BALANCE OF PAYMENTS

The balance of payments, also known as balance of international payments and abbreviated BOP, of a
country is the record of all economic transactions between the residents of the country and the rest of the world
in a particular period (over a quarter of a year or more commonly over a year). These transactions are made by
individuals, firms and government bodies. Thus the balance of payments includes all external visible and nonvisible transactions of a country . It represents a summation of country's current demand and supply of the claims
on foreign currencies and of foreign claims on its currency.[1]
.[2] These transactions include payments for the country's exports and imports of goods, services, financial
capital, and financial transfers.It is prepared in a single currency, typically the domestic currency for the country
concerned. Sources of funds for a nation, such as exports or the receipts of loans andinvestments, are recorded
as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as
negative or deficit items.
When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit.
For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will
have to be counterbalanced in other ways such as by funds earned from its foreign investments, by running
down central bank reserves or by receiving loans from other countries.
While the overall BOP accounts will always balance when all types of payments are included, imbalances are
possible on individual elements of the BOP, such as the current account, the capital account excluding the central
bank's reserve account, or the sum of the two. Imbalances in the latter sum can result in surplus countries
accumulating wealth, while deficit nations become increasingly indebted. The term balance of payments often
refers to this sum: a country's balance of payments is said to be in surplus (equivalently, the balance of payments
is positive) by a specific amount if sources of funds (such as export goods sold and bonds sold) exceed uses of
funds (such as paying for imported goods and paying for foreign bonds purchased) by that amount. There is said
to be a balance of payments deficit (the balance of payments is said to be negative) if the former are less than
the latter. A BOP surplus (or deficit) is accompanied by an accumulation (or decumulation) of foreign exchange
reserves by the central bank.
Under a fixed exchange rate system, the central bank accommodates those flows by buying up any net inflow of
funds into the country or by providing foreign currency funds to the foreign exchange market to match any
international outflow of funds, thus preventing the funds flows from affecting the exchange ratebetween the
country's currency and other currencies. Then the net change per year in the central bank's foreign exchange
reserves is sometimes called the balance of payments surplus or deficit. Alternatives to a fixed exchange rate
system include a managed float where some changes of exchange rates are allowed, or at the other extreme a
purely floating exchange rate (also known as a purely flexible exchange rate). With a pure float the central bank
does not intervene at all to protect or devalue its currency, allowing the rate to be set by the market, and
the central bank's foreign exchange reserves do not change, and the balance of payments is always zero.

CONCEPT OF DISINVESTMENT
Disinvestment refers to the use of a concerted economic boycott to pressure a government, industry, or
company towards a change in policy, or in the case of governments, even regime change. The term was first
used in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott
designed to pressure the government of South Africa into abolishing its policy of apartheid. The term has also
been applied to actions targeting Iran,Sudan, Northern Ireland, Myanmar, and Israel.

OR
In business, disinvestment means to sell off certain assets such as a manufacturing plant, a division or
subsidiary, or product line. Disinvestment is sometimes described as the opposite of capital expenditures. Some
people use the term divestiture, or to divest when discussing disinvestment.
For example, an electric generator manufacturer might sell off its consumer generator product lines and
manufacturing facilities in order to raise money that can be used to expand its industrial generator product line.
Another example is a consumer products company selling off a profitable division that no longer meets its long
range goals. The proceeds from this disinvestment are then used to improve the company's financial position by
reducing its debt.

ROLE IN ENVIRONMENT
There is a movement to disinvest from coal, oil and gas companies. It is a social movement which urges
everyone from individual investors to large institutions to remove their investments (to divest) from publicly listed
oil, gas and coal companies, with the intention of combating climate change by reducing the amount of
greenhouse gases released into the atmosphere, and holding the oil, gas and coal companies responsible for
their role in climate change.
Founder of the movement Bill McKibben, a researcher and academic from University of Victoria, and creator of
the webpage 350.org stated: If it is wrong to wreck the climate, then it is wrong to profit from the wreckage. We
believe [] organizations that serve the public good should divest from fossil fuels

Importance of Disinvestment
Presently, the Government has about Rs. 2 lakh crore locked up in PSUs. Disinvestment of the Government
stake is, thus, far too significant. The importance of disinvestment lies in utilisation of funds for:

Financing the increasing fiscal deficit

Financing large-scale infrastructure development

For investing in the economy to encourage spending

For retiring Government debt- Almost 40-45% of the Centres revenue receipts go towards repaying
public
debt/interest

For social programs like health and education

Corporate social responsibility (CSR)

Corporate
social
responsibility (CSR,
also
called corporate
conscience, corporate
[1]
citizenship or responsible business) is a form of corporate self-regulation integrated into a business
model. CSR policy functions as a self-regulatory mechanism whereby a business monitors and ensures its
active compliance with the spirit of the law, ethical standards and national or international norms. With
some models, a firm's implementation of CSR goes beyond compliance and engages in "actions that
appear to further some social good, beyond the interests of the firm and that which is required by law." [2]
[3]
The aim is to increase long-term profits through positive public relations, high ethical standards to reduce
business and legal risk, and shareholder trust by taking responsibility for corporate actions. CSR strategies
encourage the company to make a positive impact on the environment and stakeholders including
consumers, employees, investors, communities, and others.

