BUSINESS

ENVIRONMENT
MBA/BBA

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 CONTENTS
Serial No. Title Page No.

Unit - 1 INTRODUCTION 1-27

1.0 Objectives 1

1.1 The concept, Nature and Significance of Business Environment 1

1.2 Significance of business environment 5

1.3 Salient Features of Capitalism 5

1.4 Salient Features of Socialism 6

1.5 Features of mixed economy 9

1.6 Public, Private, Joint and Co-operative sector 10

1.7 Privatization 15

1.8 Joint Sector 16

1.9 Co-operative Sector 18

1.10 Promotional, Entrepreneurial and Economic Role of Government 26

Unit - 2 Socio-Cultural and Political Environment 28-51

2.0 Objectives 28

2.1 Social Interest and Value – its implications for Industrialization and Economic 29
Growth

2.2 Social Responsibilities of Business 32

2.3 Responsibility towards different interest groups 35

2.4 Consumerism 40

2.5 The Consumer Protection Act, 1986 41

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2.6 Ethics and culture of Business 43

2.7 Current Political Scene and its Impact on Business 49

Unit - 3 Industrial Environment 52-80

3.0 Objectives 52

3.1 Industrial Policy of India 53

3.2 The features of India’s Small Sector Industrial Policy 1991 58

3.3 Industries (Development and Regulation) Act, 1951 (IDRA) 59

3.4 Planning Machinery of India 63

3.5 Five Year Plans of India 64

3.6 Industrial Sickness 73

3.8 The MRTP Act, 1969 76

Unit - 4 Economic Environment 81-107

4.0 SEBI - Introduction 81

4.1 SEBI Administration 82

4.2 FIPB (Foreign Investment Promotion Board) 84

4.3 Functions of FIPB 85

4.4 Fiscal and Monetary Policies 87

4.5 Policy of Liberation and Globalization 90

4.6 Merits and Demerits of Globalization 92

4.7 Foreign Capital and Technology 93

4.8 Export and Import Policy (EXIM Policy) 95

4.9 FEMA 106

Unit - 5 Technological and Ecological Environment 108-130

5.0 Objectives 108

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5.1 Technology and its features 108

5.2 Impact of Technology 109

5.3 Technology Transfer 110

5.4 Role of MNCs in Indian Economy 115

5.5 Problem of Pollution and its control 117

5.6 Role of business in controlling pollution 124

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 UNIT – 1
1.0 Objectives:

After reading this chapter you shall come to know about the basics of business
environment. Subsequent topic will highlight on the types of economic systems. You
shall also understand the public sector, private sector, joint sector and Co-operative
sector and role of Government in the business.

1.1 concepts, Nature and Significance of Business

Environment
Meaning: - The term Business Environment is composed of two words ‘Business’ and
‘Environment’. In simple terms, the state in which a person remains busy is known as
Business. The word Business in its economic sense means human activities like
production, extraction or purchase or sales of goods that are performed for earning
profits.

Definition:

According to – Richard F Stiegele, banker, "The business world is an extension of the

kindergarten sand box – but with quick sand."

According to a famous management thinker, “Business environment is a set of

political, economic, social and technological (PEST) forces that are largely outside the
control and influence of a business, and that can potentially have both a positive and a
negative impact on the business”

On the other hand, the word ‘Environment’ refers to the aspects of surroundings.
Therefore, Business Environment may be defined as a set of conditions – Social,
Legal, Economical, Political or Institutional that are uncontrollable in nature and
affects the functioning of organization. Business Environment has two components:

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1. Internal Environment
2. External Environment

Internal Environment: It includes 5 Ms i.e. man, material, money, machinery and

management, usually within the control of business. Business can make changes in
these factors according to the change in the functioning of enterprise.

External Environment: Those factors which are beyond the control of business
enterprise are included in external environment. These factors are: Government and
Legal factors, Geo-Physical Factors, Political Factors, Socio-Cultural Factors, Demo-
Graphical factors etc. It is of two Types:

1. Micro/Operating Environment
2. Macro/General Environment

Micro/Operating Environment: The environment which is close to business and

affects its capacity to work is known as Micro or Operating Environment. It consists
of suppliers, Customers, Market Intermediaries, Competitors and Public.

(1) Suppliers: – They are the persons who supply raw material and required
components to the company. They must be reliable and business must have multiple
suppliers i.e. they should not depend upon only one supplier.

(2) Customers: - Customers are regarded as the king of the market. Success of every
business depends upon the level of their customer’s satisfaction. Types of Customers:

(i) Wholesalers
(ii) Retailers
(iii) Industries
(iv) Government and Other Institutions
(v) Foreigners

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(3) Market Intermediaries: - They work as a link between business and final
consumers. Types:-
(i) Middleman
(ii) Marketing Agencies
(iii) Financial Intermediaries
(iv) Physical Intermediaries

(4) Competitors: - Every move of the competitors affects the business. Business has
to adjust itself according to the strategies of the Competitors.

(5) Public: - Any group who has actual interest in business enterprise is termed as
public e.g. media and local public. They may be the users or non-users of the product.

Macro/General Environment: – It includes factors that create opportunities and

threats to business units. Following are the elements of Macro Environment:

(1) Economic Environment: - It is very complex and dynamic in nature that keeps on
changing with the change in policies or political situations. It has three elements:
(i) Economic Conditions of Public
(ii) Economic Policies of the country
(iii)Economic System
(iv) Other Economic Factors: – Infrastructural Facilities, Banking, Insurance
companies, money markets, capital markets etc.

(2) Non-Economic Environment: - Following are included in non-economic

environment:-
(i) Political Environment: - It affects different business units extensively.
Components:
(a) Political Belief of Government
(b) Political Strength of the Country
(c) Relation with other countries
(d) Defense and Military Policies

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(e) Centre State Relationship in the Country
(f) Thinking Opposition Parties towards Business Unit

(ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors,

not within the control of business, is known as Socio-Cultural Environment. These
factors include: attitude of people to work, family system, caste system, religion,
education, marriage etc.

(iii) Technological Environment: - A systematic application of scientific knowledge

to practical task is known as technology. Everyday there has been vast changes in
products, services, lifestyles and living conditions, these changes must be analysed by
every business unit and should adapt these changes.

(iv) Natural Environment: - It includes natural resources, weather, climatic

conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc.
Every business unit must look for these factors before choosing the location for their
business.

(v) Demographic Environment :- It is a study of perspective of population i.e. its

size, standard of living, growth rate, age-sex composition, family size, income level
(upper level, middle level and lower level), education level etc. Every business unit
must see these features of population and recognize their various needs and produce
accordingly.

(vi) International Environment: - It is particularly important for industries directly

depending on import or exports. The factors that affect the business are: Globalisation,
Liberalisation, foreign business policies, cultural exchange.

Characteristics of business environment:-

1. Business environment is compound in nature.

2. Business environment is constantly changing process.

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3. Business environment is different for different business units.

4. It has both long term and short term impact.

5. Unlimited influence of external environment factors.

6. It is very uncertain.

7. Inter-related components.

8. It includes both internal and external environment.

1.2 Significance of business environment

There is a mutual interdependence between business and its environment. A business

enterprise is an open system. It continuously interacts with its environment. Business
takes inputs {raw materials, capital, labour, energy etc. from its environment, and
transform them into goods and services and then send them back to the environment.

Business and its external environment interact in the following ways.

 Exchange of information
 Exchange of resources.

 Exchange of influence and power.

It's significant because the environment sets the tone for the workplace. It effects how
happy workers are, productivity levels, and overall internal relationships. Having a
safe/happy environment leads to happier employees which could, in time, lead to
better production quality. This does not always stand to be true, sometimes different
employees need different motivators for doing better work. Without an environment,
you wouldn't really know how to properly manage the employees and how to
efficiently improve productivity rates.

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1.3 SALIENT FEATURES OF CAPITALISM

Capitalism is an economic system in which the means of production are privately

owned and operated for profit. Income in a Capitalist system takes at least two forms,
profit on the one hand and wages on the other. There is also a tradition that treats rent,
income from the control of natural resources, as a third phenomenon distinct from
either of those. In any case, profit is what is received by virtue of control of the tools
of production, by the capitalists - those who provide the capital. Wages are received by
those who sell their labor with those tools, i.e. the workers.

There is no consensus on the precise definition of capitalism, nor how the term should
be used as an historical category. There is, however, little controversy that private
ownership of the means of production, creation of goods or services for profit in a
market, and prices and wages are elements of capitalism.

Basic characteristics of capitalism described by Adam Smith are as under:

1. Private property- the right to own resources and bequeath property

2. Freedom of enterprise- own a business

3. Freedom of economic choice- work/not work, spend/not spend

4. Role of self-interest
a. People are by nature economic creatures
b. Self-interest is a fundamental characteristic of people

5. Competitive market system

a. Many buyers and sellers
b. Market participants, buyers and sellers, have little control over price.

1.4 SALIENT FEATURES OF SOCIALISM

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Socialism is a social and economic system (or the political philosophy advocating
such a system) in which the economic means of production are owned and controlled
collectively by the people. This control may be either direct, exercised through
popular collectives such as workers' councils, or it may be indirect, exercised through
a State. In the latter case, the issue of who controls the state is crucial. A primary
concern of socialism (and, according to some, its defining feature) is social equality
and an equitable distribution of wealth that would serve the interests of society as a
whole.

Historically, the ideology of socialism arose with the rise of organized labor, and the
socialist political movement has found most of its support among the urban working
class and, to a lesser extent, the peasantry. This has led to socialism being strongly
associated with the working class and often identifying itself with the interests of
workers and the "common people". In many parts of the world, the two are still
strongly associated with one another; in other parts, they have become two distinct
movements.

Pure socialists hold that capitalism is an illegitimate economic system that serves the
interests of the wealthy and exploits the majority of the population. As such, they wish
to replace it completely or at least make substantial modifications to it, in order to
create a more just society that would reward hard work, guarantee a certain basic
standard of living, and extend economic and cultural opportunities to all.

Socialist theory is diverse, and there is no single body of thought that is universally
shared by all socialists. Rather, different socialist ideologies have arrived at similar
conclusions by different paths. There are some common themes, however. One such
theme is the idea that humans are inherently social beings that require social
interaction and the companionship of others in order to survive and develop both
physically and mentally. Individuals cannot maintain their humanity if they are
separated from the rest of society for too long. Thus, socialists believe that the

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individual and society are inseparable, and they reject individualistic schools of
thought which assert that society is the voluntary creation of individuals who chose to
interact with each other.

Marxism is an ideology which has had a powerful influence on socialist thought. For
over 50 years, from the Russian Revolution of 1917 to the 1970s, the majority of
socialists were Marxists of one kind or another. This has not been the case for several
decades, but Marxist ideas - particularly notions of class struggle - are common
themes across a broad range of modern socialist groups. Marxism itself continues to
be a strong current in the broader socialist movement.

ny Marxists, past and present, use the term socialism to refer to the form of society
that is supposed to replace capitalism and later develop into communism.

Within the socialist movement, there are several different ideas on how to create a
socialist society and economic system, and what form this society will take. As a
result, the movement has split into several different and sometimes opposing branches,
which are discussed further below.

Salient Characteristics of Socialism

We can define Socialism as a command economy with regulated price and no private
property and where the Labor is given more importance and with central planning
systems where What, How, For whom to produce is decided by the government and
non-existence of Consumer Sovereignty.

1. Command Economy: Central Planning and strict Bureaucracy is the main

feature of Socialistic Economy. It directs all Political and Social Activities.

2. Limited Role of Market: Generally the Market is determined by Demand and

Supply and here as the Government decides the production allocation of resources it is
having minimum role to play.

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3. No private ownership of property or factors of production: The government is the
owner of all properties. Only a little Private property is allowed and no property rights,
hereditary rights.

4. Central Planning: The main feature of Socialism is central planning which decides
the basic problems like A) what to produce? B) How to produce? C) For whom to
produce? The Central Planning committee sets the goals for the economy and also he
time frame within these goals are to be realized.

5. Social Security and welfare: In a Socialistic Economy the government decides all
economic decisions and sets the goal of the economic welfare and security of weaker
sections of society and aged people.

1.5 Features of mixed economy

A mixed economy employs features of both Government/Planned economy and a Free

market. Thus, it has features of both. It has 2 sectors: Public and Private. The public
sector, being the government, takes care of public services that private businesses
cannot afford to finance eg. Street lighting, public transportation, law and order, public
healthcare, defence and the judicial system. Their motive is social welfare. The private
sector however is owned, controlled and managed by individuals, whose motive is
profits. Examples include private owned companies and private schools.

Basically, a mixed economy is a free market economy with government intervention

thrown in. They control some aspects of the economy while individuals control the
rest. In a mixed economy, there is the gain of low general price level which ultimately
leads to increased production and which may generate more employment capacity.

Mixed Economy is an economy that is controlled by both the government and the free
market. Also some of the resources and their uses are decided by the government and
the others by the market. Furthermore in the mixed economy the good that is

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demanded the most will be sold but if that good is harmful in any way for example
drugs the government can step in and tax the use of the good or ban it. So in a mixed
economy the public and private sector work together to make decisions that result in
economic growth.

Talking about a mixed economy guarantees the co-existence of both public and private
sectors. In communism, there is virtually no private sector while capitalism has an
ingrained bias against public sector. In a mixed economy, public and private sectors
are allow growing simultaneously and considered mutually supportive rather than
antagonistic in character, both play significant role in their specific spheres.

Secondly, a mixed economy envisages a role both for price system or market mechanism
and government directions or guidelines. Where price system falters and persuasion
fails, government does not feel shy of direct intervention in order to impose its will and
priorities on private sector.

Then, private sector, as corollary of the preceding feature is regulated and controlled by
the state and its excessively optimistic or pessimistic postures are duly checked and
moderated through direct and indirect fiscal and monetary measures.
Consumer's sovereignty, steam rolled in communism is largely protected in a mixed
economy. Consumer priorities and preferences are duly reflected in production decision
making in both public and private sectors.

Government enacts laws to end exploitation of labor ant to protect their rights.
Government does not remain mere spectator while market mechanism plays havoc with
their interests. In capitalism, economic inequalities are a normal features considered
even desirable for stepping up saving and capital formation but in a mixed economy,
conscious efforts are made to reduce these economic inequalities to avoid conflicts often
threatening the disruption of an economy.

1.6 Public, Private, Joint and Co-operative sector industry

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The mixed economy of India is characterized by the co-existence of public, private,
joint and co-operative sectors. The pattern of industrial development of the country
has been influenced to a very significant extent by the roles given to these sectors by
the industrial policy.

The public sector is the part of the economy where goods and services are provided
by the government or local authorities. These goods and services are sometimes
provided free and in other cases consumers have to pay a price. The aim of public
sector activity is to provide services that benefit the public as a whole. This is because
it would be difficult to charge people for the goods and services concerned or people
may not be able to afford to pay for them. The government provide these goods and
services at a cheaper price than if they were provided by a profit making company.
The public sector accounts for about 40% of all business activity.
The private sector consists of business activity that is owned, financed and run by
private individuals. These businesses can be small firms owned by just one person, or
large multi-national businesses that operate around the world (globally). In the case of
large businesses, there might be many thousands of owners involved. The goal of
businesses in the private sector is to make a profit.

PUBLIC SECTOR
In a public sector enterprise, the government owns the resources and determines the
price, and the main aim is the welfare of the citizens.

e.g.: BSNL, SAIL, and Indian Airlines

Objectives

The public enterprises which were promoted as an instrument for implementation of

the government’s socio-economic policies, had many objectives like:

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 To help in the rapid economic growth and industrialization of the country and
create the necessary infrastructure for economic development.
 To earn return on investment and thus generate resources for development.
 To promote redistribution of income and wealth.
 To create employment opportunities.
 To promote balanced regional development.
 To assist the development of small-scale and ancillary industries.
 To promote import substitution, save and earn foreign exchange for the
economy.

Growth and Performance of Public Enterprises

There had been a phenomenal growth of the public sector since the commencement of
planning. This may be observed by following table:

S.No. Plan Period Investment Total No. of

(Rs. Crores) Enterprises

1. At the commencement of 1st Plan (1- 29 5

4-1951)

2. 2nd Plan (1-4-1956) 81 21

3. 3rd Plan (1-4-1961) 953 48

4. 4th Plan (1-4-1969) 3902 85

5. 5th Plan (1-4-1974) 6237 122

6. 6th Plan (1-4-1980) 18,225 186

7. 7th Plan (1-4-1985) 42,811 221

8. 8th Plan (1-4-1992) 1,18,492 237

9. 9th Plan (1-4-1997) 2,01,500 238

10. 10th Plan (1-4-2002) 324,632 240

11. 11th Plan (1-4-2007) 421,089 244

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THE NEW PUBLIC SECTOR POLICY

According to the industrial policy announced on 24-07-1991, the following have been
set as the priority areas for growth of public enterprises.

1. Essential infrastructure goods and services.

2. Exploration and exploitation of oil and mineral resources.
3. Technology development and building of manufacturing capabilities in areas
which are crucial in the long term development of the economy where private sector
investment is inadequate.
4. Manufacture of products where strategic considerations predominate such as
defence equipment.

Accordingly the number of industries reserved for the public sector was restricted to 8.
These 8 industries were: (i) Arms and ammunition and allied items of defence
equipment, defence aircraft and warships, (ii) Atomic energy (iii) Coal and lignite, (iv)
Mineral oils (v) Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur,
gold and diamond, (vi) Mining of copper, lead, zinc, tin, molybdenum, wolfram, (vii)
Minerals specified in the schedule to the Atomic Energy (control of production and
use) Order, 1958, (viii) Railway transport.

The list has been further pruned subsequently and now only atomic energy and railway
transport are reserved for the public sector. Foreign investment up to 26 percent has
also been allowed in the production of defence equipments.

Pricing Practices

Following pricing policies and methods are followed by the public enterprises:

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1. Administered Prices: In the past, prices of certain commodities like steel, coal,
oil, fertilizers, etc., were fixed by the government. As part of the economic reforms,
most of the goods have been freed from the administered prices.
2. No-Profit, No-Loss Prices: Some undertakings like the Hindustan Antibiotics
price the products on the no-profit, no-loss basis.
3. Cost-Plus Prices: Several enterprises fix prices on a cost plus basis.
4. Competitive Prices: The liberalization has increased the relevance of this
strategy.
5. Following the Leader: Price decisions of a few public enterprises are based on
the behaviour of the leader. For instance, the Kerala Soaps and Oils followed this
strategy in respect of some of their products.
6. Parity Pricing: For products of some of the enterprises which had a monopoly
position in the domestic market, parity with the landed cost of the imported product
was sought. Eg Hindustan Shipyard.
7. Subsidised Prices: Some enterprises which enjoy the benefit of a subsidy from
the government sell their products below the cost of production. Eg. Contraceptives of
Hindustan Latex.
8. Trade Association Pricing: Air-India international, like other international
airlines, adopts the fares and freights determined by the International Air Transport
Association (IATA)
9. Discriminatory Pricing: Many public enterprises like public sector financial
institutions, Electricity Boards and the Railways practice this policy.

Public Sector Reforms

The Board for Reconstruction of Public Sector Enterprises (BRPSE), announced in the
Union Budget (2005-06) by finance minister P. Chidambaram, has got the approval of
the government.

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The board will have seven members with a non-official member as chairman. Besides,
it would have three non-official members and three secretaries of the government. The
board’s recommendations would be advisory.

The board had suggested several measures for public sector reforms. Some of the
important recent steps are as follows:

 Government decides to close down 7 PSUs, revive 17 others.

 Joint venture route proposed for revival of three units.
 Purchase preference scheme extended by a year.
 VRS revisited to prompt more employees of loss-making units to avail of
scheme.
 Clean-up of balance sheets of companies underway.
 Special package for revival of HEC.
 Disinvestment from certain PSUs

The key element for improving performance is to let the public enterprise’s
management function autonomously. There is little indication of a change in the
control by government over public enterprises. The enterprises must be free to deal
with surplus staff and restructure their enterprises as they feel necessary.

1.7 Private Sector/ Privatization

Just as the concept of a welfare state emerged to save the capitalist system from crises,
similarly the concept of privatization is being developed to save the welfare state from
crises.

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In the last few decades, privatization has become an international phenomenon. From
Canada to India, government have voted for privatization as means of increasing
productivity effectively and for growth in the economy while offering opportunities
for citizens to invest. Each country may have its own reasons for adopting
privatization, refuting its own social economic and political circumstances.

Meaning

The very word privatization seems to scare people. In Sri Lanka they coined the word
“pauperization” and in China they call it “strategic adjustment of the layout of the
state sector”, in UK, Nigel Lawson coined the term “people’s capitalism” to imply
privatization by selling shares to the shareholder public. In India we call it
“disinvestments,” perhaps to convey the government’s desire to disengage from
running a business.

Privatization is part of the process of rethinking the welfare state. Society is searching
for new ways of delivering services because of our collective sense of efficiency. The
entrepreneur, not the bureaucrat, is the hero of society. While we can not be sure how
it will all turn out, privatization will be part of the emerging post-welfare state.
Privatization where applied has achieved some measures to success in the local
government.

In a mixed economy, the private sector, too, has an important role to play. Indeed, it is
because of the appreciation of the positive role the private sector can play, and certain
limitations of the public sector, that many socialists advocate a mixed economic
system. The Industrial Policy Resolution of 1956, which still remained the core of
India’s industrial policy and which assigned a dominant role to the public sector in a
number of vital industries, has made it very clear that, as an agency for planned
national development, in the context of the country’s expanding economy, the private
sector will have the opportunity to develop and expand.

The Industrial Policy Resolution of 1956 has made it clear that, “industrial
undertakings in the private sector have necessarily to fit into the framework of the

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social and economic policy of the state and will be subject to control and regulation in
terms of the Industries (Development and Regulation) Act and other relevant
legislation. The Government of India, however, recognizes that it would, in general, be
desirable to allow such undertakings to develop with as much freedom as possible,
consistent with the targets and objectives of the national plan when there exist in the
same industry both privately and publicly-owned units, it would continue to be the
policy of the state to give fair and non-discriminatory treatment to both of them.”

