2014 (August)
COMMERCE
Course : 101 ( Business Environment )
Full Marks : 80
Time : 3 hours
The figures in the margin indicate full marks for the questions.
1.
(a) “Business is the product of environment”. – Explain. How does the internal
factors of environment influence the business policies of an organisation? 8+8=16
Ans: 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 affect 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.”
Following are the features of Business
environment:
a) Totality of external forces: Business environment is the sum total of all things external to
business firms and, as such, is aggregative in nature.
b) Specific and general forces: Business environment includes both specific and general forces. Specific
forces (such as investors, customers, competitors and suppliers) affect
individual enterprises directly and immediately in their day-to-day working.
General forces (such as social, political, legal and technological conditions)
have impact on all business enterprises and thus may affect an individual firm
only indirectly.
c) Dynamic nature: Business environment is dynamic in that it keeps on changing
whether in terms of technological improvement, shifts in consumer preferences
or entry of new competition in the market.
d) Uncertainty: Business environment is largely uncertain as it is very difficult
to predict future happenings, especially when environment changes are taking
place too frequently as in the case of information technology or fashion
industries.
e) Relativity: Business environment is a relative concept since it differs from
country to country and even region to region. Political conditions in the USA,
for instance, differ from those in China or Pakistan. Similarly, demand for
sarees may be fairly high in India whereas it may be almost non-existent in
France.
From the
above discussion, we can say that the business is totally depends on the
environmental factors that surrounds the business and business is the product
of the environment.
Internal Environment
and its impact on business
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:
a) Value system : The value system of an
organisation means the ethical beliefs that guide the organisation in achieving
its mission and objectives. It is a widely acknowledged fact that the
extent to which the value system is shared by all in the organisation is an
important factor contributing to its success.
b) Mission and objectives : The business domain of
the company, direction of development, business philosophy, business policy etc
are guided by the mission and objectives of the company. The objective of
all firms is assumed to be maximisation of profit. Mission is defined as
the overall purpose or reason for its existence which guides and influences its
business decision and economic activities.
c) Organisation structure : The organisational
structure, the composition of the board of directors, the professionalism of
management etc are important factors influencing business decisions. The nature
of the organisational structure has a significant influence over the decision
making process in an organisation. An efficient working of a business
organisation requires that the organisation structure should be conducive for
quick decision-making.
d) Corporate culture : Corporate culture is an
important factor for determining the internal environment of any company.
In a closed and threatening type of corporate culture the business decisions
are taken by top level managers while the middle level and lower level managers
have no say in business decision-making. This leads to lack of trust and
confidence among subordinate officials of the company and secrecy pervades
throughout the organisation. This results in a sense of alienation among
the lower level managers and workers of the company. In an open and
participating culture, business decisions are taken by the lower level managers
and top management has a high degree of confidence in the subordinates.
e) Quality of human
resources : Quality
of employees that is of human resources of a firm is an important factor of
internal environment of a firm. The characteristics of the human
resources like skill, quality, capabilities, attitude and commitment of its
employees etc could contribute to the strength and weaknesses of an
organisation. Some organisations find it difficult to carry out
restructuring or modernisation plans because of resistance by its
employees.
f) Labour unions : Labour unions
collectively bargains with the managers for better wages and better working
conditions of the different categories of workers. For the smooth working of a
business firm good relations between management and labour unions is required.
g) Physical resources and
technological capabilities : Physical resources such as, plant and equipment and
technological capabilities of a firm determine its competitive strength which
is an important factor for determining its efficiency and unit cost of
production. Research and development capabilities of a company determine
its ability to introduce innovations which enhances productivity of workers. It
is, however, important to note that the rapid technological growth and the
growth of information technology in recent years have increased the relative
importance of intellectual capital and human resources as compared to physical
resources of a company.