MULTINATIONAL CORPORATIONS (MNC)

A multinational corporation or worldwide enterprise[1] is an organization that owns or controls
production of goods or services in one or more countries other than their home country.[2] It can
also be referred as an international corporation, a "transnational corporation", or a stateless
corporation.[3]
A multinational corporation is usually a large corporation which produces or sells goods or
services in various countries.[4]

Importing and exporting goods and services

Making significant investments in a foreign country

Buying and selling licenses in foreign markets

Engaging in contract manufacturingpermitting a local manufacturer in a foreign country

to produce their products

Opening manufacturing facilities or assembly operations in foreign countries

The problem of moral and legal constraints upon the behavior of multinational corporations,
given that they are effectively "stateless" actors, is one of several urgent global socioeconomic
problems that emerged during the late twentieth century.[5]
One of the first multinational business organizations, the East India Company, arose in 1600.
[6]

After East India Company, came the Dutch East India Company, founded March 20, 1602,

which would become the largest company in the world for nearly 200 years. [7]

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.
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
andregulation 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.
EXIM Policy
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.

Objectives of EXIM Policy:

The principal objectives of this Policy are:

1) To facilitate sustained growth in exports to attain a share of atleast 1 % of global merchandise trade.

2) To stimulate sustained economic growth by providing access to essential raw materials, intermediates,
components, consumables and capital goods required for augmenting production and providing services.

3) To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby
improving their competitive strength while generating new employment opportunities, and to encourage the
attainment of internationally accepted standards of quality.

4) To provide consumers with good quality goods and services at internationally competitive prices while at the
same time creating a level playing field for the domestic produce.

ECONOMIC POLICY
Economic policy refers to the actions that governments take in the economic field. It covers the systems for
setting levels of taxation, government budgets, the money supply and interest rates as well as the labor market,
national ownership, and many other areas of government interventions into the economy.
Most factors of economic policy can be divided into either fiscal policy, which deals with government actions
regarding taxation and spending, or monetary policy, which deals with central banking actions regarding the
money supply and interest rates.
Such policies are often influenced by international institutions like the International Monetary Fund or World Bank
as well as political beliefs and the consequent policies of parties.

Types of economic policy

Almost every aspect of government has an important economic component. A few examples of the kinds of
economic policies that exist include:[1]

Macroeconomic stabilization policy, which attempts to keep the money supply growing at a rate that
does not result in excessive inflation, and attempts to smooth out the business cycle.

Trade policy, which refers to tariffs, trade agreements and the international institutions that govern them.

Policies designed to create economic growth

Policies related to development economics

Policies dealing with the redistribution of income, property and/or wealth

As well as: regulatory policy, anti-trust policy, industrial policy and technology-based economic
development policy

MACROECONOMIC STABILIZATION POLICY

Stabilization policy attempts to stimulate an economy out of recession or constrain the money supply to prevent
excessive inflation.

Fiscal policy, often tied to Keynesian economics, uses government spending and taxes to guide the
economy.

Fiscal stance: The size of the deficit or surplus

Tax policy: The taxes used to collect government income.

Government spending on just about any area of government

Monetary policy controls the value of currency by lowering the supply of money to control inflation and
raising it to stimulate economic growth. It is concerned with the amount of money in circulation and,
consequently, interest rates and inflation.

Interest rates, if set by the Government

Incomes policies and price controls that aim at imposing non-monetary controls on inflation

Reserve requirements which affect the money multiplier

MAJOR PROBLEMS OF INDIAN ECONOMY

Since 1991, the Indian economy has pursued free market liberalisation, greater openness in trade and increase
investment in infrastructure. This helped the Indian economy to achieve a rapid rate of economic growth and
economic development. However, the economy still faces various problems and challenges.
POVERTY
Poverty in India is widespread, and a variety of methods have been proposed to measure it. The official
measure of Indian government, before 2005, was based on food security and it was defined from per capita
expenditure for a person to consume enough calories and be able to pay for associated essentials to survive.
Since 2005, Indian government adopted the Tendulkar methodology which moved away from calorie anchor to a
basket of goods and used rural, urban and regional minimum expenditure per capita necessary to survive.[1]

OVER POPULATION
At present, the population of India is around 1.2 billion. Population is increasing at an explosive rate. Thanks to
the advances in medical science and other public health measures, the death rate has been greatly reduced.

The growth of population in relation to the growth of economy is much faster resulting in the incidence of
malnutrition, unhealthy conditions of living and so on.

A high birth rate accompanied by a low death rate cannot adjust population to the means of living. The population
growth rate in India is still quite high compared to developed countries. For this, the rapidly growing population
swallows up the increased output and our country remains economically backward.

Solution

1.

This necessitates rapid economic development to meet the requirements of increased population.

2.

Create awareness among the people of India regarding the demerits of population explosion.

3.

Encourage people to adopt birth control methods.

4.

Educate people. Educated people are more likely to take steps to control population.

UNEMPLOYMENT

The Indian economy is characterized by huge unemployment, both in rural and urban areas. Unemployment is a
major problem for Indian Economy. India is basically an agricultural country. Most people are engaged in
agriculture due to want of alternative occupation. A large part of the population engaged in agriculture can be
removed without reducing agricultural output. This is called disguised unemployment. They should be withdrawn
from agriculture with a view to increasing their marginal productivity.
SLOWDOWN IN ECONOMIC GROWTH
2013/14 has seen a slowdown in the rate of economic growth to 4-5%. Real GDP per capita growth is even lower.
This is a cause for concern as India needs a high growth rate to see rising living standards, lower unemployment
and encouraging investment. India has fallen behind China, which is a comparable developing economy