The private sector has been dominant in most of the consumer goods industries. It
plays an important role in a number of capital goods industries too. In a number of
important industries, it functions side by side with the public sector.

With the new industrial policy announced on July 24, 1991, and modifications
introduced thereafter, the role of the private sector has been substantially expanded.
Now private enterprises are allowed in all but two industries. Only a very small
number of industries are now industrial licensing (e.e., except in these industries there
are no entry and growth restrictions on the private sector). The scope of the private
sector is increased by the withdrawal of the state from many industries and
privatization.

1.8 JOINT SECTOR

The term joint sector refers to the enterprise owned and managed jointly by the private
sector and the government/ public sector undertakings. The Dutt Committee
(Industrial Licensing Policy Inquiry Committee) has defined the concept of the joint
sector in following terms: “The joint sector would, in our view, include units in which
both public and private investments have taken place and where the state takes an
active part in direction and control.”

Formation of Joint Sector Enterprises

Joint sector enterprises may be brought into being by any one of the following ways.

1. The Central Government and private entrepreneurs may jointly set up new
enterprises. Sometimes, the Central Government and one or more State Governments
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together may set up enterprises in partnership with the private sector. (It is pointed out
that the public may also hold shares in joint sector enterprises).
2. State governments or their industrial development corporations may set up new
companies jointly with private partners, involving equity participation by both the
partners.
3. Public financial institutions may, through equity participation or conversion of
loans or debentures into equity, transform enterprises promoted by private
entrepreneurs into joint sector companies.
4. The existing private enterprises may be transformed into joint sector
enterprises by the government or government companies acquiring a part of the equity
or converting debt into equity or by contributing to an increase in the share capital.
5. The existing public sector companies may be transformed into joint sector
enterprises through the sale of some equity shares to private entrepreneurs or the
general public. The disinvestment policy of the government has been resulting in the
transformation of several PSEs to joint sector enterprises.

RATIONALE OF JOINT SECTOR

The joint sector is conceived as a marriage between the managerial expertise of the
private sector and the financial resources and social orientation of the public sector. In
a sense, joint sector enterprises represent an application of the concept of mixed
economy at the micro level.

The main objectives and advantages of the joint sector are the following:

1. Curbing concentration of economic power: The Dutt Committee advocated the

joint sector, viewing it as an important means of curbing the increasing concentration
of economic power.
2. Social control of industry: Government participation in equity and
management is expected to give a social orientation to the enterprise.

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3. Acceleration of economic development: The joint sector, by mobilizing and
augmenting the productive resources, can accelerate the pace of economic
development.
4. Promotion of mixed economy: It is also expected that the joint sector will
promote the mixed economy and help achieve development objectives.
5. Broadbasing of entrepreneurship: It helps broadbase entrepreneurship by
encouraging new and small entrepreneurs.

1.9 CO-OPERATVE SECTOR

In India, the co-operative sector has been assigned an important role in the
development of many sectors. The first five year plan envisaged the cooperative sector
to cover a number of vital areas like agriculture, rural and small scale industry, retail
distribution, housing etc.

Meaning of Co-operative Society

Let us take one example. Suppose a poor villager has two cows and gets ten litres of
milk. After consumption by his family everyday he finds a surplus of five liters of
milk. What can he do with the surplus? He may want to sell the milk but may not find
a customer in the village. Somebody may tell him to sell the milk in the nearby town
or city. Again he finds it difficult, as he does not have money to go to the town to sell
milk. What should he do? He is faced with a problem. Do you have any solution for
him?

One day that poor villager met a learner of NIOS who had earlier read this lesson. The
learner told him, you see, you are not the only person facing this problem. There are
many others in your village and also in the nearby village who face a similar problem.
Why don’t you all sit together and find a solution to your common problem? In the
morning you can collect the surplus milk at a common place and send somebody to the
nearby town to sell it. Again in the evening, you can sit together and distribute the
money according to your contribution of milk. Of course first you have to deduct all

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the expenses from the sale proceeds. That villager agreed to what the learner said. He
told everybody about this new idea and formed a group of milk producers in his
village. By selling the milk in the nearby town they were all able to earn money. After
that they did not face any problem of finding a market for the surplus milk. This
process continued for a long time. One day some body suggested that instead of
selling only milk why not produce other milk products like ghee, butter, cheese, milk
powder etc. and sell them in the market at a better price? All of them agreed and did
the same. They produced quality milk products and found a very good market for their
products not only in the nearby town but in the entire country.

Just think it over. A poor villager, who was not able to sell five litres of milk in his
village, is now selling milk and milk products throughout the nation. He is now
enjoying a good life. How did it happen? Who made it possible? This is the reward of
a joint effort or co–operation.

The term co-operation is derived from the Latin word co-operari, where the word co
means ‘with’ and operari means ‘to work’. Thus, co-operation means working
together. So those who want to work together with some common economic objective
can form a society which is termed as “co-operative society”. It is a voluntary
association of persons who work together to promote their economic interest. It works
on the principle of self-help as well as mutual help. The main objective is to provide
support to the members. Nobody joins a cooperative society to earn profit. People
come forward as a group, pool their individual resources, utilize them in the best
possible manner, and derive some common benefit out of it.

In the above example, all producers of milk of a village joined hands, collected the
surplus milk at a common place and sold milk and milk products in the market. This
was possible because of their joint effort. Individually it would not have been possible
either to sell or produce any milk product in that village. They had formed a co-
operative society for this purpose. In a similar way, the consumers of a particular
locality can join hands to provide goods of their daily need and thus, form a co-
operative society. Now they can buy goods directly from the producers and sell those

24
to members at a cheaper price. Why is the price cheaper? Because they buy goods
directly from the producer and thereby the middlemen’s profit is eliminated.

Objectives of Cooperative Society

 Render service rather than making profit

 Mutual help instead of competition
 Self help instead of dependence

Co-operative Society buy goods directly from the producers? Of course, not. In the
same way people can form other types of co-operative societies as well. Let us know
about them.

Types of Co-operative Societies

Although all types of cooperative societies work on the same principle, they differ
with

regard to the nature of activities they perform. Followings are different types of co-
operative societies that exist in our country.

1. Consumers’ Co-operative Society: These societies are formed to protect the

interest

of general consumers by making consumer goods available at a reasonable price. They

buy goods directly from the producers or manufacturers and thereby eliminate the
middlemen in the process of distribution. Kendriya Bhandar, Apna Bazar and Sahkari
Bhandar are examples of consumers’ co-operative society.

2. Producers’ Co-operative Society: These societies are formed to protect the interest
of small producers by making available items of their need for production like raw
materials, tools and equipments, machinery, etc. Handloom societies like APPCO,
Bayanika, Haryana Handloom, etc., are examples of producers’ co-operative society.

25
3. Co-operative Marketing Society: These societies are formed by small producers
and manufacturers who find it difficult to sell their products individually. The society
collects the products from the individual members and takes the responsibility of
selling those products in the market. Gujarat Co-operative Milk Marketing Federation
that sells AMUL milk products is an example of marketing co-operative society.

4. Co-operative Credit Society: These societies are formed to provide financial

support to the members. The society accepts deposits from members and grants them
loans at reasonable rates of interest in times of need. Village Service Co-operative
Society and Urban Cooperative Banks are examples of co-operative credit society.

5. Co-operative Farming Society: These societies are formed by small farmers to

work jointly and thereby enjoy the benefits of large-scale farming. Lift-irrigation
cooperative societies and pani-panchayats are some of the examples of co-operative
farming society.

6. Housing Co-operative Society: These societies are formed to provide residential

houses to members. They purchase land, develop it and construct houses or flats and
allot the same to members. Some societies also provide loans at low rate of interest to
members to construct their own houses. The Employees’ Housing Societies and
metropolitan Housing Co-operative Society are examples of housing co-operative
society.

Characteristics of Co-operative Society

A co-operative society is a special type of business organisation different from other

forms of organsation you have learnt earlier. Let us discuss its characteristics.

i. Open membership: The membership of a Co-operative Society is open to all those

who have a common interest. A minimum of ten members are required to form a
cooperative society. The Co–operative societies Act does not specify the maximum
26
number of members for any co-operative society. However, after the formation of the
society, the member may specify the maximum number of members.

ii. Voluntary Association: Members join the co-operative society voluntarily, that is,
by choice. A member can join the society as and when he likes, continue for as long as
he likes, and leave the society at will.

iii. State control: To protect the interest of members, co-operative societies are placed
under state control through registration. While getting registered, a society has to
submit details about the members and the business it is to undertake. It has to maintain
books of accounts, which are to be audited by government auditors.

iv. Sources of Finance: In a co-operative society capital is contributed by all the

members. However, it can easily raise loans and secure grants from government after
its registration.

v. Democratic Management: Co-operative societies are managed on democratic

lines. The society is managed by a group known as “Board of Directors”. The
members of the board of directors are the elected representatives of the society. Each
member has a single vote, irrespective of the number of shares held. For example, in a
village credit society the small farmer having one share has equal voting right as that
of a landlord having 20 shares.

iv. Service motive: Co-operatives are not formed to maximize profit like other forms
of business organisation. The main purpose of a Co-operative Society is to provide
service to its members. For example, in a Consumer Co-operative Store, goods are
sold to its members at a reasonable price by retaining a small margin of profit. It also
provides better quality goods to its members and the general public.

v. Separate Legal Entity: A Co-operative Society is registered under the Co-

operative Societies Act. After registration a society becomes a separate legal entity,
with limited liability of its members. Death, insolvency or lunacy of a member does
not affect the existence of a society. It can enter into agreements with others and can
purchase or sell properties in its own name.
27
vi. Distribution of Surplus: Every co-operative society in addition to providing
services to its members also generates some profit while conducting business. Profits
are not earned at the cost of its members. Profit generated is distributed to its members
not on the basis of the shares held by the members (like the company form of
business), but on the basis of members’ participation in the business of the society. For
example, in a consumer co-operative store only a small part of the profit is distributed
to members as dividend on their shares; a major part of the profit is paid as purchase
bonus to members on the basis of goods purchased by each member from the society.

vii. Self-help through mutual cooperation: Co-operative Societies thrive on the

principle of mutual help. They are the organisations of financially weaker sections of
society. Co-operative Societies convert the weakness of members into strength by
adopting the principle of self-help through mutual co-operation. It is only by working
jointly on the principle of “Each for all and all for each”, the members can fight
exploitation and secure a place in society.

Formation of a Co-operative Society

A Co-operative Society can be formed as per the provisions of the Co-operative
Societies Act, 1912. At least ten persons having the capacity to enter into a contract
with common economic objectives, like farming, weaving, consuming, etc. can form a
Co-operative Society.

A joint application along with the bye-laws of the society containing the details about
the society and its members has to be submitted to the Registrar of Co-operative
Societies of the concerned state. After scrutiny of the application and the bye–laws, the
registrar issues a Certificate of Registration.

Requirements for Registration:

1. Application with the signature of all members

2. Bye-laws of the society containing:

28
(a) Name, address and aims and objectives of the society;

(b) Names, addresses and occupations of members;

(c) Mode of admitting new members;

(d) Share capital and its division.

Advantages of Co-operative Society

A Co-operative form of business organisation has the following advantages:

i. Easy Formation: Formation of a co-operative society is very easy compared to a

joint stock company. Any ten adults can voluntarily form an association and get it
registered with the Registrar of Co-operative Societies.

ii. Open Membership: Persons having common interest can form a co-operative
society.

Any competent person can become a member at any time he/she likes and can leave
the society at will.

iii. Democratic Control: A co-operative society is controlled in a democratic manner.

The members cast their vote to elect their representatives to form a committee that
looks after the day-to-day administration. This committee is accountable to all the
members of the society.

iv. Limited Liability: The liability of members of a co-operative society is limited to

the extent of capital contributed by them. Unlike sole proprietors and partners the
personal properties of members of the co-operative societies are free from any kind of
risk because of business liabilities.

v. Elimination of Middlemen’s Profit: Through co-operatives the members or

consumers control their own supplies and thus, middlemen’s profit is eliminated.

29
vi. State Assistance: Both Central and State governments provide all kinds of help to
the societies. Such help may be provided in the form of capital contribution, loans at
low rates of interest, exemption in tax, subsidies in repayment of loans, etc.

vii. Stable Life: A co-operative society has a fairly stable life and it continues to exist
for a long period of time. Its existence is not affected by the death, insolvency, lunacy
or resignation of any of its members.

Limitations of Co–operative Society

Besides the above advantages, the co-operative form of business organisation also
suffers from various limitations. Let us learn these limitations.

i. Limited Capital: The amount of capital that a cooperative society can raise from its
member is very limited because the membership is generally confined to a particular
section of the society. Again due to low rate of return the members do not invest more
capital. Government’s assistance is often inadequate for most of the co-operative
societies.

ii. Problems in Management: Generally it is seen that co-operative societies do not

function efficiently due to lack of managerial talent. The members or their elected
representatives are not experienced enough to manage the society. Again, because of
limited capital they are not able to get the benefits of professional management.

iii. Lack of Motivation: Every co-operative society is formed to render service to its
members rather than to earn profit. This does not provide enough motivation to the
members to put in their best effort and manage the society efficiently.

iv. Lack of Co-operation: The co-operative societies are formed with the idea of
mutual co-operation. But it is often seen that there is a lot of friction between the
members because of personality differences, ego clash, etc. The selfish attitude of
members may sometimes bring an end to the society.

v. Dependence on Government: The inadequacy of capital and various other

limitations make cooperative societies dependant on the government for support and
30
patronage in terms of grants, loans subsidies, etc. Due to this, the government
sometimes directly interferes in the management of the society and also audit their
annual accounts.

Let us now sum up–

Advantages

Easy formation

Open membership

Democratic Control

Limited Liability

Elimination of Middleman’s Profit

State Assistance

Stable Life

Disadvantages

Limited Capital

Problems in Management

Lack of Motivation

Lack of Cooperation

Dependence on Government

1.10 Promotional, Entrepreneurial and Economic Role of

Government

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In the present day world, the Government gets involved in the business activity of the
nation in many ways. The role of Government is very crucial in today’s economy.

Government is the main regulator of the business activities. Regulatory function of the
Government would include:

1. Restraints on private activities, control of big business houses and large or

dominant undertakings.
2. Assistance and incentives to private sector to encourage their involvement and
participation in the desired lines of economic activity.
3. Organization and development of public enterprises as an alternative to private
enterprises to ensure competitive dualism and efficiency.
4. Provision of socially useful economic services and public goods- an activity
which private sector guided by commercial considerations may not undertake at all.
5. Maintenance of a socio-economic framework, through legislations on private
property, contracts, corporate business, labour relations, monopoly and restrictive
trade, etc. and
6. Stabilization of economic trends and tendencies through measures of control
on price, income, production, distribution, trade, etc.

Government regulations, for example, may be said to consist of ‘indirect’ non-

discretionary measures and ‘direct’ discretionary measures of control. The former
implies lying down of rules and making legislative provisions whereby private
activities are automatically regulated without any discretion on the part of
administrative officer. The element of discretionary powers of administration is
minimized in these measures in so far as rules and laws are specific in their content.
Typical measures of this kind are: setting of induced changes in prices, imposition of
excise taxes, import-export duties, grant of subsidies, credit creation, regulation of
money supply and credit, variation of interest rates and so on.

32
Terminal Exercise

(1) What is business environment?

(2) What is the significance of business environment?
(3) Discuss the External and Internal environment.
(4) What is Micro and Macro Economic environment?
(5) Discuss the salient features of Capitalism.
(6) Discuss the salient features of Socialism.
(7) Discuss the features of mixed economy.
(8) Discuss the historical and current aspect of public sector.
(9) What is role of private sector in the Indian economy?
(10) What is Joint sector?
(11) What is Co-operative sector?
(12) What is significance of cooperative societies in India?
(13) Discuss the Promotional, entrepreneurial and economic role of Government in
India.

33
 Unit – 2
Socio-Cultural and Political Environment

Social Interest and Value – its implication for Industrialization and Economic growth,
Social Responsibility, Consumerism, Consumer Protection Act, Ethics and Culture of
Business, Current Political Scene and its Impact on Business.

2.0 Objectives:

After reading this chapter you shall come to know about the basics of Social interest
and value, social responsibility of business towards various sections of the society.
You will be able to:

 explain the concept of social responsibility of business;

 appreciate the importance of social responsibility;
 recognize the responsibility of business towards different interest groups;
 explain the concept of social values and business ethics;
Subsequent topic shall focus on Consumerism and consumer protection Act in India.
Focus will be made on ethics and culture of business. The terminal topic will focus on
current political scene and its impact on business.

34
2.1 Social Interest and Value – its implication for
Industrialization and Economic growth

Business is an integral part of the social system. The social system influences business
which, in turn, is affected by the business.

Social factors are among the most important factors which affect business. The type of
products to be manufactured and marketed, the marketing strategies to be employed,
the way business should be organized and governed, the values and norms it should
adhere etc. are all influenced by the social structure and the culture of a society. Many
aspects of the social/ cultural environment are not very obvious. Ignorance / neglect of
certain dimensions of the social environment may create tremendous problems.

Industrialization is a pro-condition for rapid economic development. With the growth

in the economy measured in terms of rising per capita real income, we observe a
number of structural shifts, typical of economic development. For example, in course
of economic growth, a shift takes place from agriculture to industry. The proportion of
industrial output as well as industrial employment increases gradually. The
productivity of industrial worker also goes up. Similarly, the structure of industry itself
changes say, from consumer goods to capital goods. In some countries, in the initial
stage, there is a great emphasis on heavy industries and basic infrastructural facilities
like power and transport. Once the infrastructure is laid down strongly, the industrial
growth accelerates without facing any physical bottleneck.

The rate, pattern and structure of industries undergo significant changes in course of
economic growth and development. But such industrialization cannot be
“autonomous”, it has to be “induced”. This is where governmental promotional
policies matter.

In almost all the developing economies of today, the industrialization programme is

minutely planned by the government. The government has to plan, initiate and
engineer the process of industrialization; then it has to start and accelerate its growth
35
and once a high level is reached, the government has to maintain the tempo of
industrial growth. At each and every stage of such industrialization, the promotional
policies of the government matter.

Industrialization thus needs government patronage and promotion. As a part of

planning, the government has to choose an appropriate industrial strategy. It is a
difficult choice. It involves specific choices between alternatives:

 agriculture (primary) vs. industry (secondary)

 big industry vs. small industry
 consumer goods vs. capital goods industry
 export oriented industries vs. import substitute industries
 capital intensive vs. labour intensive industries
 urban vs. rural industries
 indigenous vs. imported technology
 growth of healthy industry vs. revival of sick industry
 developed area vs. backward area

The list is indeed very long and it may grow longer depending upon the country in
question. The fact remains that planned industrialization programme involves a lot of
choices- choice of technique, choice of industrial location, choice of industrial project,
choice of market, etc. Government’s promotional policies are dictated by this set of
choices. The choice of a particular strategy of industrialization by the government
defines the role of private and public sectors in a mixed economy. Initially, the
government itself may act as an entrepreneur, but eventually it may induce the private
entrepreneurs to come forward and undertake the task of industrial development. Thus
the government promotes entrepreneurship keeping in view the national objectives,
priorities and constraints.

In a developing economy, the government has to overcome both demand constraints

and supply constraints. The inducement to invest in industries may be limited by the

36
size of market for industrial goods; the government must, therefore, adopt means to
promote domestic as well as export markets. Similarly, there may be supply
bottlenecks such as shortage of power, bad industrial relations climate, lack of
industrial raw materials, scarcity of capital and finance, or obsolete technology – all
these factors adversely affect the performance of the industrial sector; the government
must promote availability and efficiency of such supply factors. The infrastructural
support by government is therefore very essential for any programme for
industrialization which involves massive investment, long gestation and low returns in
the short run.

Traditionally, the term business commonly referred to commercial activities aimed at

making a profit or to organizations formed to make a profit. Indeed, in the past,
economic theory made a fundamental assumption that profit maximization was the
basic object of every firm. The modern outlook, however, is different. For them, profit
is only secondary. There are, moreover, many organizations, both private and public
which do not aim at profit from their business. In short, the definition of a business as
a commercial activity to make a profit or an organization formed to make a profit is a
narrow one. Yet, to a layman, business still means industry and commerce.

The old concept of business, confining it to commerce and private profit, has
undergone a radical change. Today, business is regarded as a social institution forming
an integral part of the social system. As Davis and Blomstorm observed, business is
“social institution, performing a social mission and having a broad influence on the
way people live and work together”. As Calkins remarks, “it is now recognized that
the direction of business is important to the public welfare, that businessman perform
a social function”.

Thus, “viewed in a broad way, the term business typically refers to the development
and processing of economic values in society. Normally, we use the term to apply to
the private (non-Government) portion of the economy whose primary purpose is to
provide goods and services to customers at a price, but the lines of distinction are
getting hazy as business and Government overlap their functions in organizations such

37
as the communications, satellite corporation and the Tennissee Valley Authority. In
addition, business is a term applied to economic and commercial activities of
institutions having other purposes, such as the business, office of an opera
associations”. Thus, organizations which do not aim of making a profit, like the Delhi
Development Authority, charitable hospitals, or other institutions, public relations
organizations, Government Departments etc. invest capital, price and market their
product, services or ideas, manage their human resources, and so on.

According to Davis and Blomstorm, “ our modern view of society is an ecological

one. Ecology is concerned with the mutual relations of human population or systems
with their environment. It is necessary to take this broad view because the influence
and involvement of business are extensive. Business can not isolate itself from the rest
of the society. Today the whole society is a business’s environment”.

Davis and Blomstorm point out that, in taking an ecological view of business in a
systems relationship with society, three ideas are significant in addition to the systems
idea. The three ideas are values, viability and public visibility.

