Business Environment Solved Papers: November' 2014 | Dibrugarh University

Course: 104

(New Course )

The figures in the margin indicate full marks for the questions.

1. Answer the following:               1x8=8

a)  Mention any one natural component of business environment.             Ans: Political environment

b)   What do you mean by inclusive growth?                     

Ans: Inclusive growth is a concept that advances equitable opportunities for economic participants during economic growth with benefits incurred by every section of society.

c)  Mention one of the objectives of economic growth.

Ans: To bring qualitative and quantitative changes in the economy

d)      Write one cause of industrial sickness.                         Ans: Lack of Continuous power supply

e)      Mention one advantages of privatization.                  Ans: Lack of political interference

f)       In which year was the WTO set up?                               Ans: 1945

g)      Mention one advantages of SEZ.                                    Ans: Well connected with network of public transport, local railways and cabs

h)      Write the full form of SAFTA.                                           South Asian Free Trade Area

2. Write short notes on:               4x4=16 

Ans: Factors (Components) of business environment

On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it.

The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment.

The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.

Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels:

Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.

1. Internal Environment: The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency.

2. External Environment: The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.

Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. External environment is divided into two parts: Micro and Macro.

Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:

a) Customers

b) Competitors

c) Suppliers

d) Channel Intermediaries

e) Society

Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological.

Ans: The business cycle is an alternate expansion and contraction in overall business activity, as evidenced by fluctuations in aggregate economic activity such as GNP, industrial production, employment and income.

According to J. M. Keynes “A Business cycle is composed of periods of good trade characterized by rising prices and low unemployment percentages, alternating with periods of bad trade characterized by fall in prices and high unemployment percentages.”

Phases of a Business Cycle: A business cycle will have 5 different phases or stages. They are

(1) Depression: During this period business activity in the country will be much below normal level. It is characterized by a short fall in production, mass unemployment, and fall in prices, low wages, and contraction of credit, a high rate of business failures and an atmosphere of all round pessimism.

(2) Recovery: During this period business activity increases. The industrial production and volume of employment steadily increases. The prices and wages increases. The recovery may take place due to the following reasons:

•New government expenditure

•Exploitation of new sources of energy

•Innovations

•Investment in new areas

•Changes in the techniques of production

(3) Prosperity: This stage is characterized by high capital investment in basic industries, expansion of bank credit, high prices, high profits, high rate of formation of new business enterprises and the full employment.

 (4) Boom: It is the stage of rapid expansion in business activity resulting in high stocks and commodity prices, high profits and over-full employment. A situation develops in which the no. of jobs exceeds the no. of workers in the market. Such a situation is known as over-full employment. Profits will further increase. This will lead to more investment and in turn further rise in price level and inflation.

(5) Recession: In this stage more business enterprises fail, prices collapse and confidence is shaken. Building construction slows down and unemployment increases. There is fall in income during recession.

Ans: Objectives of WTO: WTO lays down the following objectives:

Ans: Impact of Globalization on Indian trade and industry:

Globalization has its impact on India which is a developing country. The positive impact of globalization can be analysed as follows:

1. Access to Technology: Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.

2. Growth of international trade: Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.

3. Increase in production: Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.

4. Employment opportunities: Establishment of MNCs have resulted in the increase of employment opportunities.

5. Free flow of foreign capital: Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.

6. Products of superior quality: Products of superior quality are available in the market due to increased competition, efficiency and productivity of the businesses  and this leads to increased consumer satisfaction.

7. Free flow of finance enable the banking and financial institutions in a  country to fulfill financial requirements through internet and electronic  transfers easily and help businesses to flourish.

3. (a) What is SWOT analysis? Discuss the significance and techniques of SWOT analysis.                      4+5+5=14    

 Ans: SWOT analysis: SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans.

 SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis consists of the following two activities: 

Internal scan or assessment of the internal environment of the organization involves identification of its strengths and weaknesses i.e., those aspects that help or hinder accomplishment of the organization’s mission and fulfillment of its mandate with respect to the following Four Ps:

External scan refers to exploring the environment outside the organisation in order to identify the opportunities and threats it faces. This involves considering the following:

Techniques of SWOT analysis

An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below:

Examples of STRENGTHS under SWOT Analysis

Examples of WEAKNESS under SWOT Analysis

Examples of OPPORTUNITIES under SWOT Analysis

Examples of THREATS under SWOT Analysis

Advantages of SWOT Analysis: SWOT Analysis helps in strategic planning in following manner:

Or

(b) Discuss the changing dimension of business environment in India since 1991.                               14

Ans: Changing Dimensions of Indian Business

Business Environment is the world around a company over which it has no direct control. It covers many dimensions impacting a company's activities & performance. It is an aggregate of all forces & factors external to the business enterprise, but which influence it's functioning. There is a mutual inter-dependence between business and its environment. A business enterprise is an open system and it continuously interacts with its environment. Businesses take inputs like raw material, capital, labour, energy, etc. from the environment, and transform them into goods & services, and then send them back into the environment. Interaction between business and environment is in various ways such as: exchange of information, resources, influence & power.

There are several layers of influences surrounding a business. The outermost layer, called the macro-environment, consists of dimensions that impact almost all companies in an economy. These factors are the six aspects of business environment - Political, Economical, Social, Technological, Environmental, & Legal.

Political environment: Political environment includes factors like a country's political system, type of government, centre-state relations, public opinion, law & order, nature of government policies towards business - particularly those related to taxation, industrial relations, regulation of business & industry, and foreign trade regulations. It also relates to the stability of the government in power, the risk of major political disturbances, or threats from anti-social elements, terrorists or other countries.

In the period prior to liberalisation, India's annual growth rate was low at around 3.5%, only a few licenses were given out for important sectors like steel, electrical power, energy and communication, and these licence owners built up powerful corporate empires. India at that time was a socialistic economy with excessive govt. control. Core industries were directly managed by the govt. as public sector enterprises and banking and airline industries were nationalised. A huge public sector emerged and state-owned enterprises made large losses. There was public sector monopoly and investment in infrastructure was poor. Licence Raj established the self-perpetuating bureaucracy that still exists in India and corruption flourished under this system.