Or
(b)
Argue the case for and against FDI in Multi-brand Retail in India. 8+8=16
2. (a) Analyse the
changes in the Industrial Policies of India since the adoption of New Economic
Policy in 1991. 16
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:
a)
Initiate rapid economic growth to raise the
standard of living, reduce unemployment and poverty;
b)
Become self-reliant and set up a strong
industrial base with emphasis on heavy and basic industries;
c)
Reduce inequalities of income and wealth;
d)
Adopt a socialist pattern of development based
on equality and prevent exploitation of man by man.
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:
a)
The Government reduced the number of
industries under compulsory licensing to six.
b)
Policy towards foreign capital was
liberalized. The share of foreign equity participation was increased to 51% and
in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
c)
Government will encourage foreign trading
companies to assist Indian exporters in export activities.
d)
Foreign Investment Promotion Board (FIPB) was
set up to promote and channelise foreign investment in India.
e)
Automatic permission was now granted for
technology agreements with foreign companies.
f)
Relaxation of MRTP Act (Monopolies and
Restrictive Practices Act) which has almost been rendered non-functional.
g)
Dilution of foreign exchange regulation act
(FERA) making rupee fully convertible on trade account.
h)
Disinvestment was carried out in case of many
public sector industrial enterprises incurring heavy losses.
i)
Abolition of wealth tax on shares.
j)
General reduction in customs duties.
k)
Provide strength to those public sector
enterprises which fall in reserved areas of operation or in high priority
areas.
l)
Constitution of special boards to negotiate
with foreign firms for large investments in the development of industries and
import of technology.
Impact
of Government Policy Changes (New Industrial Policy, 1991) on Business and
Industry
1.
Increasing competition: As a result of changes
in the rules of industrial licensing and entry of foreign firms, competition
for Indian firms has increased especially in service industries like
telecommunications, airlines, banking, insurance, etc. which were earlier in
the public sector.
2.
More demanding customers: Customers today have
become more demanding because they are well-informed. Increased competition in
the market gives the customers wider choice in purchasing better quality of
goods and services.
3.
Rapidly changing technological environment:
Increased competition forces the firms to develop new ways to survive and grow
in the market. New technologies make it possible to improve machines, process,
products and services. The rapidly changing technological environment creates
tough challenges before smaller firms.
4.
Necessity for change: In a regulated
environment of pre-1991 era, the firms could have relatively stable policies
and practices. After 1991, the market forces have become turbulent as a result
of which the enterprises have to continuously modify their operations.
5.
Threat from MNC
Massive entry of multi nationals in Indian marker constitutes new challenge.
The Indian subsidiaries of multi-nationals gained strategic advantage. Many of
these companies could get limited support in technology from their foreign
partners due to restrictions in ownerships. Once these restrictions have been
limited to reasonable levels, there is increased technology transfer from the
foreign partners
Or
(b) Critically analyse the role of
MNC’s in the Indian economy. 16
3. (a) Explain the main objective of Monetary Policy. Briefly
discuss the Monetary policy of India.
10+6=16
Ans:
Monetary Policy: Monetary policy
refers to policy formulated and implemented for achieving the following
objectives:
a)
Regulating the supply of money including credit
money and adjusting it to the needs of the economy
b)
To control the cost of money by regulating the
rates of interest.
c)
Directing the supply of money to the required
channels in accordance with the plan of priorities prepared by the planning
authority.
According to A.G. Hart "A policy which influences the public stock of money
substitute of public demand for such assets of both that is policy which
influences public liquidity position is known as a monetary policy."
From the above discussion, it is clear
that a monetary policy is related to the availability and cost of money supply
in the economy in order to attain certain broad objectives.
