Business Environment Solved Papers: November' 2017 | Dibrugarh University

2017 (November)
Commerce (General/Speciality)

Business Environment
Full marks: 80
Pass marks:24
Time: 3 hours

1.       Answer as directed:                                               1x8=8

a)      Micro environment deals with suppliers/ government/ economic environment.  (Choose the correct answers)
b)      Mention any one of the components of Indian business environment.  Ans: Legal environment, Companies Act, 2013
c)       Write one cause of industrial backwardness in North East region of Indian. Ans: Inadequate Transport facility in north eastern region.
d)      Where is the Head Office of SAFTA situated? Ans: Kathmandu, Nepal
e)      Write the full form of MRTP. Ans: Monopolistic and Restrictive Trade Practices
f)       What is the full form of GATT?  Ans: General Agreement on Tariffs and Trade
g)      Write the full form of MFN?                              Ans: Most Favoured Nation
h)      What is the full form of IBRD?           Ans: International Bank for Reconstruction and Development
2.       Write short notes on the following:                                                                                               4x4=16
a)      Internal factors of business environment
Ans: 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:
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. 
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. 
b)      Economic growth vs. Economic development
Ans: Difference between Economic Growth and Economic Development
Economic Development
Economic Growth

Concerned with structural changes in the economy.
Growth is concerned with increases in the economy’s output.
Development relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population’s quality of life.
Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports.
It implies changes in income, saving and investment along with progressive changes in socioeconomic structure of a country (institutional and technological changes).
It refers to an increase in the real output of goods and services in the country like increase the income in savings, in investment etc.
Qualitative, HDI (Human Development Index), gender-Related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc.
Quantitative Increase in real GDP.
Brings qualitative and quantitative changes in the economy.
Brings quantitative changes in the economy.
Normative concept.
Narrower concept than economic development.
Economic development is more relevant to measure progress and quality of life in developing nations.
Economic growth is a more relevant metric for progress in developed countries. But it’s widely used in all countries because growth is a necessary condition for development.
c)       Objectives of EXIM policy
Ans: The principal objectives of the policy are:
1)      To facilitate sustained growth in exports of the country so as to achieve larger percentage share in the global merchandise trade.
2)      To provide domestic consumers with good quality goods and services at internationally competitive prices as well as creating a level playing field for the domestic producers.
3)      To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services.
4)      To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitiveness to meet the requirements of the global markets.
5)      To generate new employment opportunities and to encourage the attainment of internationally accepted standards of quality.
6)      To establish the framework for globalization.

d)      Objectives of International Monetary Fund
Ans: Objective of IMF: The objective for which IMF was established has been described as following:
1)         Promote International Monetary Co-operation: The main objective of the fund was to promote international monetary co-operation through a permanent institution which provides that machinery for consultation and collaboration on international monetary problems.
2)         Balanced Growth of International Trade: The one of the main objective of the Fund was to facilities the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development productive resources of all members.
3)         Stability of Exchange Rates: Another important objective of IMF was to promote exchange stability, to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation.
4)         Establishment of Multilateral trade and payment system: Another objective of the establishment of IMF was to assist the establishment of the multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
5)         To develop confidence to member: Another objective of IMF was to give confidence to members by making the funds, resources available to them under adequate safeguards, thus providing with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
6)         Removing Deficit of balance of Payments: Another objective of the establishment of IMF was removal of the deficit of balance of payments also. IMF makes arrangement of necessary loans from foreign exchange reserves for removing the deficit of balance of payments.