GOI began the process of privatisation in 1991. Privatisation means having private ownership, management and control into public sector undertakings. The purpose of privatisation is to improve the efficiency of public undertakings and to raise funds for public investment. As a result financial institutions have become more active, working culture is improving and management is being professionalised, there is improvement in technology, better investment behaviour of Indian entrepreneurs and companies are aware of the significance of human capital. The banking, financial services & insurance (BFSI) and airline sectors have become extremely competitive, but are in need of reforms. There have been some negative effects like curtailed growth in some industries, reduced employment opportunities due to adoption of capital intensive technology, sell-outs & takeovers by foreign companies, losing markets and declining capacity utilisation.

Economic Factors: Economic factors relate to the general condition of the economy within which a business operates. It comprises of the factors and forces concerned with means of production and distribution of wealth. It refers to the nature of economic system, economic policies of the country, organisation of capital & money markets, GDP, income level, growth rate, inflation rate, interest rates, money supply, and unemployment rate. The Indian economy is currently the 9th largest in the world by nominal GDP and the 4th largest by purchasing power parity (PPP). Economic growth rates are projected at around 7.5%-8% for the financial year 2011-2012.

Economic Liberalisation was when India adopted free market principles and it included opening India for international trade and investment, deregulation, initiation of privatisation, tax reforms and inflation-controlling measures. The fruits of liberalisation reached their peak in the year 2007 as India reached its highest GDP growth rate of 9%. With this India became the 2nd fastest growing economy in the world, next only to China.

However dealing with powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies, are some areas that still need economic reforms. India will soon allow foreign direct investment (FDI) in the retail industry, as it has been passed by the cabinet.

Globalisation is a process of integration of business activities and growing economic inter-dependence between countries in the world economy. Growing similarities of countries in terms of availability of infrastructure led to globalisation. It has exposed firms to international competition, resulting in an increase in employment opportunities and widening of competition.

The impact of these economic reforms was that total foreign investment in India grew manifold and cities like Ahmadabad, Bangalore, Chennai, Hyderabad, Pune, NOIDA, Gurgaon, Ghaziabad, Jaipur and Indore have risen in prominence and economic importance. They have become centres of rising industries and destination for foreign investment and firms. With GDP growth predicted to be around 8% over this decade, India is set to reap the benefits of development.

Socio-cultural environment: Socio-cultural environment covers factors such as social customs, traditions, culture, lifestyle, attitude of people, saving & spending patterns, size of population, demographic profile, education level, occupational structure, trade unions, and other factors that influence and describe the behavioural characteristics typical of the people. It would also include the Corporate Social Responsibility initiatives undertaken by companies.

CSR in India is in a nascent stage. It is still one of the least understood initiatives in the Indian development sector. A lack of understanding, inadequately trained personnel, non-availability of authentic data and specific information on the kinds of CSR activities, coverage, policy etc. further adds to the reach and effectiveness of CSR programmes. However the situation is changing as CSR is coming out of the purview of 'doing social good' and is becoming a 'business necessity'. The business case for CSR is gaining ground and corporate houses are realising that what is good for workers – their community, health and environment is also good for business.

Technological Environment: Technological dimension covers the nature of technology available and used by an economy. It also covers the extent to which development in technologies are likely to take place. This may be reflected in factors like expenditure on R&D and rate of obsolescence. Technical obsolescence occurs when a new product or technology supersedes the old, and it becomes preferred to utilize the new technology in place of the old. Some examples of technological obsolescence are telephone replacing the telegraph, and DVD replacing VCR. Products are becoming obsolete and getting replaced by newer versions. Not many people will remember the days of the floppy disk. Computers are becoming smaller but faster, and TVs are becoming sleeker with more features.

Environmental factor: Environmental factor refers to the physical or geographical environment affecting the business. It also includes the considerations like environmental pollution, climate change, carbon footprint, etc. Carbon footprint is the total set of greenhouse gas (GHG) emissions caused by an organization, event, product or person. Greenhouse gases can be emitted through transport, land clearance, and the production & consumption of food, fuels, manufactured goods, materials, wood, roads, buildings, and services. The mitigation of carbon footprints through the development of alternative projects, such as solar or wind energy or reforestation, represents one way of reducing a carbon footprint and is often known as carbon offsetting.

Carbon dioxide emissions into the atmosphere, and the emissions of other GHGs, are often associated with the burning of fossil fuels like natural gas, crude oil and coal. The Kyoto Protocol defines legally binding targets and timetables for cutting the GHG emissions of industrialized countries that ratified the Kyoto Protocol. Nations which have failed to deliver their Kyoto emissions reductions obligations can enter Emissions Trading to purchase instruments like Certified Emissions Reductions (CERs) and Emissions Reduction Units (ERUs) to be sold on international markets, in order to cover their treaty shortfalls. Within the next few years China, India and the United States are some of the nations scheduled to start participating in Emissions Trading Schemes.

Legal Environment: Legal or regulatory dimension describes the framework of legislation impacting business. It includes all the laws, legal system and judicial system of the country. A business has to work within the framework of a country's laws and regulations. Laws important to business relate to areas like monopolies & restrictive trade, consumer protection, employment, industrial relations, health & safety, and joint stock companies. Even today industry is subjected to harassment by at least 35-40 various inspectors of the GOI. Every city in Maharashtra has Octroi duty, which leads to long queues at the city borders causing delays of over 24 hours in deliveries. Excise & Customs duty is another area of concern. There is practically no internal mechanism to control corruption in govt. depts. which are manned by high-handed bureaucrats. There also exists massive political patronage & influence leading to corruption on unprecedented scale.