COMPETITION BILL 2001

Competition law is a law that promotes or seeks to maintain market competition by regulating anticompetitive conduct by companies.[1][2] Competition law is implemented through public and private enforcement.[3]
Competition law is known as antitrust law in the United States and European Union,[4] and as anti-monopoly law
in China [1]and Russia. In previous years it has been known as trade practices law in the United
Kingdom and Australia.
The Competition Bill of india ,introduced in the Lok Sabha (lower house of the parliament) on the 6th of August
2001, is perhaps the most debated law in india. However ,despite the intense debate that gathered momentum
after the publication of the raghvan committee report in May 2000 certain issues remain unsolved.
Objectives
The main objectives in formulating the new law are:
(i) to prevent practices having adverse effect on competition;
(ii) to promote and sustain competition in markets;
(iii) to protect the interests of consumers; and
(iv) to ensure freedom of trade carried on by other participants in markets.
Priority is accorded to maintain and encourage competition in order to foster consumer welfare.
The CCI would deal with agreements that cause or are likely to cause an appreciable adverse
effect on competition within India.

ROLE OF ECONOMIC PLANNING

Economic Planning is the making of major economic decisions. What and how is to be produced and to whom it
is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey
of the economic system as a whole.

In an economy like India, the basis socioeconomic problems like poverty, unemployment, stagnation in
agricultural and industrial production and inequality in the distribution of income and wealth can hardly be solved
within the framework of an unplanned economy planning is required to remove these basic maladies.

We can identify the following characteristic features of economic planning:

Fixation of definite socio-economic targets;

Prudent efforts to achieve these targets within a given time period;

Existence of a central planning authority;

Complete knowledge about the economic resources of the country;

Efficient utilization of limited resources to get maximum output and welfare.

ROLES
(a) Rapid Economic Development
(b) Quick Improvement in the Standard of Living
(c)

Removal of Poverty

(d) Rational Allocation and Efficient Utilization of Resources

(e) Increasing the Rate of Capital Formation
(f)

Reduction in Unequal Distribution of Income and Wealth

(g) Reduction of Unemployment and Increase in Employment Opportunities

Since 1947, the Indian economy has been premised on the concept of planning. This has
been carried through the Five-Year Plans, developed, executed, and monitored by
the Planning Commission (NITI Aayog after 2014). With the Prime Minister as the exofficio Chairman, the commission has a nominated Deputy Chairman, who holds the rank
of a Cabinet Minister. Montek Singh Ahluwalia is the last Deputy Chairman of the
Commission (resigned on 26 May 2014). The Eleventh Plan completed its term in March

2012 and the Twelfth Plan is currently underway.[1] Prior to the Fourth Plan, the allocation
of state resources was based on schematic patterns rather than a transparent and
objective mechanism, which led 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.[2] The new government led byNarendra Modi, elected in 2014,
has announced the dissolution of the Planning Commission, and its replacement by a
think tank called the NITI Aayog (an acronym for National Institution for Transforming
India).

FISCAL POLICY

Fiscal policy means the use of taxation and public expenditure by the government for stabilisation or growth.
According to Culbarston, By fiscal policy we refer to government actions affecting its receipts and expenditures
which we ordinarily taken as measured by the governments receipts, its surplus or deficit. The government may
offset undesirable variations in private consumption and investment by compensatory variations of public
expenditures and taxes.

Arthur Smithies defines fiscal policy as a policy under which the government uses its expenditure and revenue
programmes to produce desirable effects and avoid undesirable effects on the national income, production and
employment. Though the ultimate aim of fiscal policy in the long-run stabilisation of the economy, yet it can be
achieved by moderating short-run economic fluctuations. In this context, Otto Eckstein defines fiscal policy as
changes in taxes and expenditures which aim at short-run goals of full employment and price-level stability.
2. Objectives of Fiscal Policy

The following are the objectives of fiscal policy:

1. To maintain and achieve full employment.

2. To stabilise the price level.

3. To stabilise the growth rate of the economy.

4. To maintain equilibrium in the balance of payments.

5. To promote the economic development of underdeveloped countries.

MONETARY POLICY
Monetary policy is the process by which monetary authority of a country, generally a central bank
controls the supply of money in the economy by its control over interest rates in order to maintain
price stability and achieve high economic growth.[1] In India, the central monetary authority is
the Reserve Bank of India(RBI). It is so designed as to maintain the price stability in the
economy. Other objectives of the monetary policy of India, as stated by RBI, are:Price Stability
Price Stability implies promoting economic development with considerable emphasis on price
stability. The centre of focus is to facilitate the environment which is favourable to the architecture
that enables the developmental projects to run swiftly while also maintaining reasonable price
stability.
Controlled Expansion Of Bank Credit
One of the important functions of RBI is the controlled expansion of bank credit and money
supply with special attention to seasonal requirement for credit without affecting the output.
Promotion of Fixed Investment
The aim here is to increase the productivity of investment by restraining non essential fixed
investment.
Restriction of Inventories and stocks
Overfilling of stocks and products becoming outdated due to excess of stock often results in
sickness of the unit. To avoid this problem the central monetary authority carries out this
essential function of restricting the ors of the economy and all social and economic class of
people
To Promote Efficiency
It is another essential aspect where the central banks pay a lot of attention. It tries to increase the
efficiency in the financial system and tries to incorporate structural changes such as deregulating
interest rates, ease operational constraints in the credit delivery system, to introduce new money
market instruments etc.
Reducing the Rigidity
RBI tries to bring about the flexibilities in the operations which provide a considerable autonomy.
It encourages more competitive environment and diversification. It maintains its control over
financial system whenever and wherever necessary to maintain the discipline and prudence in
operations of the financial system.