Objectives
of Monetary Policy: The objectives
of a monetary policy in India are similar to the objectives of its five year
plans. In a nutshell planning in India aims at growth, stability and social
justice. After the Keynesian revolution in economics, many people
accepted significance of monetary policy in attaining following objectives.
a) Rapid Economic Growth: It is the most important objective of a
monetary policy. The monetary policy can influence economic growth by
controlling real interest rate and its resultant impact on the investment. If
the RBI opts for a cheap or easy credit policy by reducing interest rates, the
investment level in the economy can be encouraged. This increased investment
can speed up economic growth.
b) Price Stability: All the economics suffer from inflation and
deflation. It can also be called as Price Instability. Both inflation and
deflation are harmful to the economy. Thus, the monetary policy having an
objective of price stability tries to keep the value of money stable. It helps
in reducing the income and wealth inequalities.
c) Exchange Rate Stability: Exchange rate is the price of a home
currency expressed in terms of any foreign currency. If this exchange rate is
very volatile leading to frequent ups and downs in the exchange rate, the
international community might lose confidence in our economy. The monetary
policy aims at maintaining the relative stability in the exchange rate.
d) Balance of Payments (BOP) Equilibrium:
Many developing countries like India suffer from the Disequilibrium in the BOP.
The Reserve Bank of India through its monetary policy tries to maintain
equilibrium in the balance of payments. The BOP has two aspects i.e. the 'BOP
Surplus' and the 'BOP Deficit'. The former reflects an excess money supply in
the domestic economy, while the later stands for stringency of money. If the
monetary policy succeeds in maintaining monetary equilibrium, then the BOP
equilibrium can be achieved.
e) Full Employment: Full Employment refers to absence of
involuntary unemployment. In simple words 'Full Employment' stands for a
situation in which everybody who wants jobs get jobs. However it does not mean
that there is Zero unemployment. In that senses the full employment is never
full. Monetary policy can be used for achieving full employment.
f) Equal Income Distribution: Many economists used to justify the role of
the fiscal policy are maintaining economic equality. However in recent years
economists have given the opinion that the monetary policy can help and play a
supplementary role in attainting an economic equality.
Importance
of monetary policy
A modern economy is a money economy. All
transactions are effected with the help of and through the medium of money. The
prices of goods, services and factors are fixed in terms of money. People earn
their income in the form of money and spend it in the form of money. So the
supply of money creates money income in the hands of the community and expenditure of money generates the demand for
different goods and services.
The monetary authority has to maintain
a perfect balance between increase in the production of goods and services and
increase in the supply of money. If increase in the supply of money exceeds
increase in the production of goods and services the result is inflation. On
the other hand, if the production of goods and services increases at a fast
rate and the supply of money increases at a slow rate the result is recession
and maybe depression. Hence the monetary authority has to monitor the growth in
production very closely and adjust the money supply to it.
In India the monetary policy is
formulated and implemented by the Reserve Bank of India which is an autonomous
financial institution. It is expected that the RBI would use professional
expertise to control the supply of money to the benefit of the community.
Obstacles
in Implementation of Monetary Policy
Through the monetary policy is useful
in attaining many goals of economic policy, it is not free from certain
limitations. Its scope is limited by certain peculiarities, in developing
countries such as India. Some of the important limitations of the monetary
policy are given below.
a)
There exists a
Non-Monetized Sector: In many developing countries, there is an existence of
non-monetized economy in large extent. People live in rural areas where many of
the transactions are of the barter type and not monetary type. Similarly, due
to non-monetized sector the progress of commercial banks is not up to the mark.
This creates a major bottleneck in the implementation of the monetary policy.
b)
Excess
Non-Banking Financial Institutions (NBFI): As the economy launch itself into a
higher orbit of economic growth and development, the financial sector comes up
with great speed. As a result many Non-Banking Financial Institutions (NBFIs)
come up. These NBFIs also provide credit in the economy. However, the NBFIs do
not come under the purview of a monetary policy and thus nullify the effect of
a monetary policy.
c)
Existence of
Unorganized Financial Markets: The
financial markets help in implementing the monetary policy. In many developing
countries the financial markets especially the money markets are of an
unorganized nature and in backward conditions. In many places people like money
lenders, traders, and businessman actively take part in money lending. But
unfortunately they do not come under the purview of a monetary policy and
creates hurdle in the success of a monetary policy.