Inspite of dismantling licence raj, for every small thing corporates still need to use middlemen to lobby the govt. depts. Setting up manufacturing units in excise-free zones has been a popular option for business houses in India. However there has been random creation of excise-free zones as sops to backward states. Most of these states (with the exception of Uttarakhand) have not bothered to create any infrastructure. Baddi in Himachal Pradesh has no infrastructure to support industries and no sanitation either.

4. (a) What do you mean be economic growth? Explain the main hindrances of economic growth in India.       5+9=14

Ans: Economic Growth and Factors affecting it

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.

 As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries. As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.

Hindrances/Obstacles in Economic Growth

Some of the major problems in economic growth of India are given below:

1. Misuse of Resources due to Market Imperfections: Main reason for the economic back wardens of the under developed countries is the misuse of resources owing to market imperfections by the market imperfections we mean the immobility of the factors of production , price rigidities, ignorance regarding market , trends static social structure , lack of specialization etc. These market imperfections are great obstacles in the way of economic growth . It is due to market imperfections that productive efficiency in these countries is low, the resources are either unutilized or underutilized and the resources are misallocated. When the resources are perfectly mobile and there is perfect competition among them, they can easily move from one sector to another in search of a better return and in this way they make an optimum contribution to the national output.

2. Low Rate of Saving and investment: Another main reason of the poverty and under development of the under – developed countries is that the rate of saving and investment in these countries is very low. In these countries only5-8 percent of the national income goes into savings , whereas the rate is 15-20 percent and even more in the developed countries. When the rat of saving in a country is low the rate of investment is bound to be low and the rate of capital formation is low too. Since capital per man is low, the productivity is also low productivity being low, the per capita income and the national income too are low.

3. Demonstration  Effect: The under development of the economically backward countries is also due to what has been called the demonstration effect the demonstration effect  increases propensity to consume which reduces the rate of savings and investment . A very important principle has been propounded regarding consumption. That an individual’s consumption does not merely depend on individuals own income but it is very much influenced by the standard of living or consumption of his friends and relations. When a man sees that some of his friends and relatives have refrigerator , scooter, radio or TV set. Thus , consumption does not depend upon absolute real income but on relative level of real income the is consumption expenditure does not depend on our own purchasing power but on what in being spent by other son the purchase of luxury articles.

4. Rapidly Growing Population: In the under – developed countries , especially in the over populated countries of Asia, population increases very rapidly. this has very adversely affected their rate of economic growth . In fact rapid population growth is the greatest obstacle to economic growth. Whatever increase takes place in the national output and income in such countries as  a result of development  is devoured by the ever pouring torrent of babies. It is like writing on the sand. That is why their standard of living and income per capita cannot rise. For example the major part of increase in national income that has accrued in India during the five year plans has been nullified by the rapid population growth.

5. Social and political obstacles to growth: There are several other factors which have retarded the economic growth of under developed countries, Among this we may mention the following in the under developed countries like India agriculture has been carried on in a very inefficient manner. Lack of adequate irrigation facilities and fertilizers, primitive agricultural practices. Poverty of the peasant out molded systems of tenure. The under developed countries are generally wanting in dynamic entrepreneurship. No wonder trade and industry have been conducted at a very low level and few new grounds have been broken. Economic development requires an army of trained and skilled personnel who serve as instruments of economic  progress these the under- developed countries lack and consequently remain backward. Not only have the economic factors handicapped economic progress of the under developed countries but social factors too. Have played their part to keep them economically backward . has divided the Indian society into ware tight compartments and has rendered co operation in the economic sphere impossible. It has created divergence between aptitude and the occupation actually pursued. By making functions here dietary. It killed imitative and enterprise. Untouchability   has demolished millions of our propel striking at the very root of dignity of labour.

6. Economic Factors Impeding Growth: Most of the countries of Asia and Africa, which are under developed, have been at one time or another under an alien rule. The most important cause of poverty in India and it’s under- development is its subjection to the British rule. The foreign rulers, naturally, exploited the dependent countries and used their resources to promote their own interest. These countries were made to supply raw material at low prices. The foreign industrialist also made investments in primary industries such as mining, drilling of oil wells, tea , coffee etc. Thus the foreign masters used these countries as suppliers of raw materials to their industries and markets for their manufactured goods. They did not take any interest in their economic development.

Or

(b) Discuss the causes of Industrial sickness with reference to North-East India.                 14

Ans: INDUSTRIAL SICKNESS IN NORTH EAST REGION

The economy of North- East India has got its definite identity due to its peculiar physical, economic and socio-cultural characteristics. This region consists of eight states viz., Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and Sikkim. The NER of India covers an area of 2.62 lakh sq.km. It accounts for 7.9% of total geographical area of the country. With a total population of 39 million (2001), it accounts for 3.8% of total population of India. 

There are differences among the eight States in the North Eastern region with respect to their resource endowments, level of industrialization as well as infrastructural facilities. The industrial sector has mainly grown around tea, petroleum (crude), natural gas etc. in Assam and mining, saw mills and steel fabrication units in other parts of the region. The full potential of the region is yet to be exploited and this has left the economy in a primarily agrarian state. 

Industrially, the NER continues to be the most backward region in the country, and the states in the region hardly have any industrial base, except perhaps Assam, because of its traditional tea, oil and wood based industries .To some extent Meghalaya has made some headway in setting up of small and medium industries. There are a number of factors contributing to the lack of industrial growth in the region which are stated below:

5. (a) Discuss the salient features of New Industrial Policy of India, 1991.                                               14

Ans: New Industrial Policy, 1991

In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:

As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:

Or

(b) Write a critical note of EXIM policy of India.

Ans: Export – Import Policy or Foreign Trade Policy

No country is self-sufficient in the world today.  Therefore, every country has to import goods and to pay for imports it has to export goods to other countries.  The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage.  But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports. 

EXIM policy refers to the policy measures adopted by a country with reference to its exports and imports. Such a policy become particularly important in a country like India, where the import and export of items plays a crucial role not just in balancing budgetary targets, but also in the over all economic development of the country.