UNION BUDGET
The Union Budget of India, also referred to as the Annual financial statement in the Article 112
of the Constitution of India,[1] is the annual budget of theRepublic of India. It is presented each
year on the last working day of February by the Finance Minister of India in Parliament. The
budget, which is presented by means of the Financial bill and the Appropriation bill has to be
passed by the Houses before it can come into effect on April 1, the start of India's financial year.
OBJECTIVES OF UNION BUDGET
Economic growth
Reduction of poverty and unemployment
Price/Economic Stability
Reallocation of resources etc

ROLE OF PUBLIC SECTOR ENTERPRISES IN INDIAN ECONOMY

Since 1948, when for the first time the importance of the public sector in the Indian economy was
recognized, the public sector has experienced a phenomenal growth both in terms of number and
volume of investment. The Government has made sustained efforts to break the vicious circle of
poverty and undevelopment by setting up public sector enterprises or by nationalizing certain key
industries. The most recent instances are the nationalization of the bigger commercial banks and that
of coal mines.

Role of Public Sector enterprises in India

We may enumerate below the various arguments put forth in support of the public
sector in India.
1. Maximizing the rate of economic growth :

Originally, the activity of the public sector enterprises was to be limited to a definite field of basic and key industries of strategic importance. There were certain fields
where the private enterprise was shy to operate as they involved huge investment or risk. It was the public sector alone which could build the economic overheads such as
power, transport, etc. Since then the ideological objective of capturing the commanding heights by the public-vector bas been duly fulfilled, it succeeded in creating the
necessary infrastructural base for sustained industrial growth. It has tremendously boosted the technological capabilities.

2. Development of capital-intensive sector :

Industrial development of a country necessitates the foundation of an infrastructure! base. This foundation is provided by the development of capital-intensive industries
and the basic infrastructure. The private sector neither has the zeal nor the capacity to invest in such infrastructural programmes. From this point of view, the public
sector has a magnificent record. The State has successfully implemented various schemes of multi-purpose river projects,, hydroelectric projects, transport and
communication, atomic power,, steel, etc. It has vastly contributed in the fields such as nuclear or steel technology, aeronautics, defense materials, ship-building and so
on. It has laid down a good network of transport and communications.

3. Development of agriculture :

The public sector has an important role in the field of agriculture as well. The public sector assists in the manufacture of fertilizers, pesticides, insecticides and mechanical
implements used in agriculture. Through the various research institutes the public sector has augmented agricultural productivity by introducing new high-yielding
variety of seeds, preventing crop diseases and innovating new agricultural practices.

4. Balanced regional development :

In the pre-independence period a major problem was regional economic disparities. There were certain areas where there was a heavy concentration of industrial activity.
On the other hand, there were certain backward areas which went without industries. Industrial development was highly lopsided. Thus Maharashtra, West Bengal,
Gujarat and Tamil Nadu, etc., were highly developed industrially. States like Orissa, Assam, Bihar, Madhya Pradesh etc. were highly backward. Besides, industries used to
be gravitated towards the metropolitan areas, rather than the smaller towns. But imbalanced economic development is as bad as underdevelopment.

5. Development of ancillary industries :

Establishment of a few big public enterprises is not enough to unleash forces of industrial development in an area. There are states like Bihar where in spite of lavish
public sector investment, industrial development has not been satisfactory. On the other hand. States like Punjab have made a vast progress because of the development of
small and ancillary units. This realization made the public sector take a close interest in the development of small and ancillary units. It is expected that the development
of ancillaries would have the way for rapid industrial growth of a region and lead to balanced economic development. The number of such ancillary units was 432 in 197475 and the number rose to 888 in 1979-80 with purchases from them increasing from Rs. 29 crores to Rs. 120 crores. It is expected that in future, ancillary development
would receive more attention from the Government.

6. Increasing employment opportunities :

The growth of the public sector has led to the expression of gainful employment opportunities. In addition to the primary effect of the public sector in creating
employment opportunities, public sector investments also have a multiplier effect on other sectors of the economy. This has a beneficial effect on the total employment
position. In 1963-61, the number of people employed in public enterprises was only 1.82 lakhs. This figure rose to 14.08 lakhs in 1974 75 involving an increase of 671 per
cent. Similarly the total amount of salaries and wages increased from Rs. 4091 crores to Rs. 1,053 35 crores, involving an increase of 2,474.8 per cent, during the same
period, In 1986-87 the number of working population in these industries stood at 22 lakhs.

7. Model employer :

Dr. R.K. Gupta has observed that in India the State has inaugurated the era of the model employer in contrast to the employer with a feudal outlook. It has laid down
guidelines for employer-employee relations and for developing good and efficient personnel. The public sector has been the pacesetter in the field of labour welfare and
social security. The State aims at establishing an industrial democracy which will provide a fair deal to the workers. The public enterprises have been investing liberally on
matters pertaining to labour welfare and social security. Not only the wages have been substantially increased, conditions of service have vastly improved. For instance,
wages in the coal industry have nearly trebled since nationalization and many other amenities also are being provided.

8. Preventing concentration of economic power :

Preventing private monopolies and concentration of economic power is the avowed objective of our economic policy. Nationalization is considered as an antidote for the
concentration of economic power in private hands. In India the public sector enterprises have grown both in number and in strength. Today, the public sector not only
occupies the commanding heights in the economy, it has also penetrated into the production of essential consumer goods. The share of the public sector in the overall
industrial production, has substantially gone up. This has effectively curbed the concentration of economic power. It has created a countervailing force against the growth
of larger industrial houses.