In short, according to modern thinking, business is an integral part of the social

system. It is a social organ to help accomplish the social goals.

2.2 Social Responsibilities of Business

You know that business is an economic activity, which is carried out on a regular basis
to earn profit. However, you must have seen businessmen spending money on
different aspects, which is not going to give them any profit straightway. For example,
you must have seen businessmen maintaining and developing gardens and parks on
streets and squares in cities.

Some businessmen engage themselves in research for improving the quality of

products; some provide housing, transport, education and health care to their
employees and their families. In some places businessmen provide free medical
facility to poor patients. Sometimes they also sponsor games and sports at national as
well as international level. Did you ever wonder why they do so?
38
What is Social Responsibility?
In your daily life, you perform a number of activities. For example, brushing your
teeth, listening to your parents, showing respect to elders obeying traffic rules on road
etc. Now why do you perform all these activities? It is because you live in a family as
well as in a society and the members of your family as well as the society want you to
do all of them. They do several things for you and expect something from you, which
you must do. The expectations of the family or society become your obligations,
which you need to fulfill. For example, taking care of your parents or children,
keeping the road clean by not throwing garbage on it, etc. There are also obligations
towards yourself, which you need to fulfill. For example, taking food timely, going to
sleep early at night, etc. that keep you fit and takes care of your health. Now you fulfill
all these obligations by performing certain activities which are called your
responsibilities. Any responsibility you have, particularly towards members of the
society with whom you interact or towards the society in general, are called your
social responsibility. This is true in case of business also. As we know, every business
operates within a society. It uses the resources of the society and depends on the
society for its functioning. This creates an obligation on the part of business to look
after the welfare of society. So all the activities of the business should be such that
they will not harm, rather they will protect and contribute to the interests of the
society. Social responsibility of business refers to all such duties and obligations of
business directed towards the welfare of society. These duties can be a part of the
routine functions of carrying on business activity or they may be an additional
function of carrying out welfare activity.

Let us take an example. A drug-manufacturing firm undertakes extensive research and

thus, produces drugs which are qualitatively superior. It also provides scholarships or
fellowships to the family members of its employees for studying abroad. We find, in
both the cases, the drug-manufacturing firm is carrying out its social responsibility. In
case of the former, it is a part of its routine business function while in the latter case it
is a welfare function.

39
Concept of Social Responsibility

We all know that people engage in business to earn profit. However, profit making is
not the sole function of business. It performs a number of social functions, as it is a
part of the society. It takes care of those who are instrumental in securing its existence
and survival like- the owners, investors, employees, consumers and government in
particular and the society and community in general. So, every business must
contribute in some way or the other for their benefit. For example, every business
must ensure a satisfactory rate of return to investors, provide good salary, security and
proper working condition to its employees, make available quality products at
reasonable price to its consumers, maintain the environment properly etc. However,
while doing so two things need to be noted to view it as social responsibility of
business. First, any such activity is not charity. It means that if any business donates
some amount of money to any hospital or temple or school and college etc., it is not to
be considered as discharge of social responsibility because charity does not imply
fulfilling responsibility.

Secondly, any such activity should not be such that it is good for somebody and bad
for others. Suppose a businessman makes a lot of money by smuggling or by cheating
customers, and then runs a hospital to treat poor patients at low prices his actions
cannot be socially justified. Social responsibility implies that a businessman should
not do anything harmful to the society in course of his business activities.

The obligation of any business to protect and serve public interest is known as social
responsibility of business

Thus, the concept of social responsibility discourages businessmen from adopting

unfair means like black-marketing, hoarding, adulteration, tax evasion and cheating
customers etc. to earn profit. Instead, it encourages them to earn profit through
judicious management of the business, by providing better working and living
conditions to its employees, providing better products, after sales-service, etc. to its
customers and simultaneously to control pollution and conserve natural resources.

40
Why should business be socially responsible?
Social responsibility is a voluntary effort on the part of business to take various steps
to satisfy the expectation of the different interest groups. As you have already learnt,
the interest groups may be owners, investors, employees, consumers, government and
society or community. But the question arises, why the business should come forward
and be responsible towards these interest groups. Let us consider the following points:

i. Public Image - The activities of business towards the welfare of the society earn
goodwill and reputation for the business. The earnings of business also depend upon
the public image of its activities. People prefer to buy products of a company that
engages itself in various social welfare programmes. Again, good public image also
attracts honest and competent employees to work with such employers.
ii. ii. Government Regulation - To avoid government regulations businessmen
should discharge their duties voluntarily. For example, if any business firm pollutes
the environment it will naturally come under strict government regulation, which may
ultimately force the firm to close down its business. Instead, the business firm should
engage itself in maintaining a pollution free environment.
iii. iii. Survival and Growth -Every business is a part of the society. So for its
survival and growth, support from the society is very much essential. Business utilizes
the available resources like power, water, land, roads, etc. of the society. So it should
be the responsibility of every business to spend a part of its profit for the welfare of
the society.
iv. iv. Employee satisfaction - Besides getting good salary and working in a healthy
atmosphere, employees also expect other facilities like proper accommodation,
transportation, education and training. The employers should try to fulfill all the
expectation of the employees because employee satisfaction is directly related to
productivity and it is also required for the long-term prosperity of the organisation. For
example, if business spends money on training of the employees, it will have more
efficient people to work and thus, earn more profit.

41
v. Consumer Awareness - Now-a-days consumers have become very
conscious about their rights. They protest against the supply of inferior and harmful
products by forming different groups. This has made it obligatory for the business to
protect the interest of the consumers by providing quality products at the most
competitive price.

2.3 Responsibility Towards Different Interest Groups

After getting some idea about the concept and importance of social responsibility of
business let us look into the various responsibilities that a business has towards
different groups with whom it interacts. The business generally interacts with owners,
investors, employees, suppliers, customers, competitors, government and society. They
are called as interest groups because by each and every activity of business, the
interest of these groups is affected directly or indirectly.

i. Responsibility towards owners

Owners are the persons who own the business. They contribute capital and bear the
business risks. The primary responsibilities of business towards its owners are to:

a. Run the business efficiently.

b. Proper utilization of capital and other resources.

c. Growth and appreciation of capital.

d. Regular and fair return on capital invested.

ii. Responsibility towards investors

Investors are those who provide finance by way of investment in debentures, bonds,
deposits etc. Banks, financial institutions, and investing public are all included in this
category. The responsibilities of business towards its investors are :

42
a. Ensuring safety of their investment,

b. Regular payment of interest,

c. Timely repayment of principal amount.

iii. Responsibility towards employees

Business needs employees or workers to work for it. These employees put their best
effort for the benefit of the business. So it is the prime responsibility of every business
to take care of the interest of their employees. If the employees are satisfied and
efficient, then the only business can be successful. The responsibilities of business
towards its employees include:

a. Timely and regular payment of wages and salaries.

b. Proper working conditions and welfare amenities.

d. Opportunity for better career prospects.

e. Job security as well as social security like facilities of provident fund, group
insurance, pension, retirement benefits, etc.

f. Better living conditions like housing, transport, canteen, crèches etc.

g. Timely training and development.

iv. Responsibility towards suppliers

Suppliers are businessmen who supply raw materials and other items required by
manufacturers and traders. Certain suppliers, called distributors, supply finished
products to the consumers. The responsibilities of business towards these suppliers
are:

a. Giving regular orders for purchase of goods.

b. Dealing on fair terms and conditions.

c. Availing reasonable credit period.

43
d. Timely payment of dues.

v. Responsibility towards customers

No business can survive without the support of customers. As a part of the

responsibility of business towards them the business should provide the following
facilities:

a. Products and services must be able to take care of the needs of the customers.

b. Products and services must be qualitative

c. There must be regularity in supply of goods and services

d. Price of the goods and services should be reasonable and affordable.

e. All the advantages and disadvantages of the product as well as procedure to use the
products must be informed do the customers.

f. There must be proper after-sales service.

g. Grievances of the consumers, if any, must be settled quickly.

h. Unfair means like under weighing the product, adulteration, etc. must be avoided.

vi. Responsibility towards competitors

Competitors are the other businessmen or organizations involved in a similar type of

business Existence of competition helps the business in becoming more dynamic and
innovative so as to make itself better than its competitors. It also sometimes
encourages the business to indulge in negative activities like resorting to unfair trade
practices. The responsibilities of business towards its competitors are:

i. not to offer exceptionally high sales commission to distributors, agents etc.

ii. not to offer to customers heavy discounts and /or free products in every sale.

iii. not to defame competitors through false or ambiguous advertisements.

44
vii. Responsibility towards government

Business activities are governed by the rules and regulations framed by the
government. The various responsibilities of business towards government are:

a. Setting up units as per guidelines of government

b. Payment of fees, duties and taxes regularly as well as honestly.

c. Not to indulge in monopolistic and restrictive trade practices.

d. Conforming to pollution control norms set up by government.

h. Not to indulge in corruption through bribing and other unlawful activities.

viii. Responsibility towards society

A society consists of individuals, groups, organizations, families etc. They all are the
members of the society. They interact with each other and are also dependent on each
other in almost all activities. There exists a relationship among them, which may be
direct or indirect. Business, being a part of the society, also maintains its relationship
with all other members of the society. Thus, it has certain responsibilities towards
society, which may be as follows:

a. to help the weaker and backward sections of the society

b. to preserve and promote social and cultural values

c. to generate employment

d. to protect the environment

e. to conserve natural resources and wildlife

f. to promote sports and culture

g. to provide assistance in the field of developmental research on education, medical

science, technology etc.

45
Let us sum up:

Following are the various responsibilities of business towards the different interest
group as discussed above.

i. Protection of environment.

ii. Better living conditions like housing, transport, canteen, crèches etc.

iii. Promotion of sports and culture.

iv. Opportunity for better career prospects

v. Regular supply of goods and services

vi. Proper working conditions and welfare amenities

vii. Goods and services at reasonable and affordable price.

viii. Prompt after sales services.

ix. Conservation of natural resources and wildlife.

2.4 Consumerism

Consumerism is a social and economic order that is based on the systematic creation
and fostering of a desire to purchase goods or services in ever greater amounts. The
term is often associated with criticisms of consumption starting with Thorstein Veblen
or, more recently by a movement called Enoughism. Veblen's subject of examination,
the newly emergent middle class arising at the turn of the twentieth century, comes to
full fruition by the end of the twentieth century through the process of globalization.

The term "consumerism" is also used to refer to the consumerist movement or

consumer activism, which seeks to protect and inform consumers by requiring such
practices as honest packaging and advertising, product guarantees, and improved
safety standards. In this sense it is a movement or a set of policies aimed at regulating
the products, services, methods, and standards of manufacturers, sellers, and

46
advertisers in the interests of the buyer. Please see the articles consumer activism and
consumer protection for more on this topic.

In economics, consumerism refers to economic policies placing emphasis on

consumption. In an abstract sense, it is the belief that the free choice of consumers
should dictate the economic structure of a society (cf. Producerism, especially in the
British sense of the term).

The term "consumerism" was first used in 1915 to refer to "advocacy of the rights and
interests of consumers" (Oxford English Dictionary) but in this article the term
"consumerism" refers to the sense first used in 1960, "emphasis on or preoccupation
with the acquisition of consumer goods" (Oxford English Dictionary).

2.5 THE CONSUMER PROTECTION ACT, 1986

Though consumer is the purpose and most powerful motivating force of

production, yet at the same time consumer is equally vulnerable segment of the whole
marketing system. Attempts have been made to guard the interest of the consumer in a
sporadic way till 1986, when Government of India enacted a comprehensive
legislation-Consumer Protection Act, to safe guard the interest of the consumer then
ever before. The Consumer Protection Act, 1986, applies to all goods and services,
excluding goods for resale or for commercial purpose and services rendered free of
charge and under a contract for personal service. The provisions of the Act are
compensatory in nature. It covers public, private, joint and cooperative sectors.

The Act enshrines the rights of the consumer such as right to safety, right to be
informed, right to be heard, and right to choose, right to seek redressal and right to
consumer education.

Consumer: A consumer is any person who buys any goods for a consideration and
user of such goods where the use is with the approval of buyer, any person who
hires/avails of any service for a consideration and any beneficiary of such services,

47
where such services are availed of with the approval of the person hiring the service.
The consumer need not have made full payment.

Goods: Goods mean any movable property and also include shares, but do not include
any auctionable claims.

Service: Service of any description such as banking, insurance, transport, processing,

housing construction, supply of electrical energy, entertainment, board or lodging.

Nature of complaint:

(a) Any unfair trade practice or restrictive trade practice adopted; by the trader

(b) Defective goods

(c) Deficiency in service

(d) Excess price charged; by the trader

(e) Unlawful goods sale, which is hazardous to life and safety when used

Consumer Courts: A three-tier-system

(a) National Consumer Dispute Redressal Commission: claims above Rs. 20

lakh

(b) Consumer Dispute Redressal Commission or State Commission: Claims from

Rs 5 to 20

lakh.
48
(c) Consumer Dispute Redressal Forum or District Forum: Claims upto Rs 5
Lakh

Complaint: A complaint, hand written or typed, can be filed by a consumer, a

registered consumer organisation, central or state Government and one or more
consumers, where there are numerous consumers having the same interest. No stamp
or court fee is needed. The nature of complaint must be clearly mentioned as well as
the relief sought by the consumer. It must be in quadruplicate in district forum or state
commission. Else, additional copies are required to be filed.

Grant of relief:

(a) Repair of defective goods

(b) Replacement of defective goods

(c) Refund of the price paid for the defective goods or service

(d) Removal of deficiency in service

(e) Refund of extra money charged

(f) Withdrawal of goods hazardous to life and safety

(g) Compensation for the loss or injury suffered by the consumer due to negligence
of the opposite party

(h) Adequate cost of filing and pursuing the complaint

Normally, complaints should be decided within 90 days from the date of notice
issued to the opposite party. Where a sample of any goods is required to be tested, a
complaint is required to be disposed of within 150 days; it may take more time due to
practical problems.

49
Consumer Protection Councils: Councils have been setup in all states and at the
center to promote and protect the rights and interest of consumers. These councils are
advisory in nature and can play important role in recommending consumer oriented
policies to the state and central Government.

2.6 ETHICS AND CULTURE OF BUSINESS

Every society generally views certain activities, conduct and behaviour of its members
to be undesirable or harmful to others. Similarly, desirable acts and conduct of people
are recognized and appreciated in society. Social values refer to the general
recognition in society about which acts are good and desirable on the part of people
and which acts are not. In relation to business, social values of business may indicate:

a. the characteristics of good business;

b. objectives which are desirable for business to follow; and

c. the manner in which business activities should be conducted in the interest of

society.

For example, we consider it bad, if any business indulges itself in selling adulterated
goods or charging higher price or polluting the environment. Thus, social values of the
business form the base for social responsibilities.

Ethics refers to conduct and activities of people based on moral principles. Honesty,
truthfulness, compassion, sympathy, feeling of brotherhood etc. are considered ethical.

Business can also be guided by certain moral principles say, running the business
without adopting unfair practices, being honest and truthful about quality of goods,
charging fair prices, abiding to laws, paying taxes, duties and fees to the government
honestly. The basic question underlying business ethics is whether business should aim
at earning profit by any means? Obviously, not. Thus, businessmen should charge only
fair price for the goods and services supplied, never sell adulterated products as pure.
Indeed business ethics suggest certain principles to conduct business so as to be

50
morally justified. Just like social values, business ethics also play a major role while
fulfulling social responsibilities.

Business Culture of India

The business culture of India is a reflection of the various norms and standards
followed by its people. Indians have various cultural yardsticks, which extend to their
business culture too. Thus, it is important that a person visiting the country has an idea
of the business culture of India. Thus, it is important that a person visiting the country
has some basic idea regarding the business ethics and customs followed here. Having
a good grasp on Indian business culture will ensure that you succeed in maintaining a
well-earned affinity with your business counterparts. If you are unsure of how to deal
with an Indian when it comes to business, we are here to simplify the task. Read on to
know about the things that are to be strictly adhered to, while forming any kind of
business associations with Indians.

 The 'namaste' forms an important part of Indian etiquette and is generally used
while greeting and saying good-bye. This gesture is akin to the act of genuflection in
some countries and is formed by pressing the palms of both hands together (fingers
up). The folded hands are placed below the chin and accompanied with a bow.
However, educated Indian men and women, who are acquainted with western customs,
prefer shaking hands. Moreover, while greeting any individual use his or her title (if he
has any). To mark respect, you may also suffix 'ji' to the name of a person.
 A sound knowledge of India's cultural practices and business etiquettes is
necessary for any trade or business venture within the country. A proper understanding
of culture and business etiquette would not only demonstrate a respect for India but
will also create a feel good factor amongst the prospective clients.

 In India guests are treated with utmost respect and courtesy. International
travelers can expect to enjoy the Indian hospitality. At the same time culturally and as
a mark of politeness, Indians have difficulty in saying no, this could be a stumbling
block in negotiations and in closing contracts.

51
 The notion of time, time management, punctuality is still an anathema in India.
It is more to do with the mindset and ingrained in the Indian culture. It would not be
surprising if meetings are postponed, re scheduled, cancelled or organized at a very
short notice.

 The proficiency over the English language for the average middle class is
commendable. Official communication-letter faxes, emails are generally received
without any hitch, but it would be prudent to cross check if the transmission has
reached the receiver.

 Bureaucratic hurdles and a laidback approach to work in the government

circles could result in delays in processing, overload of paperwork and a general lack
of confidence in the system. Therefore immense patience is very much necessary for
any business transaction in India.

 In India, Companies follow the hierarchical system and decision making is

usually from the top to bottom. It could at times be time consuming, International
companies show respect to this. The lack of infrastructure and inadequate supply chain
management can also act as bottleneck for foreign investment.

Cultural dimensions of Business Ethics

We speak of cultural dimensions to designate structures of organizing and thereby

characterizing a particular group of people. The culture tends to take on a supra-
identity constituting the framework for each individual in the group. Cultures can be
very broad as seen in examples of national identity: the French, the Americans. Or
they can be more specific to the common interests it binds the different
participants/stakeholders as seen in corporate culture, urban culture, ethnic minority
culture. In either case, the culture that results is usually a general, predominant
composite of all the constituent parts giving rise to an intangible entity that
52
incorporates its different elements (an inter-subjective identity). It is the framework by
which a personality develops even if this personality is intangible it represents one, the
representation is found in its image and acts like the glue holding the picture together.

Culture is opposed to nature in that it is constructed by man (man-made) not by the

physical universe (though the physical universe has an impact on the way in which
man constructs culture). One could come up with a 'natural' culture, which may appear
as a contradiction in terms. But, if we understand this expression 'natural' culture to be
an emphasis on the 'natural' elements in inquiring into 'human nature' and the
'universe', then it just qualifies the culture to be of that type. We can debate on and on
about what constitutes the 'natural' (though an essential question regarding
environment, we cannot elaborate this now). Questions of the sort : is man basically
good or evil?, is it natural to formula feed your baby?, is man in the state of nature
prior to social existence?, which parts does society have to maintain for man in his
social being? (shelter, survival, etc); what does man have to give to society in order to
sustain it?

We must consider the economic model used and its influence on the cultural
dimension as applied to business ethics the global economy is based on the assumption
of capitalism: a free market economy. If we take the economic model as socialist or
communist, our evaluations of ethical dilemmas would differ as some norms would be
modified in their importance. For example, the ownership of production and the
distribution of wealth would be structured according to specific economic systems
following their respective norms. For the purposes of this inquiry, we'll use the
economic model of capitalism in a 'free market economy'.

Traditionally, this model is exemplified by Carr & Friedman, both espousing that the
main objective of business is to make profits within legality. The role of the
corporation and its management is to ensure profits and be accountable to the
shareholders. The notion of corporate social and/or moral responsibility has made
inroads into this position. The image and moral position of corporations have become
so important these days that their strategies are designed around this preoccupation.
53
Need we be reminded of Total's recent oil spill off of the French coast, or Nike's
difficulties with child labour, not to mention the most recent Enron tragedy; just open
the newspaper or watch the news to see that corporate roles are beyond making profit.
The question of how this profit is to be earned has become as important as the profit
itself. Taking the social and moral aspects into account is essential to developing
strategy, which in turn affects the corporation's profit capacity.

Ethics on the other hand, coming from the Greek roots 'éthiké' meaning the ways and
habits of a group of people, would translate into the actual customs, and practices
characterizing specific cultures. However, over time this meaning has taken on not
only a descriptive quality, but a prescriptive one as well while describing it prescribes
(behaviour). Philosophically speaking, ethics is viewed from morality (having its roots
in Latin 'mores' customs and habits of a group), which has also developed the
character of oscillating from descriptive to prescriptive behaviour. That is, what we
dos becomes what we should do, in describing behaviour there's an inference to
prescribing it. This is the way it's done almost sounds like you should do it this way.
One may ask how ? Explicitly, any documented policy drawn from actual experience
usually takes on a prescriptive nature once it is transmitted as such. Putting
behavioural practices into written rules for others to abide by, no longer describes that
behaviour but rather prescribes it. Implicitly, the disapproval shown by others creates a
pressure to conform to the norm. We'll come back to this idea later on.

Briefly, ethics concerns itself with establishing norms, evaluating when a moral act is
right or wrong as well as helping one to make moral decisions when confronted with a
moral dilemma.

Culture and ethics are interrelated and intertwined in such a way that it makes it
difficult to know which factor is guiding / motivating the behaviour arising from a
given situation. Is it the cultural vision of his/her ethics or is it the ethical vision of
his/her culture that guides someone to do or not do certain things. Trompenaar's survey
questioning people's reaction to a given situation shows that cultures with more

54
emphasis on human relationships and loyalty (particularists) scored lower than those
that emphasized obeying rules (universalists).