The principal objectives of the policy are:

Export- Import (EXIM) Policy 2002-07 

In order to maintain the balance of payments and to avoid trade deficit the government of India has announced a trade policy for imports and exports. After every five years the government of India reviews the import and export policy in view of the changing international economic situation.  The policy relates to promotion of exports and regulation of imports so as to promote economic growth and overcome trade deficit. Accordingly, the export-and import policies (EXIM Policy) were announced by the government first in 1985 and then in 1988 which was again revised in 1990.  All these policies made necessary provision for extension of import liberalisation measures.  All these policies made necessary provision for import of capital goods and raw materials for industrialization, utilisation and liberalisation of REP (Registered Exporters Policy) licenses, liberal import of technology and policy for export and trading houses.  The government announced its new EXIM policy for 2002-2007 which is mainly a continuation of the EXIM policy of 1997-2002. The new export-import policy for 2002-2007 aims at pushing up growth of exports to 12 per cent a year as compared to about 1.56 per cent achieved during the financial year 2001-2002.  

The main features of this export- import policy are given below:

As per the information technology agreement which is part of the world trade organisation zero duty the agreement on I. T. sector, 217 I. T. components would attract a zero duty by 2005.  Therefore, foreign companies can import these products into the country while Indian manufacturers who did the same had to meet export obligations on their imports.  Now, the new EXIM policy states that domestic sales will be considered as a fulfillment of the export obligation, thereby freeing the domestic manufacturers from exports completely.

Features of EXIM Policy (2009 – 2014)

The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India’s foreign trade and goes beyond the traditional focus on pure exports. This would be clear from the following statement in the policy document, “Trade is not an end in itself, but a means to economic growth and rational development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity.” The government unveiled a mix of procedural measures and fiscal incentives to trade with non- traditional destinations to bolster export order books drying out in two top regional markets-the US and the European Union.

New emerging markets have been given a special focus to enable exports to be competitive. Incentive schemes are being rationalised to identify leading products which would catalyse the next phase of export growth.

The government plans to introduce a nation-wide uniform GST from next year that would subsume the complex web of indirect taxes imposed by state governments. The introduction of zero duty capital goods scheme will add to expansion and modernization of production base at a time when investment is drying up in export industries.

Other important features of the policy include:

(i) $ 200 billion or Rs 98,000 crore is the export target for 2010-11.

(ii) 100% growth of India’s export of goods and services by 2014.

(iii) 15% growth target for next two years; 25% thereafter.

(iv) 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%.

(v) Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence.

(vi) 26 new markets added to focus market scheme.

(vii) Provision for state-run banks to provide dollar credits.

(viii) Duty entitlement passbook scheme extended till Dec. 2010. Etc.

6. (a) Explain the concept of ‘international economic grouping’. Discuss its importance on the economic development of India.                     4+10=14

Ans: International Economic Grouping

After the Second World War, when the entire economy of the world was destroyed and a transformation was going on from the wartime economy to peacetime economy, the world leaders have started to give thought on the line of increasing the world trade. After the two world wars the countries of the world erected tariff wall to reduce import. This ultimately resulted in fall in trade. Secondly, the need was felt for an international institution which will monitor and act as the regulator of the world trade. All these come out in the form of General Agreement on Trade and Tariffs (GATT). Later on it was replaced by world Trade Organization (WTO). At the regional level also several groups emerges to promote cooperation and trade at the regional level. Some of these are ASEAN and SAARC. After the World War II, in order to revive the international monetary system a necessity was felt for an international financial institution to support the economies which were damaged due to the war and also to help the countries to run their economy efficiently. So, two international financial institutions came out which are International Monetary Fund and World Bank.

GATT / World Trade Organisation and its Impact on Indian economy

The first half of the 20^th century was marked by a major worldwide economic depression that occurred between the two world wars and that all but destroyed most of the industrialized nations. International trade got a setback when after the First World War countries erected high tariff walls and raised other tariff barriers to intolerable heights. All this resulted in to the great depression. This was also one of the fundamental reasons of the World War II.

After the Second World War leaders creates General Agreement on Tariffs and Trade (GTTO), to avoid the repletion of the same. GATT was a forum for the member countries to negotiate a reduction of tariffs and other barriers to trade. Countries including India signed the GATT. The original agreement provides a process to reduce tariffs and created an agency to serve as a watchdog over world trade.

GATT came into existence with effect from 1st January 1948 and remained in force till December 1994. Various rounds of negotiations have taken place under the auspices of GATT to reduce tariff and non-tariff barriers. The last one, known as the Uruguay Round, was the most comprehensive one in terms of coverage of issues, and also the lengthiest one from the point of view of duration of negotiations which lasted over a period of seven years from 1986 to 1994.

One of the key achievements of the Uruguay Round of GATT negotiations was the decision to set up a permanent institution for looking after the promotion of free and fair trade amongst nations. Consequent to this decision, the GATT was transformed into World Trade Organisation (WTO) with effect from 1st January 1995. The head quarters of WTO are situated at Geneva, Switzerland. Establishment of WTO, thus, represents the implementation of the original proposal of setting up of the ITO as evolved almost five decades back.

Though, WTO is a successor to GATT, it is a much more powerful body than GATT. It governs trade not only in goods, but also in services and intellectual property rights. Unlike GATT, the WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states. It is, moreover, a member driven rule-based organisation in the sense that all the decisions are taken by the member governments on the basis of a general consensus. As the principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations, it has a global status similar to that of the IMF and the World Bank. India is a founding member of WTO. As on 11th December 2005, there were 149 members in WTO.

Objectives of WTO: WTO lays down the following objectives:

Functions of WTO: The following are the functions of the WTO:

Implications for India: After the Uruguay Round, India was one of the first 76 Governments that became member of the WTO on its first day. Different views have been expressed in support and against our country becoming a member of the WTO.

