2013
(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) Discuss the
significance of internal business environment with example. 16
Ans: 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:
a)
Internal environment
b)
Micro environment/ task environment/ operating
environment
c)
Macro environment/ general environment/ remote
environment
Although business environment consists of both internal
and external environments, many people often confine the term to the external
environment of business.
Internal Environment and Its
significance
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) Discuss the role of economy,
technology, competitor and government in business environment with examples. 4x4=16
2. (a) Critically argue the
success stories of foreign investments in India during the plan period. 16
Or
(b) Critically argue the powers of the
Commission as provided by the MRTP Act.
16 (THIS ACT
IS NOW ABOLISHED SO NO QUESTION EXPECTED)
Ans: Monopolistic and
Restrictive Trade Practices Act (MRTP Act)
The monopolies and
Restrictive Trade Practices Act, 1969, brought into force from 1st June 1970,
was a very controversial piece of legislation. The principal objectives of the
MRTP Act which extends to the whole of India except to the state of Jammu and
Kashmir, viz.:
a)
Prevention of concentration of economic power to
the common detriment.
b)
Control of monopolistic, restrictive and unfair
trade practices which are prejudicial to public interest.
The MRTP Act was
significantly amended in 1982, 1984, 1985 and 1991. After the amendments the
first objective has become irrelevant as the relevant provisions to achieve the
objective have been deleted. The objectives now are:
a)
Controlling monopolistic trade practices.
b)
Regulating restrictive and unfair trade practices.
Monopolistic Trade Practices (MTP’S):
A monopolistic trade
practice is essentially a trade practice which represents the abuse of the
market power in the production or marketing of goods, or in the provision of
services, by charging unreasonably high prices, preventing or reducing
competition, limiting technical development, deteriorating product quality, or
by adopting unfair or deceptive practices. Two tests will determine whether a
trade practice is an MTP or not:
i)
abuse of market power, and
ii)
Unreasonableness in any practice.
Thus, the following are MTPs:
1.
Maintaining the prices of goods or charges for
any services at an unreasonable level.
2.
Limiting technical development or capital
investment to the common detriment.
3.
Unreasonably preventing or lessening
competition.
4.
Allowing quality of goods produced, supplied or
distributed or any service rendered to deteriorate.
5.
Increasing unreasonably the cost of production
of any goods or charges for provision or maintenance of services.
6.
Increasing unreasonably the selling price of
goods, or charges at which the services may be provided.
7.
Increasing unreasonably the profits that are
derived from the production, supply or distribution of any goods or the
provision of any services.
8.
Preventing or lessening competition in the
production, supply or distribution of any goods or in the provision or
maintenance of any services by adopting unfair methods of unfair practices.
Restrictive Trade Practices (RTP):
A trade practice which
restricts or reduces competition may be termed as restrictive trade practice.
The following are the RTPs as described by section 33(1) of the MRTP Act:
(a) Refusal to deal with
persons or classes of persons: Any agreement which restricts or it likely to
restrict by any methods, the persons or classes of persons to whom goods are
sold or from whom goods are bought.
(b) Tie-in sales or full
line forcing: Any agreement requiring purchaser of goods, as a condition of
such purchase, to purchase some other goods.
(c) Exclusive dealing
agreement: Any agreement restricting in any manner the purchaser in the course
of his trade from acquiring or otherwise dealing in any goods other than those
of seller or any other goods.
(d) Collective price
fixation and tendering: Any agreement to purchase or sell goods or to tender
for the sale or purchase of goods only at prices or terms and conditions agreed
upon between the sellers or purchaser.
(e) Discriminatory
Dealings : Any agreement to grant or allow concession or benefits, including
allowances, discounts, rebate or credit, in connection with or by reason of
dealings.
(f) Re-sale price
maintenance: Any agreement to sell goods on condition that the prices to be
charged on resale by the purchaser shall be the prices stipulated by the seller
unless it is clearly stated that prices lower than those prices may be charged.
(g) Restriction on output
or supply of goods: Exclusive distributorship, territorial restriction and
market sharing.
(h) Control of
manufacturing process.
(i) Price control
arrangements.
(j) Governmental
recognition of practice as restriction.
(k) Residual restriction
trade practices: Any agreement to enforce the carrying out of any such
agreement as is referred to in the foregoing classes.
The
MRTP Commission has the following powers:
a)
Power
of Civil Court under the Code of Civil Procedure, with respect to:
i)
Summoning
and enforcing the attendance of any witness and examining him on oath;
ii)
Discovery
and production of any document or other material object producible as evidence;
iii)
Reception
of evidence on affidavits;
iv)
Requisition
of any public record from any court or office.
v)
Issuing
any commission for examination of witness; and
vi)
Appearance
of parties and consequence of non-appearance.
Proceedings before the commission are deemed as judicial proceedings
with in the meaning of sections 193 and 228 of the Indian Penal Code.
b)
To
require any person to produce before it and to examine and keep any books of
accounts or other documents relating to the trade practice, in its custody.
c)
To
require any person to furnish such information as respects the trade practice
as may be required or such other information as may be in his possession in
relation to the trade carried on by any other person.
d)
To
authorise any of its officers to enter and search any undertaking or seize any
books or papers, relating to an undertaking, in relation to which the inquiry
is being made, if the commission suspects tat such books or papers are being or
may be destroyed, mutilated, altered, falsified or secreted.
3. (a) Write a detail
note of the pricing policy of India 16
Ans:
Monetary Policy/Pricing 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) Write a detail note on
the household saving pattern in India. 16
4. (a) Explain the
important provisions related to redressal machineries as prescribed under the
Consumer Protection Act. 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 such as-
a)
The
right to be protected against the marketing of goods 2[and services]
which are hazardous to life and property;
b)
The
right to be informed about the quality, quantity, potency, purity, standard and
price of goods 1[or services, as the case may be], so as to
protect the consumer against unfair trade practices;
c)
The
right to be assured, wherever possible, access to a variety of goods and
services at competitive prices;
d)
The
right to be heard and to be assured that consumers' interests will
receive due consideration at appropriate forums;
e)
The
right to seek redressal against unfair trade practices 1[or
restrictive trade practices] or unscrupulous exploitation of consumers; and
f)
The
right to consumer education.
Or
(b) Explain the growth trends
of Indian capital market. 16
5. (a) Discuss the impact of
India’s foreign policy on trade promotion after liberalization. 16
Or
(b) Discuss the impact of IT
revolution on Indian business enterprises. 16
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