3.       (a)What do you mean by business environment? Explain the nature and significance of business environment. 4+10=14
Ans: Concept: Business Environment: Business is an activity undertaken for the purpose of producing or selling a particular commodity or 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.”
Following are the features of Business environment:
Business Environment means a collection of all individuals, entities and other factors, which may or may not be under the control of the organisation, but can affect its performance, profitability, growth and even survival. Every business organisation operates in a distinctive environment, as it cannot exist in isolation. Such an environment influence business and also gets affected by its activities. Some of the important features of business environment are given below:
1.       Totality of internal and external forces: Business environment means the surrounding situation within which business organization has to operate. It is a sum total of cultural, political, economical, social, physical, technological, legal and global forces which move around the business organization. These forces collectively create a socio-economic-political situation called business environment. Environment is an inseparable part of business which can not operate in vacuum.
2.       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.
3.       Dynamic nature: Business environment is dynamic and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological and demographic. Such dynamism in the environment brings continuous change in its character. Business enterprises have no alternative but to operate under such dynamic environment. The only remedy is adjusting business as per environmental changes.
4.       Complex: Business environment has now become extremely complex and the government intervention has become more frequent. Business environment is a complex phenomenon and also difficult to grasp and face in its totality. This is because it is governed by external factors. Environment develops by chance and not by choice. In addition, the environment factors vary from country to country. The business environment in India and in USA may not be identical.
5.       Multi Faceted: Environmental changes are frequent but their shape and character depends on the knowledge & experience of the observer. A particular change in the environment may be viewed differently by different businessmen. This change is welcomed as an opportunity by some organizations while some others take it as a threat for their survival. 
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:
1.       Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises to exploit business opportunities and face the threat associated with such opportunities. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India.
2.       Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
3.       Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.
4.       Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures optimum use of resources available. For this, the study of economic and technological environment is useful. Such study enables organization to take full benefit of government policies, concessions provided, and technological developments and so on.
5.       Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.
(b)What is Special Economic Zone? Briefly discuss about the features of Special Economic Zone and its need in Indian economy.
Ans: Special Economic Zone- Introduction
Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
a)         Exemption from duties on all imports for project development 
b)         Exemption from excise / VAT on domestic sourcing of capital goods for project development 
c)          Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership 
d)         Income tax holidays on business income 
e)         Exemption from import duty, VAT and other Taxes 
f)          10% FDI allowed through the automatic route for all manufacturing activities 
g)         Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution 
h)         Simplification of procedures and self-certification in the labor acts
i)           Artificial harbor and handling bulk containers made operational throughout the year
j)           Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations 
k)         Well connected with network of public transport, local railways and cabs 
l)           Pollution free environment with proper drainage and sewage system 
m)       In-house Customs clearance facilities 
n)         Abundant supply of technically skilled manpower 
o)         Abundant supply of semi-skilled labor across all industry vertical 
p)         Easy access to airport and local Railway Station 
q)         10-year tax holiday in a block of the first 20 years 
r)          Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis 
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. 
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005.
a)         Generation of additional economic activity across all the states 
b)         Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities
c)          Promotion of investment from domestic and foreign sources 
d)         Creation of employment opportunities across India 
e)         Development of world class infrastructural facilities in these units 
f)          Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities 
g)         Single window clearance cell for the establishment of Special Economic Zone 
h)         Single window clearance cell within each and every Special Economic Zones 
i)           Single window clearance cell relating to formal requirements of Central as well as all State Governments.
j)           Easy and simplified compliance procedures and documentations with stress on self certification.