Favourable Factors

Unfavourable Factors

IMF and Its Contribution in Indian Economy

Introduction to IMF: The IMF was established on December 27, 1945 in Washington on the recommendations of Bretton Woods Conference. But it started working on March 1, 1947. The fund has 185 member countries accounting for more than 80 per cent of total world production and 90 per cent of world trade. The purpose of the Fund is to promote international monetary cooperation, to facilitate the expansion and balanced growth of international trade, to promote exchange stability and to prevent unnecessary exchange depreciations, to remove all exchange controls and restrictions and to establish multi-convertibility of all currencies and lastly to help member countries with funds to correct maladjustments in their balance of payments. The fund of the IMF is SDRs 216.75 billion and to replenish its resources it borrows from the world financial markets and member countries. IMF’s own fund is contributed by member countries.

IMF and INDIA

IMF has played an importance role in Indian economy. IMF had provided economic assistance from time to time to India and has also provided appropriate consultancy in determination of various policies in the country. India is the founder member of IMF. It played a significant role in the formulation of Fund Policies. The Finance Minister is ex-officio Governor in IMF Board of Governors. Till 1970, India was among the first five nations having the highest quota with IMF and due to this status India was allotted a permanent place in Executive Board of Directors.

India has taken loans in foreign currencies from IMF or improving its balance of payments imbalances. India has also taken technical consultancy for solving its internal economic problems. The expert groups of the IMF have visited India on various occasions.

Objective of IMF: The objective for which IMF was established has been described as following:

In addition to this India also got the following benefits of becoming the IMF members:

1. Independence of the Indian Rupee: Before the establishment of the IMF, the Indian rupee was linked with the British Pound Sterling. But Indian rupee has become independent after the establishment of IMF. Its value is expressed in terms of gold. It is not determined by the Pound Sterling. It means that Indian rupee is easily convertible into the currency of any other country.

2. Membership of the World Bank: India has become a member of the World Bank also by virtue of its membership of the Fund. As a result, India got several loan facilities from the World Bank for the development purposes.

3. Availability of Foreign Currencies: The Government of India has been purchasing foreign currencies from the Fund from time to time to meet the requirements of development activities. The large amount of availability of foreign currencies has greatly promoted the economic development of the country.

4. Reputation in International Circle: India is one of those six countries which have occupied a special place in the Board of Directors of the Fund. Thus, India had played a creditable role in determining the policies of the Fund. This has increased India’s prestige in the international circles. India takes keen interest in the formulation of Fund’s policies.

5. Guidance and Advice: Being member of the Fund, India got the expert opinion from the Fund for solving its economic problems. The attitude of the Fund towards India has always remained sympathetic. The Fund has given valuable advice to the Government of India with regard to the financing of the Five-Year Plans.

6. Timely Help: India has received timely help from the Fund to eliminate the deficit on its balance of payments. The Fund granted loans to meet the financial difficult is arising out of the Indo-Pak conflict of 1965 and 1971. Thus, the fund has given timely help to solve economic crisis.

7. Freedom from Sterling: Indian rupee was convertible into other currencies through the medium of sterling before becoming the member of the fund. With the fixation of paper value of the rupee in gold, Indian currency is now freely convertible into any other currency.

8. Sale and Purchase of Foreign Exchange: Fund has entrusted the sale and purchase of foreign exchange worth more than Rs. 2 lakh to Reserve Bank of India. The latter cannot enter into any transaction of foreign exchange that is of the value of less than Rs. 2 lakh.

9. Economic Consultation: In the financial management of Five- Year Plans, IMF has given valuable advice to Government of India and to suggest measures for its economic development.

10. Help during Emergency: India got a large amount of financial assistance from the Fund to solve its economic crisis arising due to natural calamities like flood, earthquakes, famines etc.

World Bank and Its Impact on Indian Economy

Introduction: A need arises to finance various projects in various countries to promote the development of economically backward regions. The United States and other countries have established a variety of development banks whose lending is directed to investments that would not otherwise be funded by private capital. The investments include dams, roads, communication systems, and other infrastructural projects whose economic benefits cannot be computed and/or captured by private investors, as well as projects, such as steel mills or chemical plants, whose value lies not only in the economic terms but also, significantly in the political and social advantages to the nation.

The loans generally are medium-term to long-term and carry concessional rates. Even though most lending is done directly to a government, this type of financing has two implications for the private sector. First, the projects require goods and services which corporations can produce. Secondly, by establishing an infrastructure, new investment opportunities become available for multinational corporations.

The World Bank or the International Bank for Reconstruction and Development (IBRD) was established in 1945 under the Bretton Woods Agreement of 1944. An International Monetary and Financial Conference was held at Bretton Woods, New Hampshire during July 1-22, 1944. The main purpose of the conference was finalisation of the Articles of Association of IMF and establishment of an institution for the reconstruction of the war shattered world economies. Thus, the conference has given birth to World Bank or International Bank for Reconstruction and Development (IBRD). World Bank was established to provide long-term assistance for the reconstruction and development of the economies of the member countries while IMF was established to provide short term assistance to correct the balance of payment disequilibrium.

There are the four basic objectives of the World Bank’s funding strategy:

Functions and objectives of World Bank

India and the World Bank

India is the founder member of the Bank and held a permanent seat for number of years on its Board of Executive Directors. India is one of the largest receivers of assistance since 1949. Upto June 2002, cumulative lending’s of the World Bank to India amounted to $ 26.69 billion in 187 loans. The total amount borrowed by India from the World Bank and the IDA till June 2002 amounted to $ 58.54 billion in 434 loans. This amounted to 11.6 per cent of the total loans and credits approved by the World Bank groups. During 2001-02, India received $ 893 million from the World Bank accounting for 11.22 per cent of its total loans. India is helped by the World Bank in its planned economic development through granting loans, conducting field surveys, sending study terms and missions and through rendering expert advice. The Bank also provides training to Indian personnel at EDI. It also helped India to solve its river water dispute with Pakistan.