9. Export promotion :

The public sector enterprises are substantially contributing to the countrys export earnings. The public sector has-built up a reputation abroad in selling plants, heavy
equipments, machine-tools and other industrial products. She has created a goodwill in the third world countries-for her consultancy services and technical know-how.
Public sector exports also include consumer goods. The role of the State Trading Corporation, or the Minerals and Metals Trading Corporation has been quite creditable in
promoting exports. Between 1968-69 and 1984-85, the percentage share of public sector enterprises in Indias export trade went up from 20.05 to 38.1 per cent. Public
sector exports increased from Rs. 272 crores in 1968-69 to Rs. 4,522 crores in 1984-85. In 1976-77 the public enterprises earned Rs. 2,248 crores in foreign exchange. The
public enterprises thus bad a splendid performance.

10. Import substitution :

The public sector enterprises have also-succeeded in their efforts in import substitution. Today many commodities starting from basic drugs to highly advanced
equipments are manufactured in the public sector, which previously used to be imported from abroad. In certain fields public enterprises were specially started to reduce
imports from abroad, and achieve self-sufficiency. Public enterprises like Hindustan Antibiotics Ltd. or Bharat Electronics Ltd. or Hindustan Machine Tools etc., have
done a remarkable job in import substitution. This has resulted in saving of precious foreign exchange. Today there is a special drive in the public enterprises to utilize
indigenous materials and domestic skill.

11. Production and sales :

While taking up the production of any goods or services, the private entrepreneur is guided solely by the profit motive. To maximize profit, he even does not hesitate to
exploit the consumers. Very often maximization of profit is achieved at the cost of public welfare. It is only the public sector which can produce according to special needs.
Sometimes it may even sell at a price lower than its cost. The total turnover of the State-owned manufacturing enterprises and service enterprises amounted to Rs. 2,650
crores in 1969-70; Total turnover of these enterprises increased to Rs. 3644.3 crore in 1981-82. This indicates that the contribution of the public sector to the flow of goods
and services in the economy was quite considerable.

12. Mobilization of resources :

The public sector undertakings have played an important role in financing the planned development of the country. They have significantly contributed to the Central
Exchequer in the form of interest and various taxes, etc. Besides public enterprises show an increasing trend in the generation of internal resources. From a mere Rs. 194
crores in 1969-70 it increased to Rs. 5,068 crores in 1986-87. In the total capital formation of the country more than 50 percent is contributed by the public sector.

13. Research and development :

Today no country can industrially prosper without research and development. Such research is highly essential for the introduction of new goods and new technologies of
production, lowering the cost of production and improving the quality of the product. In this respect the public sector is playing a crucial role. A lot of research activities
are being carried on in the laboratories of the public sector undertakings. In 1576-77, the total expenditure on research and development amounted to Rs. 32.79 crores.

INDUSTRIAL POLICY
The industrial policy of a country, sometimes denoted IP, is its official strategic effort to
encourage the development and growth of part or all of the manufacturing sector as well as other
sectors of the economy.[1][2][3]The government takes measures "aimed at improving the
competitiveness and capabilities of domestic firms and promoting structural transformation." [4] A
country's infrastructure (transportation, telecommunications and energy industry) is a major part
of the manufacturing sector that often has a key role in IP.

At the time of independence, India had an extremely underdeveloped and unbalanced industrial structure. Industries
contributed less than one sixth part of national income.

The country did have some industries like cotton textiles, jute and sugar, but there were virtually no basic, heavy and capital
goods industries on which programmes of future industrialisation could be based.

Whatever major industries were there, they were largely concentrated in a few areas such as Bombay. Surat, Ahmedabad.
Jameshedpur, Calcutta, Delhi etc. While the rest of the country remained industrially neglected.

Thus after independence, the government of India had to undertake effective measures to increase the tempo of
industrialisation. Correct regional imbalances in industrial development and rectify the distorted industrial structure through
rapid development of capital goods industries.

Objectives:
The major objectives of industrial policy are:
(i) Rapid Industrial Development:

The industrial policy of the Government of India is aimed at increasing the tempo of industrial development. It seeks to create a
favourable investment climate for the private sector as well as mobilise resources for the investment in public sector. In its way
the government seeks to promote rapid industrial development in the country.

(ii) Balanced industrial Structure:

The industrial policy is designed to correct the prevailing lopsided industrial structure. Thus, for example, before independence,
India had some fairly developed consumer goods industries. But the capital goods sector was not developed at all and basic
and heavy industries were by and large absent.

So the industrial policy had to be framed in such a manner that these imbalances in the industrial structure are corrected. Thus
by laying emphasis on heavy industries and development of capital goods sector, industrial policy seeks to bring a balance in
industrial structure.

(iii) Prevention of Concentration of Economic Power:

The industrial policy seeks to provide a framework of rules, regulations and reservation of spheres of activity for the public and
the private sectors. This is aimed at reducing the monopolistic tendencies and preventing concentration of economic power in
the hands of a few big industrial houses.

(iv) Balanced Regional Growth:

Industrial policy also aims at correcting regional imbalances in industrial development. It is quite well-known that some regions
in the country are industrially quite advanced e.g., Maharashtra and Gujarat while others are industrially backward, like Bihar,
Orissa. It is the task of industrial policy to work out programmes and policies which lead to industrial development or industrial
growth.

