHO buys the products? The people with the most money are able to buy more goods
and services.
Problems
One person (dictator) or a group of officials decide WHAT products are needed.
The government runs all businesses, controls all employment, and decides HOW goods
and services will be produced.
The government decides WHO receives the products that are produced.
Problems
Resources owned by the state are often wasted individuals dont care if they dont own
it.
Traditional Economy
1. Economy is shaped largely by custom or religion.
2. Customs and religion determine the WHO, WHAT, and HOW.
Example: India has a caste system which restricts occupational choice. (A social class
separated from others by distinctions of hereditary rank, profession, or wealth.)
Mixed Economy
1. Most economies in the world today are mixed.
2. Classification is based on how much government intervention there is.
Government Philosophies
Countries also have different philosophies of government which reflect not only the laws and
rules, but how individuals are treated. There are three political philosophies:
1. Capitalism: Capitalism features private ownership of businesses and
marketplace competition. It is the same as a free enterprise system. The
political system most frequently associated with capitalism is democracy.
2. Socialism: The main goal of socialism is to keep prices low for all people
and to provide employment for many. The government runs key
industries, generally in telecommunications, mining, transportation, and
banking. Socialist countries tend to have more social services.
3. Communism: Have a totalitarian form of government; this means that the
government runs everything and makes all decisions. Theoretically, there
is no unemployment in communist countries. The government decides the
type of schooling people will receive and also tells them where to live.
Many countries are in transition from either communism or socialism to capitalism.
Economicreformsinneweconomicpolicy
Liberalization
Privatization
Globalization
Liberalization of the economy means to free it from direct or physical controls imposed by the
government.
Measures taken for liberalization: following measures have been taken under economic reforms
for liberalization of Indian economy:
1. Abolition of industrial licensing and registration: Main feature of the new industrial policy
is to adopt a policy of linearization in place of controlled economy. Till now private sector of the
economy was functioning under a rigid licensing system. Under new economic policy private
sector has been freed, to a rigid licensing system. Under new economic policy private sector has
been freed, to a large extent, from the yoke of licenses and other restrictions. In July 1991 a new
industrial licensing has been abolished for all other industries. Industries for which licenses are
still necessary are:
1.
2.
3.
4.
5.
6.
Liquor
Cigarette
Defense equipment
Drugs
Industrial explosives
Dangerous chemicals
Any entrepreneur can float any new company and sell its shares without any restrictions.
2. Concession from Monopolies Act: According to the provisions of monopolies and
restrictive trade practices act all those companies having assets worth more than 100 crore
used to be declared monopolies and restrictive trade practices firms and were subjected to
several restrictions.
3. Freedom for expansion and production to industries: Under the policy of liberalization,
industries are free to expand and produce. They need to prior official approval.
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4. Increase in the investment limit of the small industries: Investment limit of the small
industries has been raised to one crore so as to enable them to introduce modernization.
Investment limit of tiny industries has also been increased to 25 lakh.
5. Freedom to import capital goods: under the policy of liberalization, Indian industries
will be free to buy machines and raw material from abroad in order to expand and modernize
themselves.
6. Freedom to import technology: New economic policy of economic reforms has laid
emphasis on the use of high technique to promote modernization. The objective of this policy
is to develop sunrise industries, i.e., computers and electronics.
7. Free determination of interest rates: Interest rate of the banking system of the country
will no longer be determined by the Reserve Bank of India as per the policy of liberalization.
Banks all over the country are now free to determine the rate of interest as they like.
8. Action plan for information technology and software development: A National Task
force on information technology and software development submitted 108 point action plan
in July 1998. The recommendations have been accepted by the government and directions for
their implementations have been given to all concerned departments.
Privatization:
In the context of economic reforms, privatization means allowing the private sector to set up
more and more of industries that were previously reserved for public sector. Under it,
existing enterprises of the public sector are either wholly or partially sold to private sector.
1. Change in Ownership: The degree of privatization is judged by the extent of ownership
transferred from the public enterprise to the private sector.
Total Nationalization
Joint venture
Liquidation
Workers co-operative
3. Operational Measures: The efficiency of public sector enterprises depends upon the
organizational structure. Unless this structure grants a sufficient degree of autonomy to the
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operators of the enterprise or develops a system of incentives, it cannot raise its efficiency and
productivity.
Globalization:
Globalization is the third pillar of the structure of economic reforms. Globalization is the
process of movement from a closed economy to an open economy and the process of
removal of restrictions on foreign trade, investments, innovations in communications and
transport systems.
Globalization Indicators: There are some variables that can be considered as the indictors
of globalization. These indicators of globalization are:
Foreign Direct investments: Foreign firms falls under the category of foreign direct
investments by investing in the real assets like factories, sales offices etc.