The benefits desired by India from the World Bank are:

On the other hand, critics argue that the World Bank have endangered the economic freedom of India. The basic points of criticism are as follows:

India’s main problem till now has been the government’s incapacity to act rightly, firmly and effectively in time, on account of being more emotional to set ideologies and compromising attitude to safeguard the political party’s interest more than the national interest.

Or

(b) Discuss the objectives and functions of IMF.                                7+7=14

Ans: IMF and Its Contribution in Indian Economy

Introduction to IMF: The IMF was established on December 27, 1945 in Washington on the recommendations of Bretton Woods Conference. But it started working on March 1, 1947. The fund has 185 member countries accounting for more than 80 per cent of total world production and 90 per cent of world trade. The purpose of the Fund is to promote international monetary cooperation, to facilitate the expansion and balanced growth of international trade, to promote exchange stability and to prevent unnecessary exchange depreciations, to remove all exchange controls and restrictions and to establish multi-convertibility of all currencies and lastly to help member countries with funds to correct maladjustments in their balance of payments. The fund of the IMF is SDRs 216.75 billion and to replenish its resources it borrows from the world financial markets and member countries. IMF’s own fund is contributed by member countries.

IMF and INDIA

IMF has played an importance role in Indian economy. IMF had provided economic assistance from time to time to India and has also provided appropriate consultancy in determination of various policies in the country. India is the founder member of IMF. It played a significant role in the formulation of Fund Policies. The Finance Minister is ex-officio Governor in IMF Board of Governors. Till 1970, India was among the first five nations having the highest quota with IMF and due to this status India was allotted a permanent place in Executive Board of Directors.

India has taken loans in foreign currencies from IMF or improving its balance of payments imbalances. India has also taken technical consultancy for solving its internal economic problems. The expert groups of the IMF have visited India on various occasions.

Objectives of IMF

Functions of IMF:

The principal function of the IMF is to super­vise the international monetary system. Several functions are derived from this. These are: granting of credit to member countries in the midst of temporary balance of payments deficits, survei­llance over the monetary and exchange rate policy of member countries, issuing policy recommen­dations. It is to be noted that all these functions of the IMF may be combined into three.

These are: regulatory, financial, and consultative fun­ctions:

Regulatory Function: The Fund functions as the guardian of a code of rules set by its (AOA— Articles of Agreement).

Financial Function: It functions as an agency of providing resources to meet short term and medium term BOP disequilibrium faced by the member countries.

Consultative Function: It functions as a centre for international cooperation and a source of counsel and technical assistance to its members.

The main function of the IMF is to provide temporary financial support to its members so that ‘fundamental’ BOP disequilibrium can be corrected. However, such granting of credit is subject to strict conditionality. The conditionality is a direct consequence of the IMF’s surveillance function over the exchange rate policies or adjustment process of members.

(Old Course)

1. Answer as directed:                   1x8=8

a.       Mention any one of the components of Indian business environment.                        Political Environment

b.      There is no difference between economic growth and economic development. (Write True or False)

c.       In which year was the WTO set up?                               1995

d.      Write the full form of SEZ.                  Special Economic Zone

e.      Capital market deals in short-term / long-term funds.

f.        In which year was the International Monetary Fund (IMF) established?                      1945

g.       Mention market deals in Short-term funds. (Fill in the blank)

h.      ‘Dunkle draft’ was proposed in the Uruguay Round of GATT. (Fill in the blanks)

2. Write short notes on (any four) :          4x4=16

3. (a) Explain the concept and significance of business environment.                       6+6=12

Ans: Concept: Business Environment

Business is any activity undertaken for the purpose of producing or selling a particular commodity r service and earns a profit. The business has several dimensions such as purchasing the inputs, converting the inputs into the output, selling that output at a profitable price. Every dimension of a business depends upon several factors. Hence a business is influenced by several factors, all them put together are described as Business Environment. A business can grow and prosper in a particular environment just as a plant can grow in a particular soil, climate, water supply etc.  Hence the entrepreneur has to pay attention to the environment in which he has to conduct his business activities. If he is able to adapt his business to the environment effectively and efficiently the business can make higher profits. This makes the study of business environment important.

According to Keith Davis, “Business environment is the aggregate of all conditions, events and influences that surrounds and affects the business.”

According to wheeler, “Business environment is the total of all things external to business firms and industries which affect their organisation and operations.”

Importance of Business Environment

There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:

Or

(b) Discuss in detail the internal factors of business environment.

Ans: Factors (Components) of business environment

On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it.

The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment.

The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.

Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels:

Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.

1. Internal Environment: The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, the firm may not be able to change all the factors. The various internal factors are:

4. (a) Discuss the causes of industrial sickness with reference to North-East India.              11

Ans: Industrial Sickness – Meaning, Causes and Remedies

Industrial sickness is a universal phenomenon. It is a major problem of all industries in the world whether it is developed or developing countries. It is a serious matter of the countries.

Definition of a sick unit is given by Sick Industrial companies act, 1985. According to the act “ The sick industrial company is a company which has at the end of any financial year accumulated losses equal to or excluding its entire net worth and has also suffered cash losses in that financial year and in the financial year immediately preceding it.”              

According to state bank of India,” A sick unit is that unit which falls to generate internal surplus on a continuing basis and depends for its survival on subsequent infusion of external funds”.

Industrial sickness especially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like – cotton, Jute, Sugar, and Textile small steel and engineering industries are being affected by this sickness problem.

CAUSES OF INDUSTRIAL SICKNESS

1) Internal Cause for sickness: Internal causes are those which are within the control of management.  This sickness arises due to internal disorder in the areas justified as following:

a) Lack of Finance:  This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.

b) Bad Production Policies :  The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.

c) Marketing and Sickness: This is another part which always affects the health of any sector as well as SSI.  This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions. 

d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.

e) Ineffective Corporate Management:  Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.