d)
Time Lag Affects
Success of Monetary Policy: The success of the monetary policy depends on
timely implementation of it. However, in many cases unnecessary delay is found
in implementation of the monetary policy. Or many times timely directives are
not issued by the central bank, then the impact of the monetary policy is wiped
out.
e)
Monetary &
Fiscal Policy Lacks Coordination: In order to attain a maximum of the above
objectives it is unnecessary that both the fiscal and monetary policies should
go hand in hand. As both these policies are prepared and implemented by two
different authorities, there is a possibility of non-coordination between these
two policies. This can harm the interest of the overall economic policy.
Instruments of Monetary Policy or Credit Control tools:
The instruments used by the central
Bank for controlling the supply of bank money are classified into two
categories namely
a)
General Instruments
and
b)
Selective
Instruments.
The General Instruments of Credit Control: These instruments are called general because
they are uniformly applicable to all commercial banks and in respect of loans
given for all purposes. The general instruments are as follows:
a)
The Bank rate policy:
b)
Open Market Operations
c)
Variable Reserve Ratio
d)
Statutory Liquidity Ratio (SLR)
e)
Repo Rate
Selective Instruments of Credit Control: These
instruments of monetary policy can be used in respect of any particular bank or
in respect of a loan given against a particular security. Hence they are called
selective instruments. The prominent amongst them are as follows:
a)
Regulation of credit margin
b)
Direct Action
c)
Moral suasion
d)
Consumer credit
e)
Publicity
Or
(b) Describe the scenario of resource
mobilization through direct and indirect taxes in India. 8+8=16
4. (a) Describe the redressal machinery under the Consumer
Protection Act. What are the consumer’s rights and responsibilities under the
Act? 10+6=16
Ans: ESTABLISHMENT
OF CONSUMER DISPUTES REDRESSAL AGENCIES: The following agencies established under
the Consumer Protection Act for the redressal of consumers disputes:
a)
A
District Consumer Disputes Redressal Forum to be known as the "District
Forum" established by the State Government in each district of the
State by notification. The State Government may, if it deems fit, establish
more than one District Forum in a district;
b)
A
State Consumer Disputes Redressal Commission to be known as the "State
Commission" established by the State Government in the State by
notification; and
c)
A
National Consumer Disputes Redressal Commission established by the Central
Government by notification.
1.
The District Consumer Protection Council At the lowest level are the
District Forums and these are established in each District and have
jurisdiction to entertain complaints where the value of goods or services and
the compensation if any, claimed does not exceed Rs.20,00,000 (TWENTY LAKHS),
and a complaint can be filed in a District Forum within the local limits of
which
a)
The opposite party resides or
b)
Carries on his business or works for gain or
c)
Where the cause of action arises.
Membership: The District Consumer Protection Council
(hereinafter referred to as the District Council) shall consist of the following
members:
a)
The
collector of the district (by whatever name called) who shall be its Chairman;
and
b)
Such
number of other official and non-official members representing such interest as
maybe described by the state government.
Objects of the District
Council: The Objects of
every District Council shall be to promote and protect within the district the
rights of consumers laid down in the clause (a) to (f) of Section 6 (National
Consumer Protection Council)
2. The State Consumer Protection Councils: The State Consumer Disputes Redress
Commission is established in each state and these have jurisdiction to
entertain complaints where the value of goods or services and the compensation
if any, claimed exceeds Rs.20,00,000 (TWENTY LAKHS) but does not exceed Rs.1,00,00,000
(ONE CRORE).
Membership:
a)
The
Minister in-charge of consumer affairs in the State Government who shall be its
Chairman;
b)
Such
number of other official or non-official members representing such interests as
may be prescribed by the State Government.
Objects of state council: The objects of every State Council shall
be to promote and protect within the State the rights of the consumers laid
down in clauses (a) to (f) of section 6. (Objects of National Council)
3.