The situation: you're riding in a car driven by a close friend, who's driving at least 35
mph in a 20 mph zone. He hits someone. No witnesses. His lawyer says if you testify
under oath that your friend was driving at 20 miles per hour, it might save him from
serious consequences.

What right has your friend to expect you to protect him ?

Lying was more prominent in cultures stressing human relationships, whereas it was
less prevalent in cultures stressing rules. Telling the truth is an ethical value that
appears in this context. One could say, people in cultures emphasizing human
relationships would most likely lie to protect the relationship; whereas, people in
cultures putting a greater value on rules would lie less in order to abide by the rule.
Adler differentiates between cultures that are universally oriented (all rules apply to
everyone) and particularly oriented 'the nature of the relationship determines how
someone will act in a particular situation'. When it comes to the actual experience of
the individual in question it is not certain if that person is motivated by cultural
influences and/or ethical implications of his/her act and/or decision. Paul Ricoeur
suggests three positions in ethical development : 1) the self , 2) relations with others,
3) institutional. Through this process of moral integration, the self eventually becomes
autonomous (auto self- nomous - norms which becomes understood as self-regulatory)
in its experiences and interactions with others and institutions. The self internalises the
cultural norms and values through socialization (being in the world with others).

Key concepts to be distinguished: culture, ethics, and ethical theories of evaluation:

Culture and cultural dimensions are considered the collective horizon representing a
specific social reality (the objectivity of subjectivity). Culture comes from the Latin
'cultura' meaning to till; in other words, preparing the environment for people to live
in. Anthropologists Kroeber and Kluckhohn define culture :

55
"Culture consists of patterns, explicit and implicit, of and for behaviour acquired and
transmitted by symbols, constituting the distinctive achievement of human groups,
including their embodiment in artefacts; the essential core of culture consists of
traditional (i.e. historically derived and selected) ideas and especially their attached
values; culture systems may, on the one hand, be considered as products of action, on
the other, as conditioning elements of future action"

Ethics is the common agreed upon practice of different moral principles or values. It
concentrates on the general nature of morals and the specific moral choice an
individual makes in relationship to others. It represents the rules and/or standards
governing the conduct of the member of a profession. The context of this inquiry will
be ethics applied to business.

Ethical theories applied in decision-making as a methodology or an approach to

evaluating acts and moral choice. Deontological theory consists of a set of moral rules
in which moral choice is evaluated. Teleological theory consists of a guiding principle
such as 'the good life' in which acts are evaluated in terms of fulfilling this principle.
Utilitarianism, uses the principle 'the greatest happiness for the greatest number' as its
underlying principle to evaluate moral choices. Norm theory (neutral omnipartial rule-
making) requires that 'conduct must be publicly known and acceptable to all persons
in society' as the underlying principle in which moral choice is evaluated.

2.7 Current Political Scene and its Impact on Business

Political Environment is one of the most important factors effecting the operations of a
business. Political forces are said to be part of the Macro-environment. All the factors
of the Macro-environment are external to an organization and completely beyond its
control.

Political factors are concerned with the overall situation of politics in a country. Which
in turn can be associated with the situation of government. If a country is democratic
by nature, people will have full voting authority and they would be able to choose a

56
government that would work for the betterment of the people and the country. In such
a situation, businesses will thrive because of the good policies of the government.

On the other hand, if there is no democracy, there is no respect for the chosen
government. There will be instability and uncertainty in the country. Governments will
come and go and so will their respective decisions and policies. Businesses will suffer
in such a case as they will not know what will be their future.

That is why it is said that a stable and democratic government and its political
decisions are important for a country and overall business. A stable political situation
will also attract more and more investors from other nations.

The Business deals totally depend only on Political Environment let me tell you how

1) The politicization only are the personals who decides with which country the trade will
take place and under which conditions.

2) The rules & regulation for trade are passed by politicization

3) If the political relation are not good with neighboring country or any country with whom
you want to do trade you will not be allowed to do by means of rules & regulations which
have been made be the politicization

The Political / Legal / Regulatory Environment can be simply described as the laws
and regulations that business has to follow in order to make sure the business owners
do not get arrested, or have the business fined for noncompliance of some regulation.

The Political / Legal / Regulatory environment is often a direct consequence of the

political parties in power, which represents the popular opinion of the citizens of the
region. If the citizens are, for example, pro-Big Business then probably taxation will
be modest and there will not be a lot of stringent rules about environmental
considerations. If the citizens are very concerned about safety issues, for example,
then there will be a lot of rules and regulations governing things such as transportation
57
safety, which will make it more expensive for some companies that have big shipping
costs.

The rules and regulations created by the politicians have significant influence on the
cost of running a business and the way it can market products and services - for
example in India there are severe regulations about advertising for alcohol and
tobacco.

Terminal Exercise

(1) What is the role of business in industrialization and economic growth?

(2) Why should business be socially responsible?
(3) What are social responsibilities of the business towards different sections of
the society?
(4) Discuss the concept of consumerism.
(5) What is Consumer Protection Act?
(6) Write a brief note on ethics and culture of business.
(7) Discuss the impact of political environment on the business.

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 Unit – 3 Industrial Environment

3.0 Objectives:

Industrial Policy (Recent), IDRA Act 1951, The Planning Machinery,

Industrial Development during five year plans – Achievements and
Impediments, Industrial Sickness, MRTP Act 1969 (as amended up to
date).
After reading this chapter you shall come to know about industrial policy of India and
its historical background; various aspects of IDRA Act, 1951. You will also be
introduced with the historical and current aspect of planning machinery in India.
Subsequent topic shall focus on Industrial Sickness and MRTP Act, 1969.

59
3.1 Industrial policy of India

Pundit Jawaharlal Nehru laid the foundation of modern India. His vision and
determination have left a lasting impression on every facet of national endeavour since
Independence. It is due to his initiative that India now has a strong and diversified
industrial base and is a major industrial nation of the world. The goals and objectives
set out for the nation by Pandit Nehru on the eve of Independence, namely, the rapid
agricultural and industrial development of our country, rapid expansion of
opportunities for gainful employment, progressive reduction of social and economic
disparities, removal of poverty and attainment of self-reliance remain as valid today as
at the time Pandit Nehru first set them out before the nation. Any industrial policy
must contribute to the realisation of these goals and objectives at an accelerated pace.
The present statement of industrial policy is inspired by these very concerns, and
represents a renewed initiative towards consolidating the gains of national
reconstruction at this crucial stage.

In 1948, immediately after Independence, Government introduced the Industrial

Policy Resolution. This outlined the approach to industrial growth and development. It
emphasised the importance to the economy of securing a continuous increase in
production and ensuring its equitable distribution. After the adoption of the
Constitution and the socio-economic goals, the Industrial Policy was comprehensively
revised and adopted in 1956. To meet new challenges, from time to time, it was
modified through statements in 1973, 1977 and 1980.

New Industrial policy of India

The Industrial Policy announced on July 24, 1991, which initiated the economic
reforms in India, has enormously expanded the scope of the private sector by opening
up most of the industries for the private sector and substantially affected the entry and
growth restrictions.

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Objectives:

The major objectives of the new Industrial Policy package are:

1. To build on the gains already made.

2. To correct the distortions or weakness that may have crept in.

3. To maintain a sustained growth in productivity and gainful employment.

4. To attain international competitiveness.

Foreign investment and technology collaboration will be welcomed to obtain higher

technology, to increase exports and to expand the production base.

Government will endeavour to abolish the monopoly of any sector or any individual
enterprise in any field of manufacture, except on strategic or military considerations
and open all manufacturing activity to competition.

The Government will ensure that the public sector plays its rightful role in the
evolving socio-economic scenario of the country. Government will ensure that the
public sector is run on business lines as envisaged in the Industrial Policy Resolution
of 1956 and would continue to innovate and lead in strategic areas of national
importance. In the 1950s and 1960s, the principal instrument for controlling the
commanding heights of the economy was investment in the capital of key industries.
Today, the State has other instruments of intervention, particularly fiscal and monetary
instruments. The State also commands the bulk of the nation's savings. Banks and
financial institutions are under State control. Where State intervention is necessary,
these instruments will prove more effective and decisive.

Government will fully protect the interests of labour, enhance their welfare and equip
them in all respects to deal with the inevitability of technological change. Government
believes that no small section of society can corner the gains of growth, leaving
workers to bear its pains. Labour will be made an equal partner in progress and
prosperity. Workers' participation in management will be promoted. Workers
61
cooperatives will be encouraged to participate in packages designed to turn around
sick companies. Intensive training, skill development and upgradation programmes
will be launched.

Government will continue to visualise new horizons. The major objectives of the new
industrial policy package will be to build on the gains already made, correct the
distortions or weaknesses that may have crept in, maintain a sustained growth in
productivity and gainful employment and attain international competitiveness. The
pursuit of these objectives will be tempered by the need to preserve the environment
and ensure the efficient use of available resources. All sector of industry whether
small, medium or large, belonging to the public, private or cooperative sector will be
encouraged to grow and improve on their past performance.

Government's policy will be continuity with change.

In pursuit of the above objectives, Government has decided to take a series of

initiatives in respect of the policies relating to the following areas.

A. Industrial Licensing.

B. Liberalization of Foreign Investment

C. Foreign Technology Agreements.

D. Public Sector Policy

E. MRTP Act.

A. INDUSTRIAL LICENSING POLICY

Industrial Licensing is governed by the Industries (Development & Regulation) Act,

1951. The Industrial Policy Resolution of 1956 identified the following three
categories of industries: those that would be reserved for development in public sector,
those that would be permitted for development through private enterprise with or

62
without State participation, and those in which investment initiatives would ordinarily
emanate from private entrepreneurs. Over the years, keeping in view the changing
industrial scene in the country, the policy has undergone modifications. Industrial
licensing policy and procedures have also been liberalised from time to time. A full
realisation of the industrial potential of the country calls for a continuation of this
process of change.

In order to achieve the objectives of the strategy for the industrial sector for the 1990s
and beyond it is necessary to make a number of changes in the system of industrial
approvals. Major policy initiatives and procedural reforms are called for in order to
actively encourage and assist Indian entrepreneurs to exploit and meet the emerging
domestic and global opportunities and challenges.

B. LIBERALISATION OF FOREIGN INVESTMENT

While freeing Indian industry from official controls, opportunities for promoting
foreign investments in India should also be fully exploited. In view of the significant
development of India's industrial economy in the last 40 years, the general resilience,
size and level of sophistication achieved, and the significant changes that have also
taken place in the world industrial economy, the relationship between domestic and
foreign industry needs to be much more dynamic than it has been in the past in terms
of both technology and investment. Foreign investment would bring attendant
advantages of technology transfer, marketing expertise, introduction of modern
managerial techniques and new possibilities for promotion of exports. This is
particularly necessary in the changing global scenario of industrial and economic
cooperation marked by mobility of capital. The government will therefore welcome
foreign investment which is in the interest of the country's industrial development.

In order to invite foreign investment in high priority industries, requiring large

investments and advanced technology, it has been decided to provide approval for
direct foreign investment upto 51% foreign equity in such industries. There shall be no
bottlenecks of any kind in this process. This group of industries has generally been

63
known as the "Appendix I Industries" and are areas in which FERA companies have
already been allowed to invest on a discretionary basis. This change will go a long
way in making Indian policy on foreign investment transparent. Such a framework
will make it attractive for companies abroad to invest in India.

C. FOREIGN TECHNOLOGY AGREEMENT

There is a great need for promoting an industrial environment where the acquisition of
technological capability receives priority. In the fast changing world of technology the
relationship between the suppliers and users of technology must be a continuous one.
Such a relationship becomes difficult to achieve when the approval process includes
unnecessary governmental interference on a case to case basis involving endemic
delays and fostering uncertainty. The Indian entrepreneur has now come of age so that
he no longer needs such bureaucratic clearances of his commercial technology
relationships with foreign technology suppliers. Indian industry can scarcely be
competitive with the rest of the world if it is to operate within such a regulatory
environment.

D. PUBLIC SECTOR POLICY

The public sector has been central to our philosophy of development. In the pursuit of
our development objectives, public ownership and control in critical sector of the
economy has played an important role in preventing the concentration of economic
power, reducing regional disparities and ensuring that planned development serves the
common good.

The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the
economy. Massive investments have been made over the past four decades to build a
public sector which has a commanding role in the economy. Today key sectors of the
economy are dominated by mature public enterprises that have successfully expanded
production, opened up new areas of technology and built up a reserve of technical
competence in a number of areas.

64
After the initial exuberance of the public sector entering new areas of industrial and
technical competence, a number of problems have begun to manifest themselves in
many of the public enterprises. Serious problems are observed in the insufficient
growth in productivity, poor project management, over-manning, lack of continuous
technological upgradation, and inadequate attention to R&D and human resource
development. In addition, public enterprises have shown a very low rate of return on
the capital invested. This has inhibited their ability to re-generate themselves in terms
of new investments as well as in technology development. The result is that many of
the public enterprises have become a burden rather than being an asset to the
Government. The original concept of the public sector has also undergone
considerable dilution. The most striking example is the take over of sick units from the
private sector. This category of public sector units accounts for almost one third of the
total losses of central public enterprises. Another category of public enterprises, which
does not fit into the original idea of the public sector being at the commanding heights
of the economy, is the plethora of public enterprises which are in the consumer goods
and services sectors.

E. REMOVAL OF MRTP ACT RESTRICTIONS

Most of the provisions of the MRTP Act pertaining to concentration of economic

power were scrapped.

3.2 The Features of India's Small Sector Industrial Policy 1991

The new policy measures for promoting and strengthen small, tiny and village
enterprises were announced on 6th August, 1991. The main thrust of the new policy is
to impart more vitality and growth to employment and exports. The salient features of
the new policy are:

 De-regulation, de-bureaucratization and simplification on status, regulations and

procedures.

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 Increase in the investment limit in plant and machinery of ting enterprise forms 21
lake to Rs 50 lakh, irrespective of the location of the unit.

 Inclusion of industry related services and business enterprises, irrespective of their

location, as small scale industries.

 Ensuring both adequate flow of credit on a normative basis and quality of its
delivery for viable operation on the SSI sector.

 Setting up a special monitoring agency to oversee the genuine credit needs of the
small scale sector.

 Introduction of suitable legislation to ensure prompt payment of small industries

bills.

 Introduction of a scheme of Integrated Infrastructural development (including

technological back up services) for small scale industries.

 Setting up a Technology Developed Cell in the Small Industries development

Organization.

 Market promotion of SSI products through co-operative/public sector institution's

other specialized professional/marketing agencies and the consortia approach.

 Setting up of an Export Development Center in the Small Industries

development Organization.

3.3 Industries (Development and Regulation) Act, 1951 (IDRA)

Growth of the industrial sector at a higher rate and on a sustained basis is a major
determinant of a country's overall economic development. In this regard, the
Government of India has issued industrial policies, from time to time, to facilitate and
foster the growth of Indian industry and maintain its productivity and competitiveness
in the world market.

66
In order to provide the Central Government with the means to implement its industrial
policies, several legislations have been enacted and amended in response to the
changing environment. The most important being the Industries (Development and
Regulation) Act, 1951 (IDRA) which was enacted in pursuance of the Industrial Policy
Resolution, 1948. The Act was formulated for the purpose of development and
regulation of industries in India by the Central Government.

The main objectives of the Act is to empower the Government:- (i) to take necessary
steps for the development of industries; (ii) to regulate the pattern and direction of
industrial development; (iii) to control the activities, performance and results of
industrial undertakings in the public interest. The Act applies to the 'Scheduled
Industries' listed in the First Schedule of the Act. However, small scale industrial
undertakings and ancillary units are exempted from the provisions of this Act.

The Act is administered by the Ministry of Industries & Commerce through its
Department of Industrial Policy & Promotion (DIPP). The DIPP is responsible for
formulation and implementation of promotional and developmental measures for
growth of the industrial sector. It monitors the industrial growth and production, in
general, and selected industrial sectors, such as cement, paper and pulp, leather, tyre
and rubber, light electrical industries, consumer goods, consumer durables, light
machine tools, light industrial machinery, light engineering industries etc., in
particular. It is also responsible for facilitating and increasing the foreign direct
investment (FDI) inflow into the country as well as for encouraging acquisition of
technological capability in various sectors of the industry.

The various provisions of the Act are:-

 Establishment of a 'Central Advisory Council' for the purpose of advising the Central
Government on matters concerning the development of the industries, making of any
rules and any other matter connected with the administration of the Act. Its members
shall consist of representatives of the owners of industrial undertaking, employees,
consumers, primary suppliers, etc.

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 Establishment of a 'Development Council' for the purpose of development of any
scheduled industry or group of scheduled industries. This council shall consist of the
members representing the interests of the owners, employees, consumers, etc. and
persons having special knowledge of matters relating to the technical or other aspects
of the industries.

 The development council shall perform the following functions assigned to it by the
Central Government:- (i) recommending targets for production, co-coordinating
production programmes and reviewing progress from time to time. (ii) suggesting
norms of efficiency with a view to eliminating waste, obtaining maximum production,
improving quality and reducing costs. (iii) recommending measures for securing the
fuller utilisation of the installed capacity and for improving the working of the
industry, particularly of the less efficient units. (iv) promoting arrangements for better
marketing and helping in the devising of a system of distribution and sale of the
produce of the industry which would be satisfactory to the consumer. (v) promoting
the training of persons engaged or proposing engagement in the industry and their
education in technical or artistic subjects relevant thereto, etc.

 The development council shall prepare and transmit to the Central Government and
the advisory council a report (annually) setting out what has been done in the
discharge of its functions during the financial year last completed. The report shall
include a statement of the accounts of the development council for that year, together
with a copy of any report made by the auditors on the accounts.

 The IDRA empowers the Central Government to regulate the development of

industries by means of licensing with suitable exemptions as decided by the
Government. Accordingly, the entry into a business or the expansion of an existing
business may be regulated by licensing. A licence is a written permission from the
Government to an industrial undertaking to manufacture specified articles included in
the Schedule to the Act. It contains particulars of the industrial undertaking, its
location, the articles to be manufactured, its capacity on the basis of the maximum

68
utilisation of plant and machinery, and other appropriate conditions which are
enforceable under the Act.

 If an application for licence is approved and further clearance ( such as that of

foreign collaboration and capital goods import) are not involved and no other prior
conditions have to be fulfilled, an industrial licence is issued to the applicant. In other
cases, a letter of intent is issued, which conveys the intention of the Government to
grant a licence subject to the fulfilment of certain conditions such as approval of
foreign investment proposal, import of capital goods, etc.

 The Government may order for investigation before the grant of licence to an
industrial undertaking. It can make a full and complete investigation if it is of the
opinion that in the respect of any schedule industry or undertaking, there has been or is
likely to be:- (i) a substantial fall in the volume of output; or (ii) a marked
deterioration in the quality of output or an unjustifiable rise in the price of the output.
Also, if it is of the opinion that any industrial undertaking is being managed in a
manner highly detrimental to the scheduled industry concerned or to the public
interest, it orders investigation.

 As a result of such investigations, the Government is empowered to issue directions

to the industrial undertaking for all or any of the following purposes:-

 Regulating the production of output by the industrial undertaking and fixing the
standards of production;

 Requiring the industrial undertaking to take such steps as the Central Government
may consider necessary to stimulate the development of the industry to which the
undertaking relate.

 Prohibiting the industrial undertaking from resorting to any act or practice which
might reduce its production, capacity or economic value;

 Controlling the prices, or regulating the distribution, of an output for securing its
equitable distribution and availability at fair prices.

69
 The Act also provides that any such directions may be issued by the Central
Government at any time when a case relating to any industrial undertaking is under
investigation. These directions shall have effect until they are varied or revoked by the
Central Government.

 The power of control entrusted to the Central Government under the Act extends to
that of the take over of the management of the whole or any part of an industrial
undertaking which fails to comply with any of the directions mentioned above. The
Government can also take over the management of an undertaking which is being
managed in a manner highly detrimental to the scheduled industry concerned or to the
public interest. Further, the Central government can take over the management of
industrial undertaking owned by a company under liquidation, with the permission of
the High Court, if the Government is of the opinion that the running or restarting the
operations of such an undertaking is necessary for the maintaining or increasing the
production, supply or distribution in the public interest.

Until liberalisation, the industrial licence was required for the establishment of a new
industrial undertaking, manufacturing of a new item by an existing undertaking,
change of location of an industry, substantial expansion of existing capacity and for all
other purposes. But the new industrial policy s liberalised this and exempted many
industries from obtaining industrial licence. In today's scenario, only 6 categories of
industries require industrial licensing under the Industries (Development and
Regulation) Act, 1951 (IDRA). Such industries file an Industrial Entrepreneur
Memoranda (IEM) with the Secretariat of Industrial Assistance (SIA), Department of
Industrial Policy and Promotion to obtain an acknowledgement.

3.4 Planning Machinery of India

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History

Rudimentary economic planning, deriving the sovereign authority of the state, first
began in India in 1930s under the British Raj, and the colonial government of India
formally established a planning board that functioned from 1944 to 1946. Private
industrialists and economist formulated at least three development plans in 1944.

After India gained independence, a formal model of planning was adopted, and the
planning commission, reporting directly to the Prime Minister of India was
established. Accordingly, the Planning Commission was set up on 15 March 1950,
with Prime Minister Jawaharlal Nehru as the chairman. Planning Commission though
is a non statutory as well extra constitutional body, i.e has been brought by an
executive order.

The first Five-year Plan was launched in 1951 and two subsequent five-year plans
were formulated till 1965, when there was a break because of the Indo-Pakistan
Conflict. Two successive years of drought, devaluation of the currency, a general rise
in prices and erosion of resources disrupted the planning process and after three
Annual Plans between 1966 and 1969, the fourth Five-year plan was started in 1969.

The Eighth Plan could not take off in 1990 due to the fast changing political situation
at the Centre and the years 1990-91 and 1991-92 were treated as Annual Plans. The
Eighth Plan was finally launched in 1992 after the initiation of structural adjustment
policies.