2) External causes for sickness:

a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.

b) Marketing Constraints: The second cause for the sickness is related to marketing.  The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.

c) Production Constraints:  This is another reason for the sickness which comes under external cause of sickness.  This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.

d)  Finance Constraints:  The external cause for the sickness of SSIs is lack of finance.  This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.

Effect of sickness : Industrial Sickness contributes to high cost economy. This in turn, will affect the competitiveness of the economy at home and abroad. Dead investment is a burden on both banks and budgets and ultimately consumers should pay the high cost. Money locked up in sick units gives no returns and effects the availability of resources to the other viable units 

Or

(b) What is meant by economic growth? Explain the main hindrances of economic growth of India.          3+8=11

Ans: Economic Growth and Factors affecting it

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.

 As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries. As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.

Hindrances/Obstacles in Economic Growth

Some of the major problems in economic growth of India are given below:

1. Misuse of Resources due to Market Imperfections: Main reason for the economic back wardens of the under developed countries is the misuse of resources owing to market imperfections by the market imperfections we mean the immobility of the factors of production , price rigidities, ignorance regarding market , trends static social structure , lack of specialization etc. These market imperfections are great obstacles in the way of economic growth . It is due to market imperfections that productive efficiency in these countries is low, the resources are either unutilized or underutilized and the resources are misallocated. When the resources are perfectly mobile and there is perfect competition among them, they can easily move from one sector to another in search of a better return and in this way they make an optimum contribution to the national output.

2. Low Rate of Saving and investment: Another main reason of the poverty and under development of the under – developed countries is that the rate of saving and investment in these countries is very low. In these countries only5-8 percent of the national income goes into savings , whereas the rate is 15-20 percent and even more in the developed countries. When the rat of saving in a country is low the rate of investment is bound to be low and the rate of capital formation is low too. Since capital per man is low, the productivity is also low productivity being low, the per capita income and the national income too are low.

3. Demonstration  Effect: The under development of the economically backward countries is also due to what has been called the demonstration effect the demonstration effect  increases propensity to consume which reduces the rate of savings and investment . A very important principle has been propounded regarding consumption. That an individual’s consumption does not merely depend on individuals own income but it is very much influenced by the standard of living or consumption of his friends and relations. When a man sees that some of his friends and relatives have refrigerator , scooter, radio or TV set. Thus , consumption does not depend upon absolute real income but on relative level of real income the is consumption expenditure does not depend on our own purchasing power but on what in being spent by other son the purchase of luxury articles.

4. Rapidly Growing Population: In the under – developed countries , especially in the over populated countries of Asia, population increases very rapidly. this has very adversely affected their rate of economic growth . In fact rapid population growth is the greatest obstacle to economic growth. Whatever increase takes place in the national output and income in such countries as  a result of development  is devoured by the ever pouring torrent of babies. It is like writing on the sand. That is why their standard of living and income per capita cannot rise. For example the major part of increase in national income that has accrued in India during the five year plans has been nullified by the rapid population growth.

5. Social and political obstacles to growth: There are several other factors which have retarded the economic growth of under developed countries, Among this we may mention the following in the under developed countries like India agriculture has been carried on in a very inefficient manner. Lack of adequate irrigation facilities and fertilizers, primitive agricultural practices. Poverty of the peasant out molded systems of tenure. The under developed countries are generally wanting in dynamic entrepreneurship. No wonder trade and industry have been conducted at a very low level and few new grounds have been broken. Economic development requires an army of trained and skilled personnel who serve as instruments of economic  progress these the under- developed countries lack and consequently remain backward. Not only have the economic factors handicapped economic progress of the under developed countries but social factors too. Have played their part to keep them economically backward . has divided the Indian society into ware tight compartments and has rendered co operation in the economic sphere impossible. It has created divergence between aptitude and the occupation actually pursued. By making functions here dietary. It killed imitative and enterprise. Untouchability   has demolished millions of our propel striking at the very root of dignity of labour.

6. Economic Factors Impeding Growth: Most of the countries of Asia and Africa, which are under developed, have been at one time or another under an alien rule. The most important cause of poverty in India and it’s under- development is its subjection to the British rule. The foreign rulers, naturally, exploited the dependent countries and used their resources to promote their own interest. These countries were made to supply raw material at low prices. The foreign industrialist also made investments in primary industries such as mining, drilling of oil wells, tea , coffee etc. Thus the foreign masters used these countries as suppliers of raw materials to their industries and markets for their manufactured goods. They did not take any interest in their economic development.

5. (a) Explain the concept of privatization. Discuss its advantages and disadvantages.                       3+4+4=11

1. Improved Efficiency: The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If we work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making profit and so it is more likely to cut costs and be efficient.

2. Lack of Political Interference: It is argued that governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense.

3. Short Term view: A government many think only in terms of next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election.

4. Shareholders: It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A government owned firm doesn’t have this pressure and so it is easier for them to be inefficient.

5. Increased Competition: Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest motivation for improvements in efficiency. However, privatisation doesn’t necessarily increase competition, it depends on the nature of the market.

6. Government will raise revenue from the sale: Selling government owned assets to the private sector raised significant sums for government.

Disadvantages of Privatisation

1. Natural Monopoly: A natural monopoly occurs when the most efficient number of firms in an industry is one. Privatisation would create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer.

2. Public Interest: There are many industries which perform an important public service, e.g. health care, education and public transport. In these industries, the profit motive shouldn’t be the primary objective of firms and the industry.

3. Government loses out on potential dividends: Many of the privatised companies in the India are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders.

4. Problem of regulating private monopolies: Privatisation creates private monopolies, such as the water companies and rail companies. These need regulating to prevent abuse of monopoly power. Therefore, there is still need for government regulation.

5. Fragmentation of industries: In India, rail privatization would lead to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility.

6. Short-Term view of Firms: As well as the government being motivated by short term pressures, this is something private firms may do as well. To please shareholders they may seek to increase short term profits and avoid investing in long term projects.