The Central Consumer Protection Council: The Central Government may,
by notification, establish with effect from such date as it may specify in such
notification, a council to be known as the Central Consumer Protection Council
(hereinafter referred to as the Central Council). The National Consumer Disputes Redressal Commission has jurisdiction
to entertain complaints where the value of the goods or services and
compensation if any claimed exceeds Rs.1,00,00,000 (ONE CRORE)
Membership:
a)
The
Minister in charge of consumer affairs in the Central Government, who shall be
its Chairman, and
b)
Such
number of other official or non-official members representing such interests as
may be prescribed.
Objects of the Central
Council: The objects of
the Central Council shall be to promote and protect the rights of the
consumers.
Rights of Consumers:
a)
The
right to safety: It refers to the right to
be protected against products, production processes and services which are
hazardous to health or life. It includes concern for consumers immediate and
long term needs.
b)
The
right to be informed: Consumers have a right to
be informed about the quality, quantity, potency, purity, standard and price of
goods or services so that they can make the right decision and protect
themselves against malpractices.
c)
The
right of choice: The consumer has the
right to be assured of a choice of various goods and services of satisfactory
quality and competitive price.
d)
Right
to representation (or right to be heard): It is a right and the
responsibility of civil society to ensure consumer interest prevails while
formulating and executing policies which affect the consumers, as well as right
to be heard while developing or producing a product or service.
e)
Right
to seek redressal of grievances: The consumer has the
right go to court if he has been unscrupulously exploited against unfair or
restrictive trade practices and receives compensation for supply of
unsatisfactory or shoddy goods.
f)
The
right to consumer education: It is the right to
acquire knowledge and skills to be an informed consumer because it is easier
for the literate to know their rights and to take actions to influence factors
that affect consumer’s decisions. The Union and State Governments have accepted
the introduction of consumer education in school curriculum.
g)
Right
to basic needs: It is the right to
receive the eight basic necessities that are required to survive and lead a
dignified life. These eight basic necessities include food, clothing, shelter,
health care, sanitation, education, energy and transportation.
h)
Right
to healthy environment: It is the right to be
protected against environmental pollution and environmental degradation so as
to enhance the quality of life of both the present and future generation.
Main
responsibility of consumer are given as under-
a)
Be
aware about their right: Consumer must be aware of their own rights. This right
is right to basics needs, right to consumer education, right to be informed,
right to be choose, right to be safety, right to be heard and right to seek
redressed of grievances.
b)
Quality
conscious: while making purchase, consumer should look for quality
certification makes like ISI on electrical appliances and Agmark on food
product etc.
c)
Must
obtain cash memo: Consumer must insist on cash memos as cash memo act as proof
of purchase. No seller can deny given cash memo. A seller is bound to give a
cash memo even if buyer doesn’t ask for it.
d)
Be
Assertive: The consumer must be assertive in his dealings.
e)
Be
Honest: Consumer must act honestly and choose goods/services, which are
legitimate. They should also discourage unscrupulous practices like misleading
advertisements and black marketing etc.
f)
Ready
to lodge complaints: Consumer should not ignore the dishonesty to trader. The
consumer should file a complaint even for a small loss. However, they should
file complaints for the redressed of genuine grievances only.
g)
Respect
Environment: Consumer should avoid polluting the environment.
Or
(b) Explain the trends of
exports and imports of India in the post-liberalisation era. 8+8=16
Ans: Direction of Indian foreign trade
since last 10 years or after liberalisation
The international environment is very important from the
pint of view of certain categories of business. It is particularly important
for industries directly depending on imports or exports and import-competing
industries. An international marketer is required to understand, evaluate and
work out various parameters before venturing into any country. These Parameters
are called environmental factors and they determine the direction and purpose
of the international business operation. Many decisions depend upon
environmental factors right from selection of the country, location of the
plant liaison with the government, and entry of investment from local bodies,
product launch, channel management, promotion and opening of outlets. The first
challenge for an organization is to navigate from its home country to the host
country. Thereafter it has to develop a proper system so that the venture is
successful in the host country; learn all about the regulatory bodies both in
the host country and home country; understand the customer’s changing tastes
and attitude towards foreign goods and finally obtain revenue and make the
business effective with right people.