For the first eight Plans the emphasis was on a growing public sector with massive
investments in basic and heavy industries, but since the launch of the Ninth Plan in
1997, the emphasis on the public sector has become less pronounced and the current
thinking on planning in the country, in general, is that it should increasingly be of an
indicative nature.

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The composition of the Commission has undergone a lot of change since its inception.
With the Prime Minister as the ex-officio Chairman, the committee has a nominated
Deputy Chairman, who is given the rank of a full Cabinet Minister.

Cabinet Ministers with certain important portfolios act as part-time members of the
Commission, while the full-time members are experts of various fields like
Economics, Industry, Science and General Administration.

The Commission works through its various divisions, of which there are three kind:

 General Planning Divisions

 Programme Administration Divisions

The majority of experts in the Commission are economists, making the Commission
the biggest employer of the Indian Economic Services.

Functions of Planning Commission

1. Assessment of resources of the country

2. Formulation of Five-Year Plans for effective use of these resources

3. Determination of priorities, and allocation of resources for the Plans

4. Determination of requisite machinery for successful implementation of the

Plans

5. Periodical appraisal of the progress of the Plan

6. To formulate plans for the most effective and balanced utilization of country's
resources.

7. To indicate the factors which are hampering economic development.

3.5 Five-Year plans of India

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The economy of India is based in part on planning through its five-year plans, which
are developed, executed and monitored by the Planning Commission. The tenth plan
completed its term in March 2007 and the eleventh plan is currently underway. Prior to
the fourth plan, the allocation of state resources was based on schematic patterns
rather than a transparent and objective mechanism, which lead to the adoption of the
Gadgil formula in 1969. Revised versions of the formula have been used since then to
determine the allocation of central assistance for state plans.

First Five-Year Plan, 1951–1956

The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to
the Parliament of India on 8 December 1951. The plan addressed, mainly, the agrarian
sector, including investments in dams and irrigation. The agricultural sector was hit
hardest by the partition of India and needed urgent attention. The total planned budget
of 206.8 billion (US$23.6 billion in the 1950 exchange rate) was allocated to seven
broad areas: irrigation and energy (27.2 percent), agriculture and community
development (17.4 percent), transport and communications (24 percent), industry (8.4
percent), social services (16.64 percent), land rehabilitation (4.1 percent), and for other
sectors and services (2.5 percent). The most important feature of this phase was active
role of state in all economic sectors. Such a role was justified at that time because
immediately after independence, India was facing basic problems—deficiency of
capital and low capacity to save.

The target growth rate was 2.1% annual gross domestic product (GDP) growth; the
achieved growth rate was 3.6%. The net domestic product went up by 15%. The
monsoon was good and there were relatively high crop yields, boosting exchange
reserves and the per capita income, which increased by 8%. National income increased
more than the per capita income due to rapid population growth. Many irrigation
projects were initiated during this period, including the Bhakra Dam and Hirakud
Dam. The World Health Organization, with the Indian government, addressed
children's health and reduced infant mortality, indirectly contributing to population
growth.
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At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were
started as major technical institutions. The University Grant Commission was set up to
take care of funding and take measures to strengthen the higher education in the
country. Contracts were signed to start five steel plants, which came into existence in
the middle of the second five-year plan.

Second Five-Year Plan, 1956–1961

This plan functioned on the basis of a nude model. The Mahalanobis model was
propounded by Prasanta Chandra Mahalanobis in the year 1953. The second five-year
plan focused on industry, especially heavy industry. Unlike the First plan, which
focused mainly on agriculture, domestic production of industrial products was
encouraged in the Second plan, particularly in the development of the public sector.
The plan followed the Mahalanobis model, an economic development model
developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan
attempted to determine the optimal allocation of investment between productive
sectors in order to maximise long-run economic growth. It used the prevalent state of
art techniques of operations research and optimization as well as the novel
applications of statistical models developed at the Indian Statiatical Institute. The plan
assumed a closed economy in which the main trading activity would be centered on
importing capital goods.

Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela
were established. Coal production was increased. More railway lines were added in
the north east.

The Atomic Energy Commission was formed in 1958 with Homi J. Bhabha as the first
chairman. The Tata Institute of Fundamental Research was established as a research
institute. In 1957 a talent search and scholarship program was begun to find talented
young students to train for work in nuclear power.

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The total amount allocated under the second five year plan in India was Rs. 4,800
crore. This amount was allocated among various sectors:

 Mining and industry

 Community and agriculture development

 Power and irrigation

 Social services

 Communications and transport

 Miscellaneous

Target Growth: 4.5% Actual Growth: 4.27%

Third Five-Year Plan, 1961–1966

The third plan stressed on agriculture and improving production of rice, but the brief
Sino-Indian War of 1962 exposed weaknesses in the economy and shifted the focus
towards the Defence industry. In 1965-1966, India fought a war with Pakistan. The
war led to inflation and the priority was shifted to price stabilization. The construction
of dams continued. Many cement and fertilizer plants were also built. Punjab began
producing an abundance of wheat.

Many primary schools were started in rural areas. In an effort to bring democracy to
the grassroot level, Panchayat elections were started and the states were given more
development responsibilities.

State electricity boards and state secondary education boards were formed. States were
made responsible for secondary and higher education. State road transportation
corporations were formed and local road building became a state responsibility. The
target growth rate of GDP (gross domestic product) was 5.6 percent. The achieved
growth rate was 2.84 percent.

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Fourth Five-Year Plan, 1969–1974

At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government
nationalised 14 major Indian banks and the Green Revolution in India advanced
agriculture. In addition, the situation in East Pakistan (now Bangladesh) was becoming
dire as the Indo-Pakistani War of 1971 and Bangladesh Liberation War took place.

Funds earmarked for the industrial development had to be diverted for the war effort.
India also performed the Smiling Buddha underground nuclear test in 1974, partially
in response to the United States deployment of the Seventh Fleet in the Bay of Bengal.
The fleet had been deployed to warn India against attacking West Pakistan and
extending the war.

Target Growth: 5.7% Actual Growth: 3.30%

Fifth Five-Year Plan, 1974–1979

Stress was laid on employment, poverty alleviation, and justice. The plan also focused
on self-reliance in agricultural production and defence. In 1978 the newly elected
Morarji Desai government rejected the plan. Electricity Supply Act was enacted in
1975, which enabled the Central Government to enter into power generation and
transmission leaders.

The Indian national highway system was introduced for the first time and many roads
were widened to accommodate the increasing traffic. Tourism also expanded.

Target Growth: 4.4% Actual Growth: 4.8%

Sixth Five-Year Plan, 1980–1985

The sixth plan also marked the beginning of economic liberalization. Price controls
were eliminated and ration shops were closed. This led to an increase in food prices
76
and an increase in the cost of living. This was the end of Nehruvian Plan and Rajiv
Gandhi was prime minister during this period.

Family planning was also expanded in order to prevent overpopulation. In contrast to

China's strict and binding one-child policy, Indian policy did not rely on the threat of
force. More prosperous areas of India adopted family planning more rapidly than less
prosperous areas, which continued to have a high birth rate.

Target Growth: 5.2% Actual Growth: 5.66%

Seventh Five-Year Plan, 1985–1990

The Seventh Plan marked the comeback of the Congress Party to power. The plan laid
stress on improving the productivity level of industries by upgrading of technology.

The main objectives of the 7th five year plans were to establish growth in areas of
increasing economic productivity, production of food grains, and generating
employment opportunities.

As an outcome of the sixth five year plan, there had been steady growth in agriculture,
control on rate of Inflation, and favourable balance of payments which had provided a
strong base for the seventh five Year plan to build on the need for further economic
growth. The 7th Plan had strived towards socialism and energy production at large.
The thrust areas of the 7th Five year plan have been enlisted below:

 Social Justice
 Removal of oppression of the weak

 Using modern technology

 Agricultural development

 Anti-poverty programs

 Full supply of food, clothing, and shelter

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 Increasing productivity of small and large scale farmers

 Making India an Independent Economy

Based on a 15-year period of striving towards steady growth, the 7th Plan was focused
on achieving the pre-requisites of self-sustaining growth by the year 2000. The Plan
expected a growth in labour force of 39 million people and employment was expected
to grow at the rate of 4 percent per year.

Some of the expected outcomes of the Seventh Five Year Plan India are given below:

 Balance of Payments (estimates): Export – Indian rupee 33,000 crore (US$7.3

billion), Imports - Indian rupee 54,000 crore (US$12 billion), Trade Balance -
(-)Indian rupee 21,000 crore (US$4.7 billion)
 Merchandise exports (estimates): Indian rupee 60,653 crore (US$13.5 billion)

 Merchandise imports (estimates): Indian rupee 95,437 crore (US$21.2 billion)

 Projections for Balance of Payments: Export - Indian rupee 60,700 Crore

(US$13.5 billion), Imports - (-)Indian rupee 95,400 crore (US$21.2 billion), Trade
Balance- (-)Indian rupee 34,700 crore (US$7.7 billion)

Seventh Five Year Plan India strove to bring about a self-sustained economy in the
country with valuable contributions from voluntary agencies and the general populace.

Target Growth: 5.0% Actual Growth: 6.01%

Period between 1989–1991

1989-91 was a period of political instability in India and hence no five year plan was
implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India
faced a crisis in Foreign Exchange (Forex) reserves, left with reserves of only about
US$1 billion. Thus, under pressure, the country took the risk of reforming the socialist
economy. P.V. Narasimha Rao)was the twelfth Prime Minister of the Republic of India

78
and head of Congress Party, and led one of the most important administrations in
India's modern history overseeing a major economic transformation and several
incidents affecting national security. At that time Dr. Manmohan Singh (currently,
Prime Minister of India) launched India's free market reforms that brought the nearly
bankrupt nation back from the edge. It was the beginning of privatisation and
liberalisation in India.

Eighth Five-Year Plan, 1992–1997

Modernization of industries was a major highlight of the Eighth Plan. Under this plan,
the gradual opening of the Indian economy was undertaken to correct the burgeoning
deficit and foreign debt. Meanwhile India became a member of the World Trade
Organization on 1 January 1995.This plan can be termed as Rao and Manmohan
model of Economic development. The major objectives included, controlling
population growth, poverty reduction, employment generation, strengthening the
infrastructure, Institutional building,tourism management, Human Resource
development, Involvement of Panchayat raj, Nagarapalikas, N.G.O'S and
Decentralisation and people's participation. Energy was given prority with 26.6% of
the outlay. An average annual growth rate of 6.78% against the target 5.6% was
achieved.

Ninth Five-Year Plan, 1997–2002

Ninth Five Year Plan India runs through the period from 1997 to 2002 with the main
aim of attaining objectives like speedy industrialization, human development, full-
scale employment, poverty reduction, and self-reliance on domestic resources.

Background of Ninth Five Year Plan India: Ninth Five Year Plan was formulated
amidst the backdrop of India's Golden jubilee of Independence.

The main objectives of the Ninth Five Year Plan of India are:

 to prioritize agricultural sector and emphasize on the rural development

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 to generate adequate employment opportunities and promote poverty reduction

 to stabilize the prices in order to accelerate the growth rate of the economy

 to ensure food and nutritional security

 to provide for the basic infrastructural facilities like education for all, safe drinking
water, primary health care, transport, energy

 to check the growing population increase

 to encourage social issues like women empowerment, conservation of certain

benefits for the Special Groups of the society

 to create a liberal market for increase in private investments

During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point
lower than the target GDP growth of 6.5 per cent.

Tenth Five-Year Plan, 2002–2007

 Attain 8% GDP growth per year.

 Reduction of Poverty ratio by 5 percentage points by 2007.

 Providing gainful and high-quality employment at least to the addition to the labour
force;*All children in India in school by 2003; all children to complete 5 years of
schooling by 2007.

 Reduction in gender gaps in literacy and wage rates by at least 50% by

2007;*Reduction in the decadal rate of population growth between 2001 and 2011 to
16.2%;*Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to
2007).

Eleventh Five-Year Plan, 2007–2012

The eleventh plan has the following objectives:

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1. Income & Poverty
o Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th Plan
in order to double per capita income by 2016-17

o Increase agricultural GDP growth rate to 4% per year to ensure a broader spread of
benefits

o Create 70 million new work opportunities.

o Reduce educated unemployment to below 5%.

o Raise real wage rate of unskilled workers by 20 percent.

o Reduce the headcount ratio of consumption poverty by 10 percentage points.

2. Education

o Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to
20% by 2011-12

o Develop minimum standards of educational attainment in elementary school, and by

regular testing monitor effectiveness of education to ensure quality

o Increase literacy rate for persons of age 7 years or above to 85%

o Lower gender gap in literacy to 10 percentage point

o Increase the percentage of each cohort going to higher education from the present
10% to 15% by the end of the plan

3. Health

o Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live
births

o Reduce Total Fertility Rate to 2.1

o Provide clean drinking water for all by 2009 and ensure that there are no slip-backs

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o Reduce malnutrition among children of age group 0-3 to half its present level

o Reduce anaemia among women and girls by 50% by the end of the plan

4. Women and Children

o Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17

o Ensure that at least 33 percent of the direct and indirect beneficiaries of all
government schemes are women and girl children

o Ensure that all children enjoy a safe childhood, without any compulsion to work

5. Infrastructure

o Ensure electricity connection to all villages and BPL households by 2009 and round-
the-clock power.

o Ensure all-weather road connection to all habitation with population 1000 and above
(500 in hilly and tribal areas) by 2009, and ensure coverage of all significant
habitation by 2015

o Connect every village by telephone by November 2007 and provide broadband

connectivity to all villages by 2012

o Provide homestead sites to all by 2012 and step up the pace of house construction
for rural poor to cover all the poor by 2016-17

6. Environment

o Increase forest and tree cover by 5 percentage points.

o Attain WHO standards of air quality in all major cities by 2011-12.

o Treat all urban waste water by 2011-12 to clean river waters.

o Increase energy efficiency by 20 percentage points by 2016-17.

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3.6 INDUSTRIAL SICKNESS
Industrial Sickness is a universal phenomenon. To a lay man a sick unit is that unit
which is not healthy. To an investor it is a unit which does not give its dividend and to
a banker a unit is sick when it suffers losses in the previous year & likely to repeat it in
current and following years. According to Reserve Bank of India, an industrial unit is
regarded as sick if it has incurred cash loss for one year and in the judgement of the
Bank, it is likely to continue to incur cash loss in the two following years and it has
imbalance in its financial structure such as current ratio being less than 1:1 and
worsening debt-equity ratio.

The reserve bank of India has advised the commercial bank to take remedial measures
in these units at the stage of 50% erosion of their networth.

TYPES OF INDUSTRIAL SICKNSS

Industrial units may become sick at different stages and due to different reasons. There
are mainly two types of sickness which can be classified as under:

1.Born sickness

2.Achieved sickness

BORN SICKNESS: Industrial unit are said to be born sick when they are sick right
from there starting. There are various causes for this sickness. These causes are:

1) Lack experience of the promoters

2) Wrong selection of project
3) Faulty project planning
4) Shortage of funds and improper financial management
5) Time and cost overruns

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6) Improper technology
7) Location problem
8) Wrong assessment of market potential

ACHIEVED SICKNESS: Achieved Sickness is that sickness which an industry

achieve after some years due to some internal reasons. These internal reasons may be:

1) Bad and inexperienced management

2) Failure to change in product mix.
3) Poor labour-management relationship.

CAUSES OF INDUSTRIAL SICKNESS

There are mainly two causes of industrial sickness. They are:

(a) Internal causes.

(b) External causes.

(a) INTERNAL CAUSES:

1) Lack of professional expertise

2) Poor production management
3) Poor labour management
4) Poor resource management
5) Poot inventory management
6) Unable to repay payment
7) Lack of innovation.

(b) EXTERNAL CAUSES:

1) Energy crisis due to power cuts or shortage of fuel

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2) Shortage of raw material
3) Changes in the import conditions
4) Shortage of working capital
5) Unfavourable Government policy

Preventive and Curative Measures

For the industrial sickness in country the government of India had set up a committee
of experts under the chairmanship of Shri Tiwari to examine the matter and
recommend suitable remedies and therefore, Sick Industrial Companies Act 1985
(SICA) was enacted.

According to SICA, as amended in 1993, a sick industrial company meant an

industrial company (being a company registered for not less then five years) which
had at the end of any financial year accumulated loss equal to or exceeding its entire
networth.

OBJECTIVES OF SICA

1) Timely detection of sick industrial companies.

2) Speedly determination and enforcement of preventive, remedial and other
measures with respect to such companies.
3) These measures are to be taken by a body of expert named Board for Industrial and
Financial Reconstruction (BIFR) set up in January, 1987.

REMEDIAL MEASURES OF SICA

1) Financial reconstruction of company.

2) Sale or lease of apart or whole of industrial undertaking of sick industrial
company.
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3) The proper management of the sick industrial company by change in or takeover
of management of the sick industrial company.
4) The amalgamation of sick industrial company with any other company, or any
other company with sick industrial company.

3.8 The MRTP Act, 1969

The Monopolies and Restrictive Trade Practices Act was enacted by the Parliament on
27th December, 1969 and it was brought into force form 1st June, 1970

Post independence, many new and big firms have entered the Indian market. They had
little competition and they were trying to monopolize the market. The Government of
India understood the intentions of such firms. In order to safeguard the rights of
consumers, Government of India passed the MRTP bill. The bill was passed and the
Monopolies and Restrictive Trade Practices Act, 1969, came into existence. Through
this law, the MRTP commission has the power to stop all businesses that create barrier
for the scope of competition in Indian economy.

The MRTP Act, 1969, aims at preventing economic power concentration in order to
avoid damage. The act also provides for probation of monopolistic, unfair and
restrictive trade practices. The law controls the monopolies and protects consumer
interest.

Monopolistic Trade Practice

Such practice indicates misuse of one’s power to abuse the market in terms of
production and sales of goods and services. Firms involved in monopolistic trade
practice tries to eliminate competition from the market. Then they take advantage of
their monopoly and charge unreasonably high prices. They also deteriorate the product
quality, limit technical development, prevent competition and adopt unfair trade
practices.

Unfair Trade Practice

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The following may result in an unfair trade practice:

 False representation and misleading advertisement of goods and services.

 Falsely representing second-hand goods as new.

 Misleading representation regarding usefulness, need, quality, standard, style

etc of goods and services.

 False claims or representation regarding price of goods and services.

 Giving false facts regarding sponsorship, affiliation etc. of goods and services.

 Giving false guarantee or warranty on goods and services without adequate

tests.

Restrictive Trade Practice

The traders, in order to maximize their profits and to gain power in the market, often
indulge in activities that tend to block the flow of capital into production. Such traders
also bring in conditions of delivery to affect the flow of supplies leading to unjustified
costs.

About the MRTP Act, 1969

The MRTP Act extends to the whole of India except the state of Jammu and Kashmir.
This law was enacted:

 To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few,
 To provide for the control of monopolies, and

 To prohibit monopolistic and restrictive trade practices.

Unless the Central Government otherwise directs, this act shall not apply to:

1. Any undertaking owned or controlled by the Government,

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2. Any undertaking owned or controlled by a corporation (not being a company)
established by or under any Central, Provincial or State Act,

3. Any trade union or other association of workmen or employees formed for

their own reasonable protection as such workmen or employees,

4. Any undertaking engaged in an industry, the management of which has been

taken over by any person or body of persons under powers by the Central
Government,

5. Any undertaking owned by a co-operative society formed and registered under

any Central, Provincial or state Act,

6. Any financial institution.

MRTP Commission and Filing of Complaint

For the purpose of this Act, the Central Government has established a commission to
be known as the Monopolies and Restrictive Trade Practices Commission. This
commission shall consist of a Chairman and minimum 2 and maximum 8 other
members, all to be appointed by the Central Government. Every member shall hold the
office for a period specified by the Central Government. This period shall not exceed 5
years. However, the member will be eligible for re-appointment.

In case of any unfair trade practice, monopolistic trade practice and/or restrictive trade
practice, a complaint can be filed against such practices to the MRTP commission. The
procedure for filing a complaint is as follows:

 Complaint is filed either by the individual consumer or through a registered

consumer organization.
 The Director General of the MRTP commission would carry on the investigation for
finding facts of the case.

 If the prima facie case is not made, the complaint is dismissed. If the compliant is
true, an order is passed to its effect.
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 The commission restricts and restrains the concerned party from carrying on such
practices by granting temporary injunction.

 Then the final order is passed. The complainant may be compensated for his loss.

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Terminal Exercise

1) Discuss the historical aspect of Industrial policy of India.

2) What are recent aspects of Industrial policy of India?
3) Discuss the basic aspects of IDRA Act, 1951.
4) Write a brief note on Planning Machinery of India.
5) What are achievements and impediments of recent five year plan?
6) What is industrial sickness?
7) What are causes of industrial sickness?
8) Write a brief note on MRTP Act, 1969.

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 Unit – 4
Economic Environment
SEBI – its Role, FIPB - its Role, Fiscal and Monetary Policies, Policy of
Liberalization and Globalizaion, Foreign Capital and Technology, Export
and Import Policy, FEMA.

4.0 SEBI – Introduction

In 1988 the Securities and Exchange Board of India (SEBI) was established by the
Government of India through an executive resolution, and was subsequently upgraded
as a fully autonomous body (a statutory Board) in the year 1992 with the passing of
the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In
place of Government Control, a statutory and autonomous regulatory board with
defined responsibilities, to cover both development & regulation of the market, and
independent powers have been set up. Paradoxically this is a positive outcome of the
Securities Scam of 1990-91.

The basic objectives of the Board

 to protect the interests of investors in securities;

 to promote the development of Securities Market;

 to regulate the securities market and

 for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to
the fulfilment of its objectives with commendable zeal and dexterity. The
improvements in the securities markets like capitalization requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.