Or

(b) Describe the salient features of the Government of India’s Latest Industrial Policy for the northeastern region. How far has North-East India been benefited from this industrial policy?                8+3=11

Ans: North East Industrial and Investment Promotion Policy (NEIIP, 2007)

Important Provisions of NEIIPP, 2007

6. (a) What is meant by monetary policy? Discuss the objectives of monetary policy in a developing economy.                 3+8=11

Or

(b) Discuss the role of monetary policy in promoting savings and investment in developing countries.    11

7. (a) Discuss the impact of globalization of India trade and industry.        11

Ans: Meaning of Globalisation

Globalizations are the outcome of the policies of liberalisation and privatisation. Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical boundaries.

Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy.  Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.

In simple words, The term globalization can be defined as the opening one's economy toward the world economy. It means to integrate the domestic economy with world economy. The govt. of India under the prime minister ship of P. V Narasimha introduced liberalisation, privatisation and globalization during 1991 .Due to globalization the multinational corporations have been very popular. These corporations transact their business activities more than one countries.

Globalisation and India

Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.

With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.

This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.

Impact of Globalization on Indian trade and industry:

Globalization has its impact on India which is a developing country. The positive impact of globalization can be analysed as follows:

1. Access to Technology: Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.

2. Growth of international trade: Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.

3. Increase in production: Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.

4. Employment opportunities: Establishment of MNCs have resulted in the increase of employment opportunities.

5. Free flow of foreign capital: Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.

6. Products of superior quality: Products of superior quality are available in the market due to increased competition, efficiency and productivity of the businesses  and this leads to increased consumer satisfaction.

7. Free flow of finance enable the banking and financial institutions in a  country to fulfill financial requirements through internet and electronic  transfers easily and help businesses to flourish.

Or

(b) Write a note on international business environment.                               11

Ans: Ans: International Business Environment

The international business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision-making on resource use and capabilities.

International business environment refers to totality of all the factors viz. geographic, economic, financial, socio-cultural, political, legal, technological and ecological which are external to and beyond the control of individual business enterprises. International business environment is more complex than the business environment because international business environment consists of foreign and global factors, which are external to domestic environment. A firm is generally familiar with the factors operating at the national level but a firm has to be aware of various factors operating in a country of trading partner. Thus, international business environment is sum total of domestic, foreign and global environments.

International business environment consists of a number of micro-level and macro-level factors operating at domestic level, foreign level and global level. Accordingly various factors constituting business environment may be grouped as under:

(i) Domestic Environment

(ii) Foreign Environment

(iii) Global Environment

FOREIGN ENVIRONMENT

The home-based or the domestic export expansion measures are necessarily related to the conditions prevailing in possible markets. An Exporter has to overcome various constraints and adapt plans and operations to suit foreign environmental conditions. The main elements of foreign environment affecting marketing activities of a firm in a foreign country consist of the following.

A) POLITICAL DIMENSION: Nations greatly differ in their political environment. Govt. policies, regulations and control mechanisms regarding the countries, foreign trade and commercial relations with other countries or groups of countries. At least four factors should be considered in deciding whether to do business in a particular country. They are

1) Attitudes towards International Buying:  Some nations are very receptive, indeed encouraging, to foreign firms, and some others are hostile. For e.g.: Singapore, UAE and Mexico are attracting foreign investments by offering investment incentives, removal of trade barriers, infrastructure services, etc.

2) Political Stability:  A country's future and stability is another important issue. Government changes hands sometimes violently. Even without a change, a region may decide to respond to popular feeling. A foreign firm's property may be seized; or its currency holdings blocked; or import quotas or new duties may be imposed. When political stability is high one may go for direct investments. But when instability is high, firms may prefer to export rather than involve in direct investments. This will bring in foreign exchange fast and currency convertibility is also rapid.

3) Monetary Regulations: Sellers want to realise profits in a currency of value to them. In best situations, the Importer pays in the seller's currency or in hard world currencies. In the worst case they have to take the money out of the host country in the form of relatively unmarketable products that they can sell elsewhere only at a loss. Besides currency restrictions, a fluctuating exchange rate also creates high risks for the exporter.

4) Government Bureaucracy: It is the extent to which the Government in the host country runs an efficient system for assisting foreign companies: efficient customs handling, adequate market information, etc. The problem of foreign uncertainty is thus further complicated by a frequently imposed "alien status", this increases the difficulty of properly assessing and forecasting the dynamic international business. The political environment offers the best example of the alien status.

A foreign political environment can be extremely critical; shifts in Government often means sudden changes in attitudes that can result in expropriation, expulsion, or major restrictions in operations. The fact is that a foreign company is foreign and thus always subject to the political whim to a greater degree than a domestic firm.

B) CULTURAL ENVIRONMENT: The manner in which people consume their priority of needs and the wants they attempt to satisfy, and the manner in which they satisfy are functions of their culture which moulds and dictates their style of living. This culture is the sum total of knowledge, belief, art, morals, laws, customs and other capabilities acquired by humans as members of the society. Since culture decides the style of living, it is pertinent to study it especially in export marketing. e.g. when a promotional message is written, symbols recognizable and meaningful to the market (the culture) must be used. When designing a product, the style used and other related marketing activities must be culturally acceptable.

C) ECONOMIC ENVIRONMENT: In considering the international market, each Exporter must consider the importing country's economy. Two economic characteristics reflect the country's attractiveness as an export market. They are the country's industrial structure and the country's income distribution by employment industrialization and socio economic justices.

D) LEGAL ENVIRONMENT: The legal dimension of international Business environment includes all laws and regulations regarding product specification and standards, packaging and labeling, copyright, trademark, patents, health and safety regulations particularly in respect of foods and drugs. There are also controls in promotional methods, price control, trade margin, mark-up, etc., These legal aspects of marketing abroad have several implications which an exporting firm needs to study closely.