The Industrial policy of 1948, which was the first industrial policy statement of the Government of India, was changed in 1956 in
a public sector dominated industrial development policy that remained in force till 1991 with some minor modifications and
amendments in 1977 and 1980. In 1991, far reaching changes were made in the 1956 industrial policy. The new Industrial
Policy of July 1991 heralded the framework for industrial development at present.

IMPACT OF LPG

Impact[edit]

The low annual growth rate of the economy of India before 1980, which stagnated around
3.5% from 1950s to 1980s, while per capita income averaged 1.3%.[15] At the same
time, Pakistan grew by 5%, Indonesia by 9%, Thailand by 9%, South Korea by 10%
and Taiwan by 12%.[16]

Only four or five licences would be given for steel, electrical power and communications.
Licence owners built up huge powerful empires.[11]

A huge private sector emerged. State-owned enterprises made large losses. [11]

Income Tax Department and Customs Department became efficient in checking tax
evasion.[citation needed]

Infrastructure investment was poor because of the public sector monopoly.[11]

Licence Raj established the "irresponsible, self-perpetuating bureaucracy that still exists
throughout much of the country"[17] and corruption flourished under this system.[18]

The fruits of liberalisation reached their peak in 2006, when India recorded its highest GDP
growth rate of 9.6%.[19] With this, India became the second fastest growing major economy in the
world, next only to China.[18] The growth rate has slowed significantly in the first half of 2012.
[20]

An Organisation for Economic Co-operation and Development (OECD) report states that the

average growth rate 7.5% will double the average income in a decade, and more reforms would
speed up the pace.[21] The economy then rebounded to 7.3% growth in 2014-15.

ECONOMIC REFORMS
The term microeconomic reform (or often just economic reform) refers to policies directed to
achieve improvements in economic efficiency, either by eliminating or reducing distortions in
individual sectors of the economy or by reforming economy-wide policies such as tax
policy and competition policy with an emphasis on economic efficiency, rather than other goals
such as equity or employment growth.
"Economic reform" usually refers to deregulation, or at times to reduction in the size of
government, to remove distortions caused by regulations or the presence of government, rather
than new or increased regulations or government programs to reduce distortions caused
by market failure. As such, these reform policies are in the tradition of laissez faire, emphasizing
the distortions caused by government, rather than in ordoliberalism, which emphasizes the need
for state regulation to maximize efficiency.

ECONOMIC REFORMS BY INDIAN GOVT

(i) Abolition of Licensing:

Before the advent of the New Industrial Policy, the Indian industries were operating under strict licensing system. Now, most industries have been
freed from licensing and other restrictions.

(ii) Freedom to Import Technology:

The use of latest technology has been given prominence in the New Industrial Policy. Therefore, foreign technological collaboration has been
allowed.

(iii) Contraction of Public Sector:

A policy of not expanding unprofitable industrial units in the public sector has been adopted. Apart from this, the government is following the
course of disinvestment in such public sector undertaking. (Selling some shares of public sector enterprises to private sector entrepreneurs is
called disinvestment. This is a medium of privatisation.)

(iv) Free Entry of Foreign Investment:

Many steps have been taken to attract foreign investment. Some of these are as follows:

(a) In 1991, 51% of foreign investment in 34 high priority industries was allowed without seeking government permission.

(b) Non-Resident Indians (NRIs) were allowed to invest 100% in the export houses, hospitals, hotels, etc.

(c) Foreign Investment Promotion Board (FIPB) was established with a view to speedily clear foreign investment proposals.

(d) Restrictions which were previously in operation to regulate dividends repatriation by the foreign investors have been removed. They can now
take dividends to their native countries.

(v) MRTP Restrictions Removed:

Monopolies and Restrictive Trade Practices Act has been done away with. Now the companies do not need to seek government permission to
issue shares, extend their area of operation and establish a new unit.

(vi) FERA Restrictions Removed:

Foreign Exchange Regulation Act (FERA) has been replaced by Foreign Exchange Management Act (FEMA). It regulates the foreign
transactions. These transactions have now become simpler.

(vii) Increase in the Importance of Small Industries:

Efforts have been made to give importance to the small industries in the economic development of the country.

(2) New Trade Policy

Trade policy means the policy through which the foreign trade is controlled and regulated. As a result of liberalisation, trade policy has undergone
tremendous changes. Especially the foreign trade has been freed from the unnecessary controls.

The age-old restrictions have been eliminated at one go. Some of the chief characteristics of the New Trade Policy are as follows:

(i) Reduction in Restrictions of Export-Import:

Restrictions on the exports-imports have almost disappeared leaving only a few items.

(ii) Reduction in Export-Import Tax:

Export-import tax on some items has been completely abolished and on some other items it has been reduced to the minimum level.

(iii) Easy Procedure of Export-Import:

Import-export procedure has been simplified.

(iv) Establishment of Foreign Capital Market:

Foreign capital market has been established for sale and purchase of foreign exchange in the open market.

(v) Full Convertibility on Current Account:

In 1994-95, full convertibility became applicable on current account.

Here it is important to clarify the meaning of current account and full convertibility. Therefore, this has been done as follows:

Current Account:

Transactions with the foreign countries are placed in two categories: (i) transaction with current account, for example, import-export, (ii) Capital
account transactions, like investment.

Full Convertibility:

In short, full convertibility means unrestricted sale and purchase of foreign exchange in the foreign exchange market for the purpose of payments
and receipts on the items connected with current account. It means that there is no government restriction on the sale and purchase of foreign
exchange connected with current account.

On the other hand, sale and purchase of foreign exchange connected with capital account can be carried on under the rates determined by the
Reserve Bank of India (RBI),

(vi) Providing Incentive for Export:

Many incentives have been allowed to Export- oriented Units (EOU) and Export Processing Zones (EPZ) for increasing export trade.