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SEBI has introduced the comprehensive regulatory measures, prescribed registration
norms, the eligibility criteria, the code of obligations and the code of conduct for
different intermediaries like, bankers to issue, merchant bankers, brokers and sub-
brokers, registrars, portfolio managers, credit rating agencies, underwriters and others.
It has framed bye-laws, risk identification and risk management systems for Clearing
houses of stock exchanges, surveillance system etc. which has made dealing in
securities both safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX
Nifty & Sensex) in 2000. A market Index is a convenient and effective product
because of the following reasons:

 It acts as a barometer for market behavior;

 It is used to benchmark portfolio performance;

 It is used in derivative instruments like index futures and index options;

 It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national
level, and also to diversify the trading products, so that there is an increase in number
of traders including banks, financial institutions, insurance companies, mutual funds,
primary dealers etc. to transact through the Exchanges. In this context the introduction
of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD
is a real landmark.

4.1 SEBI Administration

The Securities and Exchange Board of India Act, 1992 is having retrospective effect
and is deemed to have come into force on January 30, 1992. Relatively a brief act
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containing 35 sections, the SEBI Act governs all the Stock Exchanges and the
Securities Transactions in India.

A Board by the name of the Securities and Exchange Board of India (SEBI) was
constituted under the SEBI Act to administer its provisions. It consists of one
Chairman and five members.

One each from the department of Finance and Law of the Central Government, one
from the Reserve Bank of India and two other persons and having its head office in
Bombay and regional offices in Delhi, Calcutta and Madras.
The Central Government reserves the right to terminate the services of the Chairman
or any member of the Board. The Board decides questions in the meeting by majority
vote with the Chairman having a second or casting vote.

Section 11 of the SEBI Act provides that to protect the interest of investors in
securities and to promote the development of and to regulate the securities market by
such measures, it is the duty of the Board. It has given power to the Board to regulate
the business in Stock Exchanges, register and regulate the working of stock brokers,
sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds,
registrars to an issue, merchant bankers, underwriters, portfolio managers, investment
advisers, etc., also to register and regulate the working of collective investment
schemes including mutual funds, to prohibit fraudulent and unfair trade practices and
insider trading, to regulate take-overs, to conduct enquiries and audits of the stock
exchanges, etc.

All the stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees
of trust deed, registrars to an issue, merchant bankers, underwriters, portfolio
managers, investment advisers and such other intermediary who may be associated
with the Securities Markets are to register with the Board under the provisions of the
Act, under Section 12 of the Sebi Act. The Board has the power to suspend or cancel
such registration. The Board is bound by the directions vested by the Central
Government from time to time on questions of policy and the Central Government
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reserves the right to supersede the Board. The Board is also obliged to submit a report
to the Central Government each year, giving true and full account of its activities,
policies and programmes. Any one of the aggrieved by the Board's decision is entitled
to appeal to the Central Government.

Investors may however note that as a regulatory body SEBI cannot guarantee or
undertake the repayment of money to the investors. It is SEBI's endeavour to educate
the investors of the general risk perception of such schemes.

 Investors can also approach District Consumer Redressal forums in case

entities fail to honour their commitments or for any deficiency in service.
 For bouncing of cheques, investors can move the Courts under section 138 of
the Negotiable Instruments Act. The right to file criminal complaint exclusively vests
with the beneficiary of the cheque.

4.2 FIPB (Foreign Investment Promotion Board)

Foreign Investment Promotion Board (FIPB) has been set up by the government of
India in order to increase the flow of foreign direct investments into the country. By
doing this, Foreign Investment Promotion Board (FIPB) has been able to give a major
boost to the Indian economy.

Setting up of Foreign Investment Promotion Board (FIPB):

The Indian government has set up Foreign Investment Promotion Board (FIPB). FIPB
is the only agency in the country that deals with foreign direct investments and
investments into India.

The main objective of Foreign Investment Promotion Board (FIPB) is to encourage

foreign direct investment into the country by taking up activities that promote
investment. The chairman of Foreign Investment Promotion Board (FIPB) is the
Secretary Industry of the Department of Industrial Promotion and Policy, government
of India.

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The reconstituted Foreign Investment Promotion Board (FIPB) now comprises
secretaries from the departments of economic affairs, industrial policy & promotion,
commerce, external affairs and overseas Indian affairs. It has evolved as an efficient
and well managed government body exercising executive powers in a fair and
transparent manner, promoting the inflow of foreign direct investment (FDI). It meets
regularly, does not unreasonably delay approvals and has a strong record of
proactively encouraging FDI. The FIPB plays a critical role in the administration and
implementation of the government's FDI policy.

4.3 Functions of (FIPB) Foreign Investment Promotion Board:

 To quickly approve the foreign investment proposals.

 To review the foreign direct investment polices and to communicate with other
agencies such as the Administrative Ministries in order to set up guidelines that are
transparent and which encourage FDI into the various sectors of the country.

 To look over the implementation of the various proposals that have been approved
by it.

 To take up such activities that encourage FDI into the country such as establishing
contact with international companies and also inviting them to invest in India.

 To communicate with government, non- government, and Industry Bodies in order

to increase the flow of foreign direct investment into the country.

 To communicate with the Foreign Investment Promotion Council that has been set
up in the Industry Ministry.

 To identify the various sectors that require foreign direct investment.

 To take up all other activities that help in increasing the flow of foreign direct
investment into the country.

The role of FIPB is mainly to approve investments in sectors considered to be

sensitive, where national security may be implicated, in areas where certain sectoral

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guidelines need to be carefully implemented and enforced, where there is absence of
stated policy, or if the investment is outside the parameters of stated policy. These
include investments in the same field, transfer or issue of shares by way of equity
swaps, post facto approval for issue of shares, change in status from operating
company to operating-cum-holding company, investments of more than Rs 600 crore,
extension in the terms of redemption of preference shares, investment in asset
reconstruction companies, atomic minerals, broadcasting, cigars & cigarette
manufacture and so on.

These are areas of investment that government policy on FDI has mandated a role for
the FIPB. As an efficient decision-making body, it has served as a valuable source for
single-window clearance providing approval for all concerned ministries. Unlike
several developed countries, where multiple approvals are needed from separate
departments, FIPB performs the same function with different ministries acting in
unison.

If FIPB is wound up, foreign investors may need to apply to separate ministries and
departments for clearances contributing to additional paperwork, delays and avenues
of corruption, thereby retarding economic growth.

Every country needs an organisation to implement and enforce regulations. At times

where there is no policy, conflict in policy or grey areas, FIPB has stepped in to
provide solutions. In many cases, FIPB has been instrumental in checking abuse of
government policy and in framing checks and balances. There is probably not a single
example which can be cited where the board may have unfairly exercised its powers or
discretion. If FIPB is wound up, its role as a highly efficient, qualified and
experienced body providing a single-window clearance may then have to be
performed by a substantially less qualified executive department or an already
overburdened judiciary.

The winding up of FIPB will, therefore, only lead to confusion as India will still need
a regulator to enforce its policies. For example, investors may have to lean on the

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courts for interpretations, especially of Press Note 1 (2005) cases, where setting up
ventures in the same field may lead to conflict and dispute.

FIPB has built formidable expertise over the years in framing, clarifying,
implementing and enforcing FDI policy. There may not be another organisation that
can replace it. Realistically, as restrictions on FDI remain in some sectors in some
form (as they do even now in several developed countries), I see a clear role for FIPB
for at least another decade.

The role of FIPB, though important, has increasingly narrowed in scope compared to
the wide areas of approvals it previously provided. However, with FDI policy being
continually liberalised, the development of investment opportunities in new growth
areas will continue to throw up complexities. It is these complexities that FIPB
resolves so deftly, which has immensely contributed to the orderly growth of the
Indian economy.

4.4 FISCAL AND MONETARY POLICIES

The Monetary and Fiscal Policies affect the financial sector and the economy in
general. They can also be attuned to influence specific sectors or industries or
segments.

The Monetary and Fiscal Policies have important influence on the Gross National
Product (GNP)

GNP = C + I + G + X

Where:

C = Private consumption expenditure

I = Private investment expenditure

G = Government expenditure

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X = Net exports

Three of the components of the GNP, namely C, I and X can be influenced by the
monetary policy which can also influence the private consumption and investment
spending and exports and imports.

MONETARY POLICY

Monetary Policy refers to the use of instruments within the control of the Central Bank
to influence the level of aggregate demand for goods and services or to influence
the trends in certain sectors of the economy. Monetary policy operates through
varying the cost and availability of credit, these producing desired changes in the
assets pattern of credit institutions, principally commercial banks. These
variations affect the demand for, and the supply of credit in the economy, and the
level and nature of economic activities.

Instruments of Monetary Policy

The instruments of monetary policy (methods of credit control) may be broadly

divided into:

(A) General (Quantitative) methods: There are three quantitative instruments of credit
control, namely, the Bank Rate, Open market Operations and Variable Reserve
Requirements.
(B) Selective (Qualitative) methods: Selective credit controls are considered to be a
useful supplement to general credit regulation. The techniques of selective credit
controls used generally are:

(a) Minimum margins for lending against specific securities;

(b) Ceiling on the amounts of credit for certain purposes; and

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(c) Discriminatory rates of interest charged on certain types of
advances.

FISCAL POLICIES

Fiscal policy is that part of Government policy which is concerned with raising
revenue through taxation and other means and deciding on the level and pattern of
expenditure.

As opposed to monetary policy, fiscal policy refers to expenditure (used to provide

goods and services), taxation (to finance the various government expenses) and
government borrowing. The main point of fiscal policy is to keep the surplus or deficit
swings in the economy to a minimum by reducing inflation and recession.

There are two types of expenditures – money spent on the delivery of goods and
services and the transfer of funds to other levels of government. Government
expenditure can be both, planned, as well as non-planned. Planned capital expenditure
is like government expenditure on social sectors and planned non-capital expenditure
means normal government expenses. The latter means sudden expenses on, say,
durable disaster management and mounts to government expenses on government
officials, including VIPs.

Taxation takes many forms (direct and indirect), including taxation of personal and
corporate income, so-called value added taxation and the collection of royalties or
taxes on specific sets of goods. Government revenue is categorised into revenue
receipts – like tax revenue and non-tax revenue – and capital receipts (say, through
borrowing). Through borrowing, a government means to provide a great deal of goods
and services to its people, while not having the immediate tax revenue to fund that
expenditure. This is done primarily by issuing securities, such as Treasury Bills or
Treasury Bonds. All levels of government borrow money at some point or the other.
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Fiscal Policy has two main tools – the changing of tax rates, and changing of
government expenditure. The government has been focusing on both of these to
provide a boost to the economy.

Existing Measures – As we know, the on-going global recession has also hit India.
According to the International Monetary Fund (IMF) and World Bank, apart from
many Central and Eastern European economies, a large number of developing
countries across the five continents are facing a financial meltdown. This would
seriously affect the rate of economic growth and the related equity issues, especially
poverty levels. It is estimated that an additional 90 million people’s income may fall
below the poverty line in most of these countries.

Another problem is that capitalism rules the world but is surviving only because of
huge stimulus packages. India is fortunate in the sense that both the public and private
sectors are active, and both are equally aware of the crisis. They are, in fact, going
hand in hand to get the country out of this crisis. Let us briefly see what the public
sector is doing in terms of Fiscal and Monetary Policies in this context:

Looking at the global financial and economic conditions, the RBI has taken many
measures since mid-September 2008, to augment domestic liquidity and to ensure that
credit continues to flow to productive sectors of the economy. Since then, the RBI has
reduced the Cash Reserve Ratio (CRR) from 9.0 per cent to 5.0 per cent and the
Statutory Liquidity Ratio (SLR) from 25.0 per cent to 24.0 per cent.

The various fiscal stimulus packages as announced by the government during the last
few months or so, have raised the market borrowing programme of the government for
the year 2008-09. In terms of the amendment to the memorandum of understanding on
‘Market Stabilisation Scheme’ (MSS) on February 26, 2009, an amount of Rs 45,000
crore was transferred from the MSS cash account to the normal cash account of the
Government of India by March 31, 2009. An equivalent amount of government

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securities issued under the MSS would also form part of the normal market borrowing
of the government. This arrangement has surely given a boost to the market.

Furthermore, the RBI has conducted purchase of government securities under its open
market operations. The Government has given liquidity support to the housing sector
and particularly to Housing Finance Companies (HFC), which have been adversely
affected by the recent financial market developments. The government is also helping
the overseas financial companies in many ways for financing imports to India.
Attempts are being made to ensure adequate liquidity in order to maintain the flow of
credit for all productive purposes in the housing, export and small and medium
industry sectors.

4.5 Policy of Liberalization and Globalization

Globalization and liberation are directly linked with each other. The first wake of
globalization started in India when the economic liberalization policies were
undertaken in the 1990s by Dr Manmohan Singh, the then Finance Minister of the
country. Since then, the economy of India has improved to a great extent and has
significantly led to the rise in the standard of living of the citizens.

In early 1990s the Indian economy had witnessed dramatic policy changes. The idea
behind the new economic model known as Liberalization, Privatization and
Globalization in India (LPG), was to make the Indian economy one of the fastest
growing economies in the world. An array of reforms was initiated with regard to
industrial, trade and social sector to make the economy more competitive. The
economic changes initiated have had a dramatic effect on the overall growth of the
economy. It also heralded the integration of the Indian economy into the global
economy. The Indian economy was in major crisis in 1991 when foreign currency
reserves went down to $1 billion and inflation was as high as 17%. Fiscal deficit was
also high and NRI's were not interested in investing in India.

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Pre liberalization period and globalization
From independence till the later part of the 1980s, India economic approach was
mainly based on government control and a centrally operated market. The country did
not have a proper consumer oriented market and foreign investments were also not
coming in. This did not do anything good to the economic condition of the country
and as such the standard of living did not go up.

In the 1980s, stress has given on globalization and liberalization of the market by the
Congress government under Rajiv Gandhi. In his government tenure, plenty of
restrictions were abolished on a number of sectors and the regulations on pricing were
also put off. Effort was also put to increase the condition of the GDP of the country
and to increase exports.

Even if the economic liberalization policies were undertaken, it did not find much
support and the country remained in its backward economic state. The imports started
exceeding the exports and the India suffered huge balance of payment problems. The
IMF asked the country for the bailout loan. The fall of the Soviet Union, a main
overseas business market of India, also aggravated the problem. The country at this
stage was in need of an immediate economic reform.

Liberalization in the 1990s

It was in the 1990s that the first initiation towards globalization and economic
liberalization was undertaken by Dr Manmohan Singh, who was the Finance Minister
of India under the Congress government headed by P.V. Narasimha Rao. This is
perhaps the milestone in the economic growth if India and it aimed towards
welcoming globalization. Since, the liberalization plan, the economic condition
gradually started improving and today India is one of the fastest growing economies in
the world with an average yearly growth rate of around 6-7%.

Steps Taken to Globalize Indian Economy

Some of the steps taken to liberalize and globalize our economy were:
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1. Devaluation: To solve the balance of payment problem Indian currency were
devaluated by 18 to 19%.
2. Disinvestment: To make the LPG model smooth many of the public sectors were
sold to the private sector.
3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of
sectors such as Insurance (26%), defense industries (26%) etc.
4. NRI Scheme: The facilities which were available to foreign investors were also
given to NRI's.

4.6 Merits and Demerits of Globalization

Merits of Globalization are as follows:

 There is an International market for companies and for consumers there is a wider
range of products to choose from.
 Increase in flow of investments from developed countries to developing countries,
which can be used for economic reconstruction.

 Greater and faster flow of information between countries and greater cultural
interaction has helped to overcome cultural barriers.

 Technological development has resulted in reverse brain drain in developing

countries.

Demerits of Globalization are as follows:

 The outsourcing of jobs to developing countries has resulted in loss of jobs in

developed countries.
 There is a greater threat of spread of communicable diseases.

 There is an underlying threat of multinational corporations with immense power

ruling the globe.

 For smaller developing nations at the receiving end, it could indirectly lead to a
subtle form of colonization.
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Globalization and foreign investment
One of the main aspects of globalization is foreign investment. India today has
emerged as one of the perfect markets for foreign investors due to its vast market base.
More and more foreign companies are investing in the Indian market to get more
returns. The foreign institutional investments (FII) amounts to around US$ 10 billion
in FY 2008-09, while the rate of Foreign direct investments (FDI) has grown around
85.1% in 2009 to US$ 46.5 billion from US$ 25.1 billion (2008).

Summary

India gained highly from the LPG model as its GDP increased to 9.7% in 2007-2008.
In respect of market capitalization, India ranks fourth in the world. But even after
globalization, condition of agriculture has not improved. The share of agriculture in
the GDP is only 17%. The number of landless families has increased and farmers are
still committing suicide. But seeing the positive effects of globalization, it can be said
that very soon India will overcome these hurdles too and march strongly on its path of
development.

4.7 FOREIGN CAPITAL AND TECHNOLOGY

Policy followed till July 1991

India was following a very restrictive policy towards foreign capital and technology.
Foreign collaboration was permitted only in fields of high priority and in areas where
the import of foreign technology was considered necessary. In other areas, import of
technology was considered on merits if substantial exports were guaranteed over a
period of 5 to 10 years and if there were reasonable proposals for such exports. The
government had issued lists of industries where:

(a) Foreign investment may be permitted and only foreign technical collaboration (but
no foreign investment) may be permitted.
(b) No foreign collaboration (financial or technical) was considered necessary.

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The New Policy

The industrial policy statement of July 1991, which observes that while freeing the
Indian economy from official controls, opportunities for promoting foreign investment
in India should also be fully exploited, has liberalized the Indian policy towards
foreign investment and technology.

Before liberalization, foreign equity participation was restricted normally to 40 percent

and foreign investment and technology agreements needed prior approval. As against
this, the new policy has allowed majority foreign equity with automatic approval in a
large number of industries.

The new policy has also made the import of capital goods automatic provided the
foreign exchange requirement for such import is ensured through foreign equity.

Foreign investment in most of the industries is now eligible for automatic approval
route (i.e., no prior approval of the government/ RBI is required)

Until December 1996, only 36 industries were eligible for automatic approval of FDI
up to 51 percent of total equity. The automatic route has subsequently been expanded
very significantly and now there are different categories of industries on the basis of
the ceiling of foreign equity participation.

There are two procedural routes for approval of technical collaborations: (1)
Automatic Approval by RBI is available for any proposal with lumpsum payment not
exceeding US$ 2 million and royalty of up to five percent on domestic sales and eight
percent on exports (2) In all other cases, the Project Approval Board (PAB) considers
the proposals and makes recommendations to the Industry Ministry regarding
approval.

India has also joined the Multilateral Investment Agency in 1994.

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With increased liberalization, as at the end of 2007, equity caps on FDI existed only in
limit sectors. There are a FM radio broadcasting (up to 20 percent); insurance, defense
production, petroleum refining in the PSUs, print and electronic media covering news
and current affairs (upto 26 percent); air transport services, asset reconstruction
companies, cable network, direct to home (DTH), hardware for uplinking, HUB, etc.
(upto 49 percent); single brand retailing (up to 51 percent); atomic minerals, private
sector banking, telecom services, establishment and operation of satellites (upto 74
percent). FDI is prohibited in retail trading (except for single brand product retailing),
gambling and betting, lottery and atomic energy. Approval for proposals for induction
of equity of more than 24 percent for manufacture of items that are reserved for
small-scale sector and the proposals where the foreign investor has an existing joint
venture/ technical collaboration/ trademark agreement in the same field of activity and
attract the provisions of Press Note (2005 Series) are not under automatic route.

The Indian stock market was opened up to FII investment in 1992-93 and since then
there has been a significant increase in the portfolio investment by FIIs.

An Evaluation of the New Policy

Although the liberalization has increased the inflow of foreign capital to India, it had
been much lower than several other developing countries had been receiving. Until
recently, the FDI inflow was no where near the annual target of $ 10 billion set by the
Government long ago. This was because of the poor infrastructure, high cost of several
factors and the unconducive policy and procedural environment in several respects.
However, recently there has been spurt in the FDI inflow to India.

4.8 EXPORT AND IMPORT POLICY (EXIM POLICY)

Exim Policy or Foreign Trade Policy is a set of guidelines and instructions established
by the DGFT in matters related to the import and export of goods in India.

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The Foreign Trade Policy of India is guided by the Export Import in known as in short
EXIM Policy of the Indian Government and is regulated by the Foreign Trade
Development and Regulation Act, 1992.

DGFT (Directorate General of Foreign Trade) is the main governing body in matters
related to Exim Policy. The main objective of the Foreign Trade (Development and
Regulation) Act is to provide the development and regulation of foreign trade by
facilitating imports into, and augmenting exports from India. Foreign Trade Act has
replaced the earlier law known as the imports and Exports (Control) Act 1947.

Indian EXIM Policy contains various policy related decisions taken by the government
in the sphere of Foreign Trade, i.e., with respect to imports and exports from the
country and more especially export promotion measures, policies and procedures
related thereto. Trade Policy is prepared and announced by the Central Government
(Ministry of Commerce). India's Export Import Policy also know as Foreign Trade
Policy, in general, aims at developing export potential, improving export performance,
encouraging foreign trade and creating favorable balance of payments position.

History of Exim Policy of India

In the year 1962, the Government of India appointed a special Exim Policy Committee
to review the government previous export import policies. The committee was later on
approved by the Government of India. Mr. V. P. Singh, the then Commerce Minister
and announced the Exim Policy on the 12th of April, 1985. Initially the EXIM Policy
was introduced for the period of three years with main objective to boost the export
business in India

Objectives Of The Exim Policy : -

Government control import of non-essential items through the EXIM Policy. At the
same time, all-out efforts are made to promote exports. Thus, there are two aspects of
Exim Policy; the import policy which is concerned with regulation and management
of imports and the export policy which is concerned with exports not only promotion

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but also regulation. The main objective of the Government's EXIM Policy is to
promote exports to the maximum extent. Exports should be promoted in such a
manner that the economy of the country is not affected by unregulated exportable
items specially needed within the country. Export control is, therefore, exercised in
respect of a limited number of items whose supply position demands that their exports
should be regulated in the larger interests of the country. In other words, the main
objective of the Exim Policy is:

 To accelerate the economy from low level of economic activities to high level of
economic activities by making it a globally oriented vibrant economy and to derive
maximum benefits from expanding global market opportunities.
 To stimulate sustained economic growth by providing access to essential raw
materials, intermediates, components,' consumables and capital goods required for
augmenting production.