Globalization in the form of FDI happened in the middle of the 1980s
Foreign portfolio investment: Foreign portfolio equity investment has also happened
globally by the FDI
Global governance by international organizations like world trade organizations:
from the following three factors outlined it is clear that
1. Economic integration is very deep.
2. Reduction in import duty rates
3. Cooperation between countries for foreign investment is increased.
Business Restructuring Flexibility and closeness to Market
1. Flexible, just in time production system
2. Moving production closer to the consumer and securing access to the local market
3. Diversification of operations.
Challenges
1. High cost: To maintain international standard
2. Poor infrastructure
3. Obsolescence: Outdated technology
4. Resistance to change: Resisted by Labour unions
5. Poor quality image
Lack of experience: tact and diplomacy on the part of business in India
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SOCIAL JUSTICE
Social justice generally refers to the idea of creating an egalitarian society or institution that is
based on the principles of equality and solidarity, that understands and values human right, and
that recognizes the dignity of every human being. The term and modern concept of Social
justice was coined by the Justice Luigi Taparelli in 1840 based on the teachings of St. Thomas
and given further exposure in 1848 by Anotni Rosmini-Serbati.
The idea was elaborated by the moral theologian Jhon A. Ryan, who initiated the concept of a
living wage. Social justice is based on the concept of human rights and equality and can be
defined as The way in which human rights is manifested in the everyday lives of people at
every level of society.
In the year, the erstwhile Ministry of Welfare was bifurcated into the Department of Women and
Child Development and the department of welfare.
Subsequently, the name of the ministry was changed to the Ministry of social justice and
empowerment in May, 1998. Further, in Oct, 1999, the Tribal Development Division had moved
out to form separate Ministry of Tribal affairs. In January, 2007, the minorities division along
with Wakf Unit have been moved out of the ministry and formed as separate ministry and the
child development division has gone to the ministry of women and child development.
DIS-INVESTMENT
It means to take return of equities from Govt. public sector units. Means the process of reducing
the amount of money in Govt. sectors that was replaced by public and private sector.
The Govt. of India has been decided to withdrawal their money from industrial sector in
accordance with this decisions the Govt. has adopted the root of disinvestment.
Objectives:
1. To strengthening of public sector units.
2. To increase competition.
3. To promote the growth of Indian companies.
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Internal factors
External factors.
Internal factors: internal factors again classified into two types. Born sickness factors and
achieved sickness factors.
Faulty financial planning: faulty financial planning is the major factor of industrial sickness.
Under capitalization is responsible for it and its signs become evident from very beginning of its
functioning.
Lack of experience of promoters: sometimes promoters are new and they lack in experience.
Wrong section of the project and faulty project planning and wrong guidance given by
promotional agencies of the govt. may leads to the birth of a sick unit.
Selection of wrong location
Technological factors: adoption of inappropriate technology, obsolete technology, standard
machinery, wrong technological collaboration, license, production restricted goods etc may also
leads to sickness.
1.
2.
3.
4.
5.
6.
7.
8.
Economic crisis
Statutory price control
Continuous power cuts
Fast technological changes
Cut-throat competition.
Govt. policy towards industrial sickness: for handle effectively and systematically the Indian
Govt. announced sickness policy in 1985 .according to that policy every govt should concentrate
on sickness industries who are running in India.
Role of administration plans: The administrative ministers have been assigned the specific
responsibility to deal with this problem. At the time of preparation of five years plan govt should
give priority for sickness industry.
Strengthening monitoring mechanism: banks and financial institutions should strength the
system of monitoring and also take timely corrections in industrial sickness.
Under taking diagnosis: Before support to the industrial sickness everyone should identify what
is the problems reason for sickness and who is responsible for this.
Consulting regular meeting between govt. and financial institutions: There is a necessity for
conducting meetings between industry people and govt. because of these both have the
knowledge about different problems faced by industrialist and policies implemented by govt.
Sickness industry Acts: An important peace of legislation dealing with industrial sickness by
using industrial sickness act 1985. They take actions like
1.
2.
3.
4.
5.
6.
Timely direction of sick and potential industries who are undertaking by the govt.
The speed up actions determined by the Govt. for recovery of such companies.
Reconstruction of industries.
Efficient management for sickness industries.
Takeover by the efficient management.
To sale or lease by the other successful industries.
These all people are recruited by central govt. The chair person have duration of 5 years and he
most possess 15 years experience as high court judge and 15 years of experience in
professionalism and have knowledge in interdisciplinary. The other members in its committee
are deputy manager, advisor and consultancies.
Objectives:
1. To shift the focus from curing monopolies to promoting competition.
2. To ensure fair and healthy competition.
3. To promote and sustain competition in markets.
4. To protect interest of consumers.
5. To ensure freedom of trade carried by other participants in Indian markets.
Features:
1.
2.
3.
4.
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Hindering entry to market: By intentionally if any business people give any difficulties to the
competitors then competition act is prohibited.
Promote the production, distribution goods and services: This act not only protect enterprises
but also concentrate on production activities, distribution activities and quality of goods and
services.
Promotion of technical economical and scientific method: This act also concentrate on
technology development in the business, development of science methods and also economic
development industries as well as govt.
Prohibition of anti-competitive agreement: The act prohibits persons and enterprises for
entering into any agreement which has adverse impact on any area in business like production,
distribution, supply chain, storage, merger and acquisition of goods and services.
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