(3) Fiscal Reforms

The policy of the government connected with the income and expenditure is called fiscal policy. The greatest problem confronting the Indian
government is excessive fiscal deficit. In 1990-91, the fiscal deficit was 8% of the GDP. (It is important to understand the meaning of fiscal deficit
and GDP.)

(i) Fiscal Deficit:

A fiscal deficit means that the country is spending more than its income,

(ii) Gross Domestic Product (GDP):

The GDP is the sum total of the financial value of all the produced goods and services during a year in a country. Generally, the financial deficit is
calculated in the form of GDPs percentage. Presently, the government of India is making efforts to take it to 4%.

Solutions of Fiscal Deficit

In order to handle the problem of fiscal deficit, basic changes were made in the tax system. The following are the major steps taken in this
direction:

(i) The rate of the individual and corporate tax has been reduced in order to bring more people in the tax net.

(ii) Tax procedure has been simplified.

(iii) Heavy reduction in the import duties has been implemented.

(4) Monetary Reforms

Monetary policy is a sort of control policy through which the central bank controls the supply of money with a view to achieving the objectives of
the general economic policy. Reforms in this policy are called monetary reforms. The major points with regard to the monetary reforms are given
below:

(i) Statutory Liquidity Ratio (SLR) has been lowered. (A commercial bank has to maintain a definite percentage of liquid funds in relation to its net
demand and time liabilities. This is called SLR. In liquid funds, cash investment in permitted securities and balance in current account with
nationalised banks are included.)

(ii) The banks have been allowed freedom to decide the rate of interest on the amount deposited.

(iii) New standards have been laid down for the income recognition for the banks. (By recognition of income, we mean what is to be considered as
the income of the bank. For example, should the interest on the bad debt be considered as the income of the bank directions have been issued in
this context.

(iv) Permission to collect money by issuing shares in the capital market has been granted to nationalised banks.

(v) Permission to open banks in the private sector has also been granted.

(5) Capital Market Reforms

The market in which securities are sold and bought is known as the capital market. The reforms connected with it are known as capital market
reforms. This market is the pivot of the economy of a country. The government has taken the following steps for the development of this market:

(i) Under the Portfolio Investment Scheme, the limit for investment by the NRIs and foreign companies in the shares and debentures of the Indian
companies has been raised. (Portfolio Investment Scheme means investing in securities.)

(ii) In order to control the capital market, the Securities and Exchange Board of India (SEBI) has been established.

(iii) The restriction in respect of interest on debentures has been lifted. Now, it is decided on the basis of demand and supply.

(iv) The office of the Controller of Capital Issue which used to determine the price of shares to be issued has been dispensed with. Now, the
companies are free to determine the price of the shares.

(v) Private sector has been permitted to establish Mutual Fund.

(vi) The registration of the sub broker has been made mandatory.

(6) Phasing out Subsidies

Cash Compensatory Support (CCS) which was earlier given as export subsidy has been stopped. CCS can be understood with the help of an
example.

If an exporter wants to import some raw material which is available abroad for 100, but the same material is available in India for 120 and the
governments wants the raw material to be purchased by the exporter from India itself for the protection of indigenous industries, the government
is ready to pay the difference of 20 to the exporter in the form of subsidy.

The payment of 20 will be considered as CCS. In addition to this, the CCS has been reduced in case of fertilizers and petro products.

(7) Dismantling Price Control

The government has taken steps to remove price control in case of many products. (Price Control means that the companies will sell goods at the
prices determined by the government.) The efforts to remove price control were mostly in respect of fertilizers, steel and iron and petro products.
Restrictions on the import of these products have also been removed.

ECONOMIC ENVIONMENT
Economic Environment refers to all those economic factors, which have a bearing on the
functioning of a business. Business depends on the economic environment for all the
needed inputs. It also depends on the economic environment to sell the finished goods.
Naturally, the dependence of business on the economic environment is total and is not
surprising because, as it is rightly said, business is one unit of the total economy.
Economic environment influences the business to a great extent. It refers to all those
economic factors which affect the functioning of a business unit. Dependence of business
on economic environment is total i.e. for input and also to sell the finished goods.
Trained economists supplying the Macro economic forecast and research are found in
major companies in manufacturing, commerce and finance which prove the importance
of economic environment in business. The following factors constitute economic
environment of business:
(a) Economic system
(b) Economic planning
(c) Industry
(d) Agriculture
(e) Infrastructure
(f) Financial & fiscal sectors
(g) Removal of regional imbalances
(h) Price & distribution controls
(i) Economic reforms
(j) Human resource and
(k) Per capita income and national income
The state became the encourager of savings and also an important investor and the
owner of capital. Since the state was to be the primary agent of economic change, it
followed that private sector activities had to be strictly regulated and controlled to
conform to the objectives of state policy.

The growth strategy also meant, in the early years of planning, a relative neglect of
public investments in agriculture. This negligence of agriculture sector was supported by
the general view that the increase labour in the developing countries could only be
absorbed in the industry, and that during the early stages of industrialization, it was
necessary for agriculture to contribute in the establishment of modern industry by
offering inexpensive work force. A faster development of industry was the central
objective of planning. The above is a thumbnail sketch of the growth strategy followed
by the planners in the past four decades.