 To enhance the techno local strength and efficiency of Indian agriculture, industry
and services, thereby, improving their competitiveness.

 To generate new employment.

 Opportunities and encourage the attainment of internationally accepted standards of

quality.

 To provide quality consumer products at reasonable prices.

Governing Body of Exim Policy

The Government of India notifies the Exim Policy for a period of five years (1997-
2002) under Section 5 of the Foreign Trade (Development and Regulation Act), 1992.
The current

Export Import Policy covers the period 2002-2007. The Exim Policy is updated every
year on the 31st of March and the modifications, improvements and new schemes
became effective from 1st April of every year.
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All types of changes or modifications related to the EXIM Policy is normally
announced by the Union Minister of Commerce and Industry who co-ordinates with
the Ministry of Finance, the Directorate General of Foreign Trade and network of Dgft
Regional Offices.

Exim Policy 1992 -1997

In order to liberalize imports and boost exports, the Government of India for the first
time introduced the Indian Exim Policy on April I, 1992. In order to bring stability and
continuity, the Export Import Policy was made for the duration of 5 years. However,
the Central Government reserves the right in public interest to make any amendments
to the trade Policy in exercise of the powers conferred by Section-5 of the Act. Such
amendment shall be made by means of a Notification published in the Gazette of
India.

Export Import Policy is believed to be an important step towards the economic

reforms of India.

Exim Policy 1997 -2002

With time the Exim Policy 1992-1997 became old, and a New Export Import Policy
was need for the smooth functioning of the Indian export import trade. Hence, the
Government of India introduced a new Exim Policy for the year 1997-2002. This
policy has further simplified the procedures and educed the interface between
exporters and the Director General of Foreign Trade (DGFT) by reducing the number
of documents required for export by half. Import has been further liberalized and
better efforts have been made to promote Indian exports in international trade.

Objectives of the Exim Policy 1997 -2002

The principal objectives of the Export Import Policy 1997 -2002 are as under:

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 To accelerate the economy from low level of economic activities to high level of
economic activities by making it a globally oriented vibrant economy and to derive
maximum benefits from expanding global market opportunities.
 To motivate sustained economic growth by providing access to essential raw
materials, intermediates, components,' consumables and capital goods required for
augmenting production.
 To improve the technological strength and efficiency of Indian agriculture, industry
and services, thereby, improving their competitiveness.
 To create new employment. Opportunities and encourage the attainment of
internationally accepted standards of quality.
 To give quality consumer products at practical prices.

Highlights of the Exim Policy 1997-2002

1. Period of the Exim Policy

• This policy is valid for five years instead of three years as in the case of earlier
policies. It is effective from 1st April 1997 to 31st March 2002.

2. Liberalization

• A very important feature of the policy is liberalization.

• It has substantially eliminated licensing, quantitative restrictions and other regulatory
and discretionary controls. All goods, except those coming under negative list, may be
freely imported or exported.

3. Imports Liberalization

• Of 542 items from the restricted list 150 items have been transferred to Special
Import Licence (SIL) list and remaining 392 items have been transferred to Open
General Licence (OGL) List.

4. Export Promotion Capital Goods (EPCG) Scheme

• The duty on imported capital goods under EPCG Scheme has been reduced from
15% to 10%.

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• Under the zero duty EPCG Scheme, the threshold limit has been reduced from Rs. 20
crore to Rs. 5 crore for agricultural and allied Sectors

5. Advance Licence Scheme

• Under Advance License Scheme, the period for export obligation has been extended
from 12 months to 18 months.
• A further extension for six months can be given on payment of 1 % of the value of
unfulfilled exports.

6. Duty Entitlement Pass Book (DEPB) Scheme

• Under the DEPB Scheme an exporter may apply for credit, as a specified percentage
of FOB value of exports, made in freely convertible currency.
• Such credit can be can be utilized for import of raw materials, intermediates,
components, parts, packaging materials, etc. for export purpose.

Impact of Exim Policy 1997 –2002

(a)Globalization of Indian Economy:

The Exim Policy 1997-02 proposed with an aim to prepare a framework for
globalizations of Indian economy. This is evident from the very first objective of the
policy, which states. "To accelerate the economy from low level of economic activities
to- high level of economic activities by making it a globally oriented vibrant economy
and to derive maximum benefits from expanding global market opportunities."

(b) Impact on the Indian Industry:

In the EXIM policy 1997-02, a series of reform measures have been introduced in
order to give boost to India's industrial growth and generate employment opportunities
in non-agricultural sector. These include the reduction of duty from 15% to 10% under
EPCG scheme that enables Indian firms to import capital goods and is an important
step in improving the quality and productivity of the Indian industry.

(c) Impact on Agriculture:

Many encouraging steps have been taken in the Exim Policy 1997-2002 in order to

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give a boost to Indian agricultural sector. These steps includes provision of additional
SIL of 1 % for export of agro products, allowing EOU’s and other units in EPZs in
agriculture sectors to 50% of their output in the domestic tariff area (DTA) on payment
of duty.

(d) Impact on Foreign Investment.

In order to encourage foreign investment in India, the Exim Policy 1997-02 has
permitted 100% foreign equity participation in the case of 100% EOUs, and units set
up in EPZs.

(e) Impact on Quality up gradation:

The SIL entitlement of exporters holding ISO 9000 certification has been increased
from 2% to 5% of the FOB value of exports, which has encouraged Indian industries
to undertake research and development programmers and upgrade the quality of their
products.

(f) Impact on Self-Reliance:-

The Exim Policy 1997-2002 successfully fulfills one of the India’s long terms
objective of Self-reliance. The Exim Policy has achieved this by encouraging domestic
sourcing of raw materials, in order to build up a strong domestic production base. New
incentives added in the Exim Policy have also added benefits to the exporters.

Exim Policy 2002 – 2007

The Exim Policy 2002 - 2007 deals with both the export and import of merchandise
and services. It is worth mentioning here that the Exim Policy: 1997 - 2002 had
accorded a status of exporter to the business firm exporting services with effect
from1.4.1999. Such business firms are known as Service Providers.

Objectives of the Exim Policy: 2002 - 2007

The main objectives of the Export Import Policy 2002-2007 are as follows:

1. To encourage economic growth of India by providing supply of essential raw

materials, intermediates, components, consumables and capital goods required for
augmenting production and providing services.
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2. To improve the technological strength and efficiency of Indian agriculture,
industry and services, thereby improving their competitive strength while generating
new employment opportunities and encourage the attainment of internationally
accepted standards of quality; and
3. To provide consumers with good quality products and services at
internationally competitive prices while at the same time creating a level playing field
for the domestic producers.

Main Elements of Exim Policy 2004-2009

The new Exim Policy 2004-2009 has the following main elements:

 Preamble
 Legal Framework
 Special Focus Initiatives
 Board Of Trade
 General Provisions Regarding Imports And Exports
 Promotional Measures
 Duty Exemption / Remission Schemes
 Export Promotion Capital Goods Scheme
Export Oriented Units (EOUs),Electronics Hardware Technology Parks (EHTPS),
Software Technology Parks (STPs) and Bio-Technology Parks (BTPs)
 Special Economic Zones
 Free Trade & Warehousing Zones
 Deemed Exports

Promotional Measures of Exim Policy 2004-2009

The Government of India has set up several institutions whose main functions are to
help an exporter in his work. It would be advisable for an exporter to acquaint him
with these institutions and the nature of help that they can provide so that he can
initially contact them and have a clear picture of what help he can expect of the
organized sources in his export effort. Some of these institution are as follows.

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Export Promotion Councils
Commodity Boards
Marine Products Export Development Authority

Agricultural & Processed Food Products Export Development Authority

Indian Institute of Foreign Trade
India Trade Promotion Organization (ITPO)
National Centre for Trade Information (NCTI)
Export Credit Guarantee Corporation (ECGC)
Export-Import Bank
Export Inspection Council
Indian Council of Arbitration
Federation of Indian Export
Organizations
Department of Commercial Intelligence and Statistics
Directorate General of Shipping
Freight Investigation Bureau

Duty Exemption / Remission Schemes of Exim Policy 2004-2009

The Duty Exemption Scheme enables import of inputs required for export production.
It includes the following exemptions-

Duty Drawback: - The Duty Drawback Scheme is administered by the Directorate

of Drawback, Ministry of Finance. Under Duty Drawback scheme, an exporter is
entitled to claim
Indian Customs Duty paid on the imported goods and Central Excise Duty paid on
indigenous raw materials or components.

Excise Duty Refund: - Excise Duty is a tax imposed by the Central Government on
goods manufactured in India. Excise duty is collected at source, i.e., before removal of
goods from the factory premises. Export goods are totally exempted from central
excise duty.
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Octroi Exemption: - Octroi is a duty paid on manufactured goods, when they enter
the municipal limits of a city or a town. However, export goods are exempted from
Octroi.
The Duty Remission Scheme enables post export replenishment/ remission of duty on
inputs used in the export product.

DEPB: Duty Entitlement Pass Book in short DEPB

Rate is basically an export incentive scheme. The objective of DEPB Scheme is to
neutralize the incidence of basic custom duty on the import content of the exported
products.

DFRC
Under the Duty Free Replenishment Certificate (DFRC) schemes, import incentives
are given to the exporter for the import of inputs used in the manufacture of goods
without payment of basic customs duty. Duty Free Replenishment Certificate (DFRC)
shall be available for exports only up to 30.04.2006 and from 01.05.2006 this scheme
is being replaced by the Duty Free Import Authorisation (DFIA).

DFIA: Effective from 1st May, 2006, Duty Free Import Authorisation or DFIA in
short is issued to allow duty free import of inputs which are used in the manufacture of
the export product (making normal allowance for wastage), and fuel, energy, catalyst
etc. which are consumed or utilised in the course of their use to obtain the export
product. Duty Free Import Authorisation is issued on the basis of inputs and export
items given under Standard Input and Output Norms(SION).

Export Oriented Units (EOUs), Electronics Hardware Technology Parks

(EHTPs), Software Technology Parks(STPs) And Bio-Technology Parks (BTPs)
of Exim Policy 2004-2009

The Export Import Policies relating to Export Oriented Units (EOUs) Electronics
Hardware Technology Parks (EHTPs), Software Technology Parks (STPs) and Bio-
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technology parks (BTPs) Scheme is given in Chapter 6 of the Foreign Trade Policy.
Software Technology Park(STP)/Electronics Hardware Technology Park (EHTP)
complexes can be set up by the Central Government, State Government, Public or
Private Sector Undertakings.

Export Promotion Capital Goods Scheme (EPCG) of Exim Policy 2004-2009

Introduced in the EXIM policy of 1992-97,
Export Promotion Capital Goods Scheme (EPCG) enable exporters to import
machinery and other capital goods for export production at concessional or no customs
duties at all. This facility is subject to export obligation, i.e., the exporter is required to
guarantee exports of certain minimum value, which is in multiple of total value of
capital goods imported.

Capital goods imported under EPCG Scheme are subject to actual user condition and
the same cannot be transferred /sold till the fulfillment of export obligation specified
in the licence. In order to ensure that the capital goods imported under EPCG Scheme,
the licence holder is required to produce certificate from the jurisdictional
Central Excise Authority (CEA) or Chartered Engineer (CE) confirming installation
of such capital goods in the declared premises.

Special Economic Zone (SEZ) under the Exim Policy 2004-2009

A Special Economic Zone in short SEZ is a geographically distributed area or zones
where the economic laws are more liberal as compared to other parts of the country.
SEZs are proposed to be specially delineated duty free enclaves for the purpose of
trade, operations, duty and tariffs. SEZs are self-contained and integrated having their
own infrastructure and support services.

The area under 'SEZ' covers a broad range of zone types, including Export Processing
Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Trade Zones (FTZ), Free
Ports, Urban Enterprise Zones and others.

In Indian, at present there are eight functional Special Economic Zones located at
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Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai
(Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida
(Uttar Pradesh) in India. Further a Special Economic Zone at Indore ( Madhya Pradesh
) is also ready for operation.

Free Trade & Warehousing Zones of Exim Policy 2004-2009

Free Trade & Warehousing Zones (FTWZ) shall be a special category of Special
Economic Zones with a focus on trading and warehousing. The concept of FTWZ is
new and has been recently introduced in the five-year foreign trade policy 2004-09. Its
main objective is to provide infrastructure for growth of the economy and foreign
trade. Free Trade & Warehousing Zones (FTWZ) plays an important role in achieving
global standard warehousing facilities as free trade zones. Free Trade & Warehousing
Zones is a widely accepted model with a history of providing Substantial
encouragement to foreign trade and warehousing activity.

Deemed Exports under the Exim Policy 2004-2009

Deemed Export is a special type of transaction in the Indian Exim policy in which the
payment is received before the goods are delivered. The payment can be done in
Indian Rupees or in Foreign Exchange. As the deemed export is also a source of
foreign exchange, so the Government of India has given the benefit duty free import of
inputs.

4.9 FEMA

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced
as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA became
an act on the 1st day of June, 2000. FEMA was introduced because the FERA didn’t
fit in with post-liberalisation policies. A significant change that the FEMA brought
with it, was that it made all offenses regarding foreign exchange civil offenses, as
opposed to criminal offenses as dictated by FERA.

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The main objective behind the Foreign Exchange Management Act (1999) is to
consolidate and amend the law relating to foreign exchange with the objective of
facilitating external trade and payments. It was also formulated to promote the orderly
development and maintenance of foreign exchange market in India.

FEMA is applicable to all parts of India. The act is also applicable to all branches,
offices and agencies outside India owned or controlled by a person who is a resident of
India.

The FEMA head-office, also known as Enforcement Directorate is situated in New

Delhi and is headed by a Director. The Directorate is further divided into 5 zonal
offices in Delhi, Mumbai, Kolkata, Chennai and Jalandhar and each office is headed
by a Deputy Director. Each zone is further divided into 7 sub-zonal offices headed by
the Assistant Directors and 5 field units headed by Chief Enforcement Officers.

Terminal Exercise
1. Write a brief note on SEBI.
2. What is role of SEBI in Indian economy?
3. What is the role of FIPB?
4. What is significance of monetary policy in Indian economy?
5. What is Fiscal policy?
6. Discuss the concept of Liberalization and Globalization?
7. What is the impact of Liberalization and Globalization on Indian economy?
8. Write a brief note on Foreign Capital and Technology.
9. What is Export and Import policy of India?
10. What is FEMA?

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 Unit – 5

TECHNOLOGICAL AND ECOLOGICAL

ENVIRONMENT

Choice of appropriate technology, Technology transfer – status of

technology in India, Role of MNCs in Indian Economy, Problem of
pollution and its control, Role of business and management in controlling
pollution.

5.0 Objectives:

After reading this chapter you shall come to know about the basics of technology and
how the technology is transferred. Subsequent topic will highlight on the
multinationals in India, historical background and their role in Indian economy. The
terminal topic will focus on the pollution, its types, causes and role of business
community in this field.

5.1 TECHNOLOGY AND ITS FEATURES

Meaning- Technology is a systematic application of scientific or other organized
knowledge to practical tasks….J.K.Galbrith.

Technology includes the tools –both machines and ways of thinking – available to
solve problems and promote progress between, among and between societies.

Technology includes not only knowledge or methods that are necessary to carry on or
to improve the existing production and distribution of goods and services, but also
entrepreneurial expertise and professional know-how.

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An Emerging Technology is an innovative technology that currently is undergoing
bench-scale testing, in which a small version of the technology is tested in a
laboratory.

An Innovative Technology is a technology that has been field-tested and applied to a

hazardous waste problem at a site, but lacks a long history of full-scale use.
Information about its cost and how well it works may be insufficient to support
prediction of its performance under a wide variety of operating conditions.

An Established Technology is a technology for which cost and performance

information is readily available. Only after a technology has been used at many
different sites and the results fully documented is that technology considered
established.

FEATURES OF TECHNOLOGY

1) Technology relates to change-technology forces change on people. In modern

society, it has brought quite fast and furiously changes, it is called FUTURE SHOCK.

2) Effects of technology are widespread-technology ripples through society until every

community is affected by it.

3) Technology feeds on itself- technology makes more technology possible.

Technology acts as a multiplier to encourage its own faster development.

4) Technology is a complex set of knowledge, ideas, and methods and is likely to the
result of a variety of activities, both internal and external.

5.2 IMPACT OF TECHNOLOGY

Technology has great impact on the society. It is the medium of social change and
facilitating factor of globalization. Its impact can be understood in following way:

1) Technology reaches people through business- managers of business organizations

pool the necessary resources and use new discoveries to convert them into useful

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products. Society depends on business to benefit from new discoveries flowing into
useful goods and services for all mankind.
2) High expectations of consumers- technology has contributed to the emergence of
affluent societies. New varieties of products,
superior in quality, more safe n more comfortable , are to be
supplied to the consumers. This calls for substantial investment
in R& D.
3) System complexity- technology creates complexity. As a result living becomes
more complex.
4) Reduce inventories
5) Reduce delivery time/ unproductive waiting time.
6) Reduce stock-outs/ lost sales
7) Respond faster to market changes
8) Cut down overproduction
9) Reduce unnecessary movement (forwarding and back-tracking)
10) Reduce paper-work and wasteful processing
11) Plan production better.

5.3 TECHNOLOGY TRANSFER

Technology Transfer is the intersection between business, science, engineering, law

and government.

Technology transfer is the process of sharing of skills, knowledge, technologies,

methods of manufacturing, samples of manufacturing and facilities among
governments and other institutions to ensure that scientific and technological
developments are accessible to a wider range of users who can then further develop
and exploit the technology into new products, processes, applications, materials or
services. It is closely related to (and may arguably be considered a subset of)
knowledge transfer.

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Technology brokers are people who discovered how to bridge the disparate worlds and
apply scientific concepts or processes to new situations or circumstances. Related
terms, used almost synonymously, include "technology valorisation" and "technology
commercialization". While conceptually the practice has been utilized for many years
(in ancient times, Archimedes was notable for applying science to practical problems),
the present-day volume of research, combined with high-profile failures at Xerox
PARC and elsewhere, has led to a focus on the process itself.

Technology transfer process

Technology transfer is the process by which basic science research and fundamental
discoveries are developed into practical and commercially relevant applications and
products. Technology Transfer personnel evaluate and manage invention portfolios,
oversee patent prosecution, negotiate licensing agreements and periodically review
cooperative research agreements already in place. Part of the technology transfer
process involves the prosecution of patents which is overseen by the national Patent
and Trademark Office. Individuals with advanced degrees in the biomedical sciences
are needed to review and process patents in the biotechnology field.

Many companies, universities and governmental organizations now have an "Office of

Technology Transfer", TTO (also known as "Tech Transfer" or "TechXfer") dedicated
to identifying research which has potential commercial interest and strategies for how
to exploit it. For instance, a research result may be of scientific and commercial
interest, but patents are normally only issued for practical processes, and so someone
—not necessarily the researchers—must come up with a specific practical process.
Another consideration is commercial value; for example, while there are many ways to
accomplish nuclear fusion, the ones of commercial value are those that generate more
energy than they require to operate.

The process to commercially exploit research varies widely. It can involve licensing
agreements or setting up joint ventures and partnerships to share both the risks and
rewards of bringing new technologies to market. Other corporate vehicles, e.g. spin-

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outs, are used where the host organization does not have the necessary will, resources
or skills to develop a new technology. Often these approaches are associated with
raising of venture capital (VC) as a means of funding the development process, a
practice more common in the US than in the EU, which has a more conservative
approach to VC funding. Spinoffs are a popular vehicle of commercialisation in
Canada, where the rate of licensing of Canadian university research remains far below
that of the US.

Technology transfer offices may work on behalf of research institutions, governments

and even large multinationals. Where start-ups and spin-outs are the clients,
commercial fees are sometimes waived in lieu of an equity stake in the business. As a
result of the potential complexity of the technology transfer process, technology
transfer organizations are often multidisciplinary, including economists, engineers,
lawyers, marketers and scientists. The dynamics of the technology transfer process has
attracted attention in its own right, and there are several dedicated societies and
journals.

In recent years, there has been a marked increase in technology transfer intermediaries
specialized in their field. This was stimulated in large part by the Bayh-Dole Act and
equivalent legislation in other countries, which provided additional incentives for
research exploitation.

TT Function: Coordinate

Coordinating between technology users and developers, between researchers and

manufactures is an important element of technology transfer. Access to relevant
internal and external resources to individual projects and enterprises has to be enabled.

TT Function: Nurture

A main ingredient for moving technology from a research laboratory to a new business
enterprise successfully is an environment that is supportive of entrepreneurship. This
needs to be encouraged by providing guidance, counseling and resources.

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TT Function: Link

Cataloging resources related to business enterprises and connecting would-be

entrepreneurs/researchers and other technology developers to outside groups and
organizations which can help in the process of starting new products, companies etc.
Such linkages provide referrals for individual business counseling, sources of
financing or the names of individuals who can help with a particular facet of business
development.

Technology Transfer Activities include:

Processing and evaluating invention disclosures; filing for patents; technology

marketing; licensing; protecting intellectual property arising from research activity;
and assisting in creating new businesses and promoting the success of existing firms.
The result of these activities will be new products, more high-quality jobs, and an
expanded economy.

ASSESSING COMMERCIAL POTENTIAL

Commercialization is one effective method of transferring technologies. Establishing a

technology's prospects for commercial success depends largely on five factors:

1. Technical Development: The time, materials, and personnel needed to reduce

the technology to practice and protect rights to the resulting product.
2. Regulatory Clearance: The testing needed to demonstrate the product's utility
and safety, and to meet federal regulatory requirements and to minimize or manage
associated risks.