The severity of economic crisis of 1991 provided an opportunity to the
Government to make far-reaching changes in macroeconomic policy. There was
liberalisation of domestic investment by removing direct controls on private
sector and adopted fiscal and monetary policies to promote growth. Besides, the
New Economic Policy pursued since 1991 also liberalized foreign trade and
investment. The growth strategy was made export-oriented. Not only quantitative
restrictions on imports have been removed but also customs duties have been
drastically reduced.
Thus efforts have been made to integrate the Indian economy with the
global economy. Rupee was devalued in 1991 and from 1993 exchange rate of rupee
was made market-determined. It is, therefore, important to know how India’s
foreign trade sector has performed in response to these important changes in
economic policy framework.
The performance of foreign trade since 1991 is shown in Table 27.6 which
reveals that after a transition period of 2 years, merchandise exports grew at
about 20 per cent a year in dollar terms for three successive years during
1993-94 to 1995-96. Then due to slowdown in world trade and recession in the
USA which is India’s major trade partner, annual growth of exports slowed down
from 1996-97 to 1999-2000.
However after 2000 up till 2007-08 with the exception of year 2001 -02
there was more than 20 per cent annual growth of exports on sustained basis for
over eight years (2000 to 2008) and in 2007-08 average annual growth rate of
our exports was around 29 per cent.
Despite the sluggish performance of exports from 1996-97 to 1998-99
deficit in trade balance remained below 4 per cent of GDP (See Col. IV of Table
27.8) due to the equally subdued growth in imports during this period. During
the four-year period, 2004-05 to 2007-08, India’s imports grew at a much higher
rate due to robust industrial growth relative to growth in our exports and as a
result deficit in our trade balance greatly increased; as a percentage of GDP
it was 4.8 per cent in 2004-05, 6.8 per cent in 2006-07, and 7.8 per cent in
2007-08.
Due to global financial crisis and consequent economic slowdown in the US
and European countries, the growth rate of our exports fell to 13.6 per cent in
2008-09, whereas imports grew at 26.7 per cent. As a result deficit in our
trade balance rose to 12 per cent of GDP.
Bolstered by the measures taken by the government to help exports in the
aftermath of the world recession of 2008 and also the low base effect, India’s
export growth of 40.5 per cent in 2010-11 reached an all time high since Independence.
Though it decelerated in 2011 -12 to 21.3 per cent, it was still above 20 per
cent and higher than the compound annual growth rate (CAGR) of 20.3 per cent
for the period 2004-05 to 2011-12.
After registering very high growth of 56.5 per cent in July 2011, export
growth started decelerating with a sudden fall to single digits in November
2011 as a result of the emerging global situation and then to negative figures
from March 2012. Export growth rate in 2012-13 was negative and equal to –
1.8%. For three months in 2012-13, exports declined YOY by double digits with
the largest decline recorded in July 2012 at – 15.1 per cent.
Export growth in dollar terms was negative at-1.8 per cent in 2012-13,
compared to 21.3 percent growth in 2011-12 (full year). In rupee India’s export
growth has almost continuously been above world export growth in the 2000s
decade and in 2011. One issue that has been a topic of debate is whether
India’s export growth rate is dependent on world growth/trade or exchange rate.
There is a strong correspondence between India’s export growth and world export
growth.
5. (a) Explain the process of
structural reforms in the Indian economy. Discuss briefly the impact of
structural reforms on income generation and poverty alleviation in India.
6+10=16
Or
(b) Explain the features
of Globalisation. Analyse the impact of globalisation on the business environment
in India. 6+10=16
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.