RISK IN BUSINESS ENVIRONMENT

The term business risk refers to the possibility of inadequate profits or even losses due to
uncertainties e.g., changes in tastes, preferences of consumers, strikes, increased competition,
change in government policy, obsolescence etc .Every business organization contains various
risk elements while doing the business. Business risks implies uncertainty in profits or danger of
loss and the events that could pose a risk due to some unforeseen events in future, which
causes business to fail.[1][2][3]
For example, an owner of a business may face different risks like in production,risks due to
irregular supply of raw materials, machinery breakdown, labor unrest, etc. In marketing, risks
may arise due to different market price fluctuations, changing trends and fashions, error in sales
forecasting, etc. In addition, there may be loss of assets of the firm due to fire, flood,
earthquakes, riots or war and political unrest which may cause unwanted interruptions in the
business operations. Thus business risks may take place in different forms depending upon the
nature and size of the business.
The Business risk is classified into different 5 main types[7]
1. Strategic Risk: They are the risks associated with the operations of that particular
industry.These kind of risks arise from
1. Business Environment: Buyers and sellers interacting to buy and sell goods and
services, changes in supply and demand, competitive structures and
introduction of new technologies.
2. Transaction: Assets relocation of mergers and acquisitions, spin-offs, alliances
and joint ventures.

3. Investor Relations: Strategy for communicating with individuals who have

invested in the business.
2. Financial Risk: These are the risks associated with the financial structure and
transactions of the particular industry.
3. Operational Risk: These are the risks associated with the operational and administrative
procedures of the particular industry.
4. Compliance Risk(Legal Risk): These are risks associated with the need to comply with
the rules and regulations of the government.
5. Other risks: There would be different risks like natural disaster(floods) and others depend
upon the nature and scale of the industry.

ENVIRONMENT SCANNING

Environmental scanning is a process of gathering, analyzing, and dispensing

information for tactical or strategic purposes. The environmental scanning process
entails obtaining both factual and subjective information on the business
environments in which a company is operating or considering entering
Environmental scanning usually refers just to the macro environment, but it can also
include industry, competitor analysis, marketing research (consumer analysis), new
product development (product innovations) or the company's internal environment
Kinds of environmental scanning
Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis
Regular scanning - Studies done on a regular schedule (e.g. once a year)
Continuous scanning (also called continuous learning) - continuous structured data
collection and processing on a broad range of environmental factors

BUSINESS ENVIRONMENT
The combination of internal and external factors that influence a company's operating situation. The
business environment can include factors such as: clients and suppliers;
its competition and owners; improvements in technology; laws and government activities; and market,
social and economic trends.

Nature of Business Environment:

The nature of Business Environment is simply and better explained by the following approaches:

(i) System Approach:

In original, business is a system by which it produces goods and services for the satisfaction of wants, by
using several inputs, such as, raw material, capital, labour etc. from the environment.

(ii) Social Responsibility Approach:

In this approach business should fulfill its responsibility towards several categories of the society such as
consumers, stockholders, employees, government etc.

(iii) Creative Approach:

As per this approach, business gives shape to the environment by facing the challenges and availing the
opportunities in time. The business brings about changes in the society by giving attention to the needs of
the people.

COMPONENTS

A.

Internal environment

Internal environment includes all those factors which influence business and which are present within
the business itself. These factors are usually under the control of business. The study of internal factors
is really important for the study of internal environment. These factors are:

(i) Objectives of Business, (ii) Policies of Business, (iii) Production Capacity, (iv) Production Methods, (v) Management
Information System, (vi) Participation in Management, (vii) Composition of Board of Directors, (viii) Managerial Attitude,
(ix) Organisational Structure, (x) Features of Human Resource, etc.

Note:

All the above factors do influence the decisions of business, but since all these factors are usually under the control of
business, they cannot be wholly included in the business environment.

B. External Environment

External environment includes all those factors which influence business and exist outside the business. Business has
no control over these factors. The information about these factors is important for the study of the external environment.

Some of these factors are those with which a particular company has very close relationship. However, there are some
other factors which influence the entire business community.

Micro environment means that environment which includes those factors with which business is closely related. These
factors influence every industrial unit differently. These factors are as under:

(i) Customers (ii) Suppliers (iii) Competitors (iv) Public (v) Marketing Intermediaries.

(i) Customers:

Customers of an industrial unit can be of different types. They include household, government, industry, commercial
enterprises, etc. The number of different types of customers highly influences a firm.

For example, suppose a firm supplies goods only to the government. It means that firm has only one customer. If
because of some reason their relations get soured, the supply of goods will stop and in that case the closure of that firm
is certain.

This clearly indicates that the customers do influence business. Therefore, a firm should make efforts to have different
kinds of customers,

(ii) Suppliers:

Like the customers, the suppliers also influence business. If a business has only one supplier and he gets annoyed
because of some reason, the supply of goods can be stopped and the very existence of the business can be threatened
or endangered. Hence, efforts should be made to have various suppliers.

(iii) Competitors:

The competing firms can influence business in a number of ways. They can do so by bringing new and cheap products
in the market, by launching some sale promotion scheme or other similar methods.

(iv) Public:

Public has different constituents like the local public, press or media, etc. The attitude or behaviour of these constituents
can affect business units. For example, the local population can oppose some established firm whose business is
excessively noisy.

Similarly, if the media gives some favourable report about a particular company the price of its share can register an
increase on this count.

(v) Marketing Intermediaries:

The marketing intermediaries play a significant role in developing any business unit. They are those persons who
reduce the distance between the producers and agents.

For example, a company sells its goods with the help of agents and if because of some reason all the agents get
annoyed with the company and refuse to sell its goods, there can be a crisis for the company.