3. Manufacturing Requirements: The facilities, people, and equipment needed to

make the product.

4. Market Development: The plan for successful marketing of the product,

created by assessing perceived need for the product, size of potential market, expected
sales, advantages over competing products, and the cost of promoting the product.

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5. Financial Feasibility: The development costs,costs to produce, operating
expenses in relation to sales potential, net profits, potential liabilities, and return on
investment.

TIPS Method (Technology Implementation Potential for Success)

Sample Technology Transfer TIPS

Communication Factors TIPS:

Diffusion of information about new technology is predominantly a process of

communication. Anything that impedes communication within the organization, as
well as within the environment it interacts in, will jeopardize the successful
implementation of the technology within the organization.

Financial Factors TIPS:

A primary concern is the fiscal justification in terms of returns on the investment and
the irreversibility of the investment, where adoption requires investments in
unsalvageable products. The payback period and the significance of the payback are
intrinsic to the justification.

External Factors TIPS:

The decision to adopt technology is heavily influenced by environmental factors.

These are the events occurring in the industry, market, country and the world in
general, within which the organization interacts.

Human Factors TIPS:

Ultimate users of new technology must do something different from what they have
done in the past. They must change their behaviour patterns. A consequence of this is
that it cannot be expected that the recipients will respond to new technology quickly.
They must not only assimilate facts relevant to the technology, but also change
behavioral patterns that would lead them to use the technology. Also, it is human
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nature to resist ideas, especially those originating from outside of the organization, and
this can lead to myopia or tunnel vision. A clear implication is that technology transfer
requires time, patience and opportunities to experiment (become familiar with) a new
technology.

Corporate Factors TIPS:

The decision to adopt technology is also heavily influenced by organizational factors.

Organizations are more likely to be willing and able to adopt technologies that offer
clear advantages, do not drastically interfere with existing practices, and are easier to
understand. Adopters look unfavourably on innovations that are difficult to evaluate or
which benefits are difficult to see or describe.

Technology Factors TIPS:

The decision to adopt technology is influenced by the technology itself. This is a

fundamental truth. All other factors being equal, if the technology fails to live up to the
expectations of the eventual users, then its implementation will not be successful.

Users/beneficiaries of Technology Transfer:

 technology transfer agents who are responsible for the search, adaptation or
translation, packaging and dissemination, training and ensurement that a new
 technology is properly implemented, accepted and used to its full potential by a
target user;

 individuals responsible for technology transfer functions;

 individuals charged with the responsibility of making decisions as to whether a

technology is considered for implementation within the organization;

 individuals charged with budgeting responsibilities which encompass evaluating the

cost of new technology;

 individuals charged with strategic and business planning responsibilities within the
organization;
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 individuals who are being trained to perform any of the above noted functions;

 inventors, vendors, licensors and purchasers of technology.

5.4 ROLE OF MNCs IN INDIAN ECONOMY

What are MNCs?

In common language, a company which conducts its business in two or more than two
countries in called multinational company.

According to an ILO report, “the essential nature of the multinational enterprises lies
in the fact that its managerial headquarters are located in one country (home country)
while the enterprise carries out operations in a number of other countries as well (host
countries).

The MNCs account for a significant share of the world’s industrial investment,
production, employment and trade.

Genesis of MNCs

The MNCs took birth in the early 1860s it was after the second world war that
multinationals have grown rapidly. In the early days, the United States was the home
of most of the MNCs. Now there are a large number of Japanese and European
multinationals. Multinationals have been emerging from the developing countries too.

Role of MNCs in Indian economy

Comparatively very little foreign investment has taken place in India due to several
reasons. Some MNCs like IBM etc even left India in the late 1970s as the government
conditions were unacceptable to them.

A common criticism against the MNCs is that they tend to invest in the low priority
and high profit sectors in the developing countries, ignoring the national priorities. Eg.
There is reasonable shortage of electrical power generation in our country but hardly
any MNC is investing in this sector. However, in India the government policy

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confined the foreign investment to the priority areas like high technology and heavy
investment sectors of national importance and export sectors. Firms which had been
established in non-priority areas prior to the implementation of this policy have,
however, been allowed to continue in those sectors.

The controversial foreign exchange Regulation Act (FERA), 1973, required the
foreign companies in India to dilute the equity holding to 40 percentages (exceptions
were allowed in certain cases like high technology and export oriented sector)

An often heard criticism is that multinationals drain the foreign exchange resources of
the developing countries. It is not a right approach to estimate the net impact of
multinationals on the foreign exchange reserves by taking the net foreign exchange
outflow or inflow. If a multinational is operating in an import substitution industry, the
net effect on the foreign exchange reserves could be favourable even if there is a net
foreign exchange outflow by the company.

Multinationals in several developing countries make substantial contribution to export

earnings. The performance in case of India has, however, been very disappointing.
This is attributed mostly in the Government policy.

Although export promotion has been pursued since the Third Plan, the highly
protected domestic market and the unrealistic exchange rate made the domestic market
much more attractive than exports. However, since the mid 1980s with the economic
liberalization that increased domestic competition and the steady depreciation of the
rupee, export began to become attractive and several foreign companies and
companies with foreign participation, as well as Indian companies, have become
serious about exports. This was reflected in the acceleration of the export growth.

Since the economic liberalization ushered in 1991, many multinationals in different

lines of business have entered the Indian market. A number of multinationals which
were in India prior to this have expanded their business.

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5.5 Problem of Pollution and its Control
Pollution simply means presence of any unwanted substance that creates
inconvenience in the natural behaviour of living and non-living matter.

Pollution is the introduction of contaminants into a natural environment that causes

instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or
living organisms. Pollution can take the form of chemical substances or energy, such
as noise, heat, or light. Pollutants, the elements of pollution, can be foreign substances
or energies, or naturally occurring; when naturally occurring, they are considered
contaminants when they exceed natural levels. Pollution is often classed as point
source or nonpoint source pollution. The Blacksmith Institute issues annually a list of
the world's worst polluted places. In the 2007 issues the ten top nominees are located
in Azerbaijan, China, India, Peru, Russia, Ukraine, and Zambia.

Environmental Pollution and Role of Business

To preserve the society it is important to protect the environment. And, therefore,

every business must take measures to protect the environment rather than damaging it.
In this section let us learn more about different types of environmental pollution and
role of business.

Nature has given us air, land including mountains, hills, forests etc. and water in the
form of rivers, lakes, sea etc., which create an environment in which we live. Our
health and well being largely depend on the quality of such environment. However, it
is observed that the quality of this environment is deteriorating day by day. We are
getting neither pure water to drink nor clean air to breathe. We are having untimely
rains, storms, cyclones, floods, extended summer, etc. We are also suffering from
various diseases because of such lower quality of environment. When the quality of
environment deteriorates, it is said that the environment is getting polluted. Thus,

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environmental pollution refers to contamination of environment by various substances
that have adverse effects on living and non-living matters.

FORMS OF POLLUTION

Environmental pollution is mainly classified into three categories:

i) Air pollution,

ii) Water pollution, and

iii) Land Pollution.

Let us have a brief discussion about these three types of pollution.

i. Air Pollution

As we know the air we breathe contains several gases, dust particles etc. Our body
mechanism helps us in filtering the unwanted ones and retaining those required for our
survival. However, if there is an imbalance in the proportion of gases and dust
particles in air, beyond a certain point, our body mechanism fails to filter them and we
face problem. This is also true in care of other natural things like forests, river etc.
Thus, air pollution refers to the presence of any unwanted gases, dust particles etc. in
the air, that can cause damage to people as well as nature.

Causes of Air Pollution

Let us know how air gets polluted. Some of the common causes of air pollution are

i. Emission of fumes from vehicles.

ii. Emission of smoke dust and chemicals from manufacturing plants.

iii. Emission of gases and dust arising from atomic plants

iv. Emission of smoke from oil refineries, burning of trees and plants in forests,
burning of coal, etc.

Impact of Air Pollution

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Air pollution has a lot of impact on our surroundings and on us. Some of them are-

Presence of gases in air, which are not required by human beings, animals and
birds, creates serious health problems. It can create diseases like asthma, cough and
cold, blindness, hearing loss, skin disease etc. It also causes genetic disorders. In the
long run and in extreme cases it can also be fatal. Air Pollution creates smog in
the winter, which is caused by smoke and dust when they mix with fog. It reduces
natural visibility and irritates the eyes and respiratory tract Ozone layer is a
protective layer of gases around our earth, which protects us from harmful ultraviolet
rays that come from the sun. It gets depleted because of air pollution and thereby
causes gene mutation, genetic defects and skin cancer. The temperature of the
earth increases due to air pollution. This is because whatever heat our earth receives
from the sun is not radiated to the atmosphere due to the excessive presence of gases
like carbon dioxide, methane, nitrous oxide, etc. Air pollution causes acid rain
which means excessive presence of various poisonous gases like sulphur dioxide,
nitrogen oxide etc. in the rainwater. This causes lot of damage to vegetation, trees and
marine life, buildings and monuments etc.

Environment is also polluted through excessive noise, known as Noise Pollution.

Noise simply means an unwanted sound that causes irritation. It is caused by modern
machines and gadgets such as rail engines, loud speakers, generators, aeroplanes,
vehicles, machineries, telephones, televisions etc. It initially distorts communication
process, but prolonged exposure to noise pollution can cause loss of hearing,
headache, irritation, high blood pressure, neurological or psychological disorders, etc.

ii. Water Pollution

Have you seen river Yamuna near Delhi? Are you aware about the clean Ganga
project? These two questions almost immediately remind us about the extent to which
the water of our rivers has been polluted. Water pollution refers to contamination of
water due to presence of unwanted and harmful substances thus, making water unfit
for use.

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Causes of Water Pollution

The various reasons of water pollution are

i. Drainage of human excreta into rivers, canals etc.

ii. Improper sanitation and sewage system.

iii. Dumping of wastes and effluents by various industrial units into the rivers and
canals.

iv. Drainage of toxic substances like chemicals and fertilizers used in cultivation, into
streams and rivers.

v. Dumping of garbage, dead bodies and almost every thing used in rituals to the
nearby water source by households.

Effects of Water Pollution

The effects of water pollution are:

a. It can create health hazards among human beings, animals and birds. Diseases like
typhoid, jaundice, cholera, gastroenteritis etc. are common.

b. It can endanger lives of various aquatic species.

c. It can lead to scarcity of drinking water as the water of rivers and canals as well as
underground water get polluted.

iii. Land Pollution

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Land Pollution refers to dumping of useless, unwanted as well as hazardous
substances on the land that degrades the quality of soil we use. Our land gets polluted
because of the human carelessness towards the soil.

Causes of Land Pollution

The main causes of land pollution are:

(i) Excessive use of fertilizers, chemicals and pesticides in cultivation.

(ii) Disposal of solid waste of industries, mines and quarries.

(iii) Disposal of solid waste from construction of roads, buildings etc.

(v) Effluents of some plants like paper, sugar etc. which are not absorbed by soil.

(vi) Excessive use of plastic bags, which are non-biodegradable.

(vii) Dumping of non-composable wastes from households, hotels and hospitals as

well as from industries. These may include combustible items like plastic, cloth, wood
etc., and non-combustible items like metal, glass, ceramics, cement etc.

Effects of Land Pollution

Land Pollution has the following harmful effects

a. Reduces the quantum of cultivable land area.

b. Causes health hazards as it contaminates the sources of food.

c. Causes damage to the landscape.

d. Leads to water and air pollution.

Other Forms of Pollution

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 Light pollution, includes light trespass, over-illumination and astronomical
interference.
 Littering

 Noise pollution, which encompasses roadway noise, aircraft noise, industrial noise
as well as high-intensity sonar.

 Soil contamination occurs when chemicals are released by spill or underground

leakage. Among the most significant soil contaminants are hydrocarbons, heavy
metals, MTBE, herbicides, pesticides and chlorinated hydrocarbons.

 Radioactive contamination, resulting from 20th century activities in atomic physics,

such as nuclear power generation and nuclear weapons research, manufacture and
deployment.

 Thermal pollution, is a temperature change in natural water bodies caused by human

influence, such as use of water as coolant in a power plant.

 Visual pollution, which can refer to the presence of overhead power lines, motorway
billboards, scarred landforms (as from strip mining), open storage of trash or
municipal solid waste.

OTHER EFFECTS OF POLLUTION

Human health
Overview of main health effects on humans from some common types of pollution.

Adverse air quality can kill many organisms including humans. Ozone pollution can
cause respiratory disease, cardiovascular disease, throat inflammation, chest pain, and
congestion. Water pollution causes approximately 14,000 deaths per day, mostly due
to contamination of drinking water by untreated sewage in developing countries. An
estimated 700 million Indians have no access to a proper toilet, and 1,000 Indian
children die of diarrhoeal sickness every day. Nearly 500 million Chinese lack access
to safe drinking water. 656,000 people die prematurely each year in China because of

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air pollution. In India, air pollution is believed to cause 527,700 fatalities a year.
Studies have estimated that the number of people killed annually in the US could be
over 50,000.

Oil spills can cause skin irritations and rashes. Noise pollution induces hearing loss,
high blood pressure, stress, and sleep disturbance. Mercury has been linked to
developmental deficits in children and neurologic symptoms. Older people are majorly
exposed to diseases induced by air pollution. Those with heart or lung disorders are
under additional risk. Children and infants are also at serious risk. Lead and other
heavy metals have been shown to cause neurological problems. Chemical and
radioactive substances can cause cancer and as well as birth defects.

Environment

Pollution has been found to be present widely in the environment. There are a number
of effects of this:

 Biomagnification describes situations where toxins (such as heavy metals) may pass
through trophic levels, becoming exponentially more concentrated in the process.
 Carbon dioxide emissions cause ocean acidification, the ongoing decrease in the pH
of the Earth's oceans as CO2 becomes dissolved.

 The emission of greenhouse gases leads to global warming which affects ecosystems
in many ways.

 Invasive species can out compete native species and reduce biodiversity. Invasive
plants can contribute debris and biomolecules (allelopathy) that can alter soil and
chemical compositions of an environment, often reducing native species
competitiveness.

 Nitrogen oxides are removed from the air by rain and fertilise land which can change
the species composition of ecosystems.

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 Smog and haze can reduce the amount of sunlight received by plants to carry out
photosynthesis and leads to the production of tropospheric ozone which damages
plants.

 Soil can become infertile and unsuitable for plants. This will affect other organisms
in the food web.

 Sulphur dioxide and nitrogen oxides can cause acid rain which lowers the pH value
of soil.

5.6 Role of Business in controlling Pollution

Pollution control is a term used in environmental management. It means the control of

emissions and effluents into air, water or soil. Without pollution control, the waste
products from consumption, heating, agriculture, mining, manufacturing,
transportation and other human activities, whether they accumulate or disperse, will
degrade the environment. In the hierarchy of controls, pollution prevention and waste
minimization are more desirable than pollution control. In the field of land
development, low impact development is a similar technique for the prevention of
urban runoff.

Controlling pollution depends on the efforts of governments, scientists, business and

industry, agriculture, environmental organizations, and individuals.

From the above discussion on environmental pollution, one thing can clearly be seen
that, it is business that mainly contributes to all sorts of pollution -air, noise, water and
land.

Business causes pollution in the following ways:

- Emission of gas and smoke from manufacturing plants;

- Use of machines, vehicles etc. contributing to noise pollution;

- Deforestation due to acquisition of forest lands for setting up plants;

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- Growth of urbanization and industrialization;

- Disposal of wastes and effluents into rivers and canals;

- Disposal of solid wastes in the open space;

- Mining and quarrying activities; and

- Increasing use of transport.

Many companies have discovered that it makes good business sense to pollute less.
Some have found that reducing pollution gives them a better public image and saves
money. Others have developed environmentally safe products or packaging to satisfy
consumer demands. Still others develop pollution control systems because they
believe that laws will eventually force them to do so anyway. Some companies limit
pollution merely because the people running them choose to do so.

In the past, the disposal of wastes was relatively inexpensive for most businesses.
Today, legal waste disposal sites have become increasingly scarce in many areas.
Regulation of certain types of waste has made their continued production extremely
costly. As a result, many businesses have found ways to produce less waste or recycle
the materials that they use. Manufacturers may use a minimum of packaging and
choose packing materials that can be recycled. Lighter and less bulky packaging
means distributors use less fuel transporting the products. In addition, the consumer
throws out less packaging and creates less garbage.
Many businesses specialize in different types of pollution management. For example,
some pollution management firms develop devices that remove harmful particulates
from smokestack emissions. Particulates can be captured by filters, by traps that use
static electricity, or by devices called scrubbers that wash out particulates with
chemical sprays. The business of reducing and cleaning up pollution is expected to be
one of the fastest growing industries of the future.

Other businesses assist companies in following government orders to clean up

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pollution. Some firms manage recycling or energy conservation programs. Still others
help businesses develop less-polluting processes.

Regardless of why or how industries begin to clean up pollution, it will be a slow,

expensive process. Many businesses rely on the cheapest production methods
available, even though such methods pollute. When the cost of cleaning up the
pollution created by current production methods is added to manufacturing costs,
however, methods that pollute less may prove more economical.

Some businesses have learned to work together to reduce their pollution. Waste
materials from one industry can be used as a raw material by another industry. For
example, a power plant in Kalundborg, Denmark, sells gypsum captured from burning
fossil fuels to a nearby wallboard factory. It also sells ash to a cement manufacturer
and steam to other nearby factories and homeowners. By sharing materials, industries
can reduce pollution and waste while profiting from the exchange of resources. A field
of study called industrial ecology explores these and similar opportunities related to
reducing the impact on the environment from industrial and economic sources.

Government has taken a major step in protecting the environment by passing the
Environment Protection Act, 1986 in addition to having Water (Prevention and Control
of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981 and
several other Acts. Business can equally be instrumental in fighting pollution and
protecting the environment. Business can have three types of role - preventive,
curative and awareness.

i. Preventive Role

It means business should take all steps so that no further damage is done to the
environment. For this, business must follow the regulations laid down by government
to control pollution. For example, more and more environmental friendly products can
be produced, filters can be used in chimneys; silencers can be fitted in generators;
instead of dumping industrial wastes into river and land it can be treated properly for
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further productive use etc. Businessmen should come forward to play a major role in
preventing further damage done to the environment by human beings. Sulabh
International is the leading example of how to provide proper sanitation facilities to
the public.

ii. Curative Role

It means business should rectify whatever damage has been done to the environment.
In

addition, if it is not possible to prevent pollution then simultaneous curative measures

can be taken. For example, planting of trees (afforestation programmes) can
substantially reduce air pollution near the industrial area.

iii. Awareness Role

It means making people (both the employees as well as the general public) aware
about the causes and consequences of environmental pollution so that they voluntarily
try to protect rather than damage the environment. For example, business can
undertake public awareness programmes. Now-a-days, we find that some business
houses have taken the responsibilities to develop and maintain parks and gardens in
cities and towns, which shows that they care for the environment.

Scientific efforts: Increasing concern over environmental protection has caused

scientists and engineers to look for technological solutions. Some research seeks ways
to clean up or manage pollution. The goal of other research is to prevent pollution.
Many industrial researchers are finding more economical ways to use fuels and other
raw materials. As a result of their research, some European cities now use waste heat
from power plants or trash incinerators to warm homes. New automobile engines burn
gasoline much more cleanly and efficiently than older engines. Researchers have also
developed automobiles that use such clean-burning fuels as methanol (a type of
alcohol) and natural gas. In Brazil, some cars use another type of alcohol, called

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ethanol, as fuel. Scientists are also developing cars that can use hydrogen gas as fuel.
Hydrogen creates almost no pollution when it is burned.

Scientists and engineers are also researching ways to generate electric power more
cheaply from renewable energy sources, such as the wind and the sun, causing little or
no pollution. Large fields of windmills, known as wind farms, supply about 1 percent
of California's electric power and more than 2 percent of Germany's. Devices called
photovoltaic cells convert sunlight directly into electric power. Using such cells, a
photovoltaic power plant in Sacramento, California, produces enough power for 1,000
homes.

Pollution control devices

 Dust collection systems
o Baghouses

o Cyclones

o Electrostatic precipitators

 Scrubbers

o Baffle spray scrubber

o Cyclonic spray scrubber

o Ejector venturi scrubber

o Mechanically aided scrubber

o Spray tower

o Wet scrubber

 Sewage treatment

o Sedimentation (Primary treatment)

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o Activated sludge biotreaters (Secondary treatment; also used for industrial
wastewater)

o Aerated lagoons

o Constructed wetlands (also used for urban runoff)

 Industrial wastewater treatment

o API oil-water separators

o Biofilters

o Dissolved air flotation (DAF)

o Powdered activated carbon treatment

o Ultrafiltration

 Vapor recovery systems

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Terminal Exercise

1. What is meaning of Technology?

2. What are important features of Technology?
3. What is impact of Technology on the society?
4. Discuss the Technology Transfer process?
5. What are MNCs and how they were evolved?
6. Discuss the role of MNCs in Indian economy.
7. What is pollution?
8. What are various forms of pollution?
9. What is Role of Business in Environmental Pollution?
10. Explain the various causes of air pollution.
11. State three important impacts of air pollution.
12. What are the effects of water pollution?
13. Describe the role of business in preventing environmental pollution.
14. What are important pollution control devices?

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REFERENCES/ Suggested Books

(1) Business Environment by Francis Cherunilam

(Himalayan Publication, Mumbai)
(2) Business Environment by Saikh Saleem (Pearson
Education, New Delhi)
(3) Business Environment by Suresh Bedi (Excell Books,
New Delhi)
(4) Business Environment by Vivek Mittal (Excell Books,
New Delhi)
(5) Essentials of Business Environment by K. Aswatthappa
(Himalayan Publication, Mumbai)

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