Features
of globalisation:
a)
Integration of domestic economy with global
economy.
b)
Opening up of the economy to foreign capital,
foreign technology and free competition.
c)
Free flow of international capital.
d)
Free world trade, elimination of tariffs and
quotas.
e)
Expansion of multinational corporations.
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 GLOBALIZATIN ON VARIOUS
SECTOR OF INDIAN ECONOMY OR ROLE OF GLOBALISATION
1) Impact of Globalization on Agricultural Sector
Agricultural
Sector is the mainstay of the rural Indian economy around which socio-economic privileges
and deprivations revolve and any change in its structure is likely to have a
corresponding impact on the existing pattern of Social equity. The
liberalization of India’s economy was adopted by India in 1991. Facing a severe
economic crisis, India approached the IMF for a loan, and the IMF granted what
is called a ‘structural adjustment’ loan, which is a loan with certain
conditions attached which relate to structural change in the economy.
Essentially, the reforms sought to gradually phase out government control of
the market (liberalization), privatize public sector organizations
(privatization), and reduce export subsidies and import barriers to enable free
trade Globalization has helped in:
Ø
Raising living standards,
Ø
Alleviating poverty,
Ø
Assuring food security,
Ø
Generating buoyant market for expansion of
industry and services, and
Ø
Making substantial contribution to the
national economic growth.
2) 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) Impact on Financial Sector
Reforms of
the financial sector constitute the most important component of India’s
programme towards economic liberalization. The recent economic liberalization
measures have opened the door to foreign competitors to enter into our domestic
market. Innovation has become a must for survival. Financial intermediaries
have come out of their traditional approach and they are ready to assume more
credit risks. As a consequence, many innovations have taken place in the global
financial sectors which have its won impact on the domestic sector also. The
emergences of various financial institutions and regulatory bodies have
transformed the financial services sector from being a conservative industry to
a very dynamic one. In this process this sector is facing a number of
challenges. In this changed context, the financial services industry in India
has to play a very positive and dynamic role in the years to come by offering
many innovative products to suit the varied requirements of the millions of
prospective investors spread throughout the country. Reforms of the financial
sector constitute the most important component of India’s programme towards
economic liberalization.
Growth in
financial services (comprising banking, insurance, real estate and business
services), after dipping to 5.6% in 2003-04 bounced back to 8.7% in 2004-05 and
10.9% in 2005-06 The momentum has been maintained with a growth of 11.1% in
2006-07. Because of Globalization, the financial services industry is in a
period of transition. Market shifts, competition, and technological
developments are ushering in unprecedented changes in the global financial
services industry.
4) Impact on Export and Import
India’s
Export and Import in the year 2001-02 was to the extent of 32,572 and 38,362
million respectively. Many Indian companies have started becoming respectable
players in the International scene. Agriculture exports account for about 13 to
18% of total annual of annual export of the country. In 2000-01 Agricultural
product valued at more than US $ 6 million were exported from the country 23%
of which was contributed by the marine products alone. Marine products in
recent years have emerged as the single largest contributor to the total
agricultural export from the country accounting for over one fifth of the total
agricultural exports. Cereals (mostly basmati price and non-basmati rice), oil
seeds, tea and coffee are the other prominent products each of which accounts
from nearly 5 to 10% of the country’s total agricultural exports.
The
implications of globalization for a national economy are many. Globalization
has intensified interdependence and competition between economies in the world
market. This is reflected in Interdependence in regard to trading in goods and
services and in movement of capital. As a result domestic economic developments
are not determined entirely by domestic policies and market conditions. Rather,
they are influenced by both domestic and international policies and economic
conditions. It is thus clear that a globalizing economy, while formulating and
evaluating its domestic policy cannot afford to ignore the possible actions and
reactions of policies and development in the rest of the world. This
constrained the policy option available to the government which implies loss of
policy autonomy to some extent, in decision-making at the national level.
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