4.       (a) What is business cycle? Explain the different phases and characteristics of business cycle.          2+(8+4)=14
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
2)      Recovery
3)      Prosperity or full employment
4)      Boom or overfull employment
5)      Recession
(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
•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.
Characteristics of Business Cycle
A business cycle must possess the following characteristics:
1. Fluctuation of Aggregate Economic Activity: Business cycles refer to the fluctuations in aggregate economic activity rather than as fluctuations in a single specific economic variable such as GDP.
2. Alteration of expansion and contraction in economic activity: A trade cycle is characterized by alteration of expansion (Prosperity) and contraction (Depression) in economic activity. They are repetitive and rhythmic. The period of prosperity is followed by depression and which again is followed by a period of prosperity. This indicates that the movement is wave like in character; it is not an erratic fluctuation.
3. Co-movement: Business cycles do not take place in just a few sectors or in just a few economic variables. Instead, expansions or contractions take place at the same time in a number of economic activities. Thus, although some industries are more sensitive to the business cycle than the rest, the level of output and employment in most industries tends to fall in recessions and rise in expansions. Many other economic variables like prices, productivity, investment and government purchases also have regular and predictable patterns of behaviors over the course of the business cycle. The tendency of many economic variables to move together in a predictable way over the business cycle is called co-movement.
4. Self- Reinforcing: A trade cycle is a self- reinforcing in nature. It means that the process of expansion and contraction is a cumulative self- reinforcing nature. Each upswing or downswing feeds on itself and generates further movement (change) in the same direction until its direction is reversed by external forces.
5. The degree of regularity: A trade cycle has a degree of regularity. It is possible that the upswing of a trade cycle is longer than the downswing or vice versa, but it maintains regularity.
6. The presence of crisis: A trade cycle is characterized by the presence of a crisis, i.e. peak and the trough are not symmetrical. In the words, the change from upward to downward may be more sudden and violent than is the change from downward to upward movement. Consequently, the peak of the trade cycle is pointed with steep bends on either side whereas trough has a gently sloping swing of 16 – 22 years’ duration.
7. International in character: When business fluctuations occur in a country, it will be spread all over the countries.
(b) What is industrial sickness? Justify the root causes of industrial sickness with reference of North-east India. 2+12=14
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.
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 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 is stated below:
1.       Geographical isolation: Geographical isolation is a characteristic feature of this region which always goes against its development strategy. The difficult terrain of this region surrounded by hills, rivers and dense forest leads to increase in the cost of administration and cost of developmental projects, besides making mobilization resources particularly difficult.
2.       Poor transport and communication facilities: This region is lacking a sound transport and communication system. Geographical isolation, difficult terrain and lack of attention are some of the basic factors which are responsible for poor development of transport and communication facilities. Both the railway and road transport facilities in the region are not adequate according to its need. Expansion works like preparation of new railway lines, conversion meter gauge lines into broad gauge lines, extension of national highways, construction of new bridges over Brahmaputra, development of well connected transport facilities and sound communication system etc. are not up to the mark. In the absence of all these above mentioned facilities, a region cannot develop industrially. However, in recent years, steps have been taken to improve the transport and communication system of the State without which the development of the economy is impossible.
3.       Wastage of Natural resources: In spite of having huge amount of natural resources, the economy of this region still remains largely under-developed and involves itself into the wastage of huge quantity of natural resources. Investment in this region is mainly channelized towards exploitation of rich resources viz. tea, jute and oil, which is reflection of the continuation of old colonial pattern of investment. Assam has 28 percent of the total hydro power potential of the country, which remains under-utilized. The vast coal resources have not been fully exploited (except for traditional use of the Railway etc.) despite several possibilities for use as fuel for production of power, for production of coal and as base for several chemical industries. The forest resources in Assam are also under-utilized, particularly in the matter of non-standard species. Thus insufficient exploitation of natural resources in this region is responsible for this poor industrial development of the State.
4.       Lack of skilled personnel: This region is also suffering from an acute shortage of skilled labour. Most of the labours are unskilled. For higher skills, this region has to depend upon other parts of India and foreign countries. Consequently payment of higher wage rates for skilled labour affects cost of production. Besides, one has to import technicians from outside on attractive rates of remuneration for installation of capital goods industries and thus it raises the cost of the development projects besides making the gestation period of these projects lengthy.
5.       Poor credit facilities: Credit facility, which is a part of infrastructure requires for development, is very minimum. The credit deposit ration in Assam stood at 37.3 in 2012 as against 78.1 for all India. Thus the lending policy of the commercial banks is far from generous to this region. Thus in the absence of large scale credit facilities, industries in the private sector cannot grow satisfactorily.
6.       Primitive technology: Technological progress is the root of industrial growth. But North East is suffering from lack of technological development due to poor scientific educational facilities and vocational training. Farmers in North East region are still using Primitive technologies in agricultural sector and thus agricultural production remains stagnant whereas other State Punjab, Haryana, Gujarat, Uttar Pradesh have been able to make sufficient progress in agriculture by applying modern technologies. Small scale and cottage industries of this region are still following old orthodox technologies and cannot stand in the competitive market. Thus the industries of this region are still backward due to absence of technology up gradation.
7.       Power Shortage: Lack of power supply is also effecting the production of the Industrial units in north east. Power breakdown is the regular problem this region. Due to inadequate power supply the industries have to suffer from under utilization, low production and higher costs.

5.       (a) Discuss, in detail, the main objectives and benefits of privatization in the context of Indian Economy. 7+7=14
Ans: Privatisation: The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization. It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.
Objectives of Privatisation:
1. To Improve the Efficiency of Government companies: The main purpose of privatisation is to improve the efficiency of government companies. Private companies have a profit motive and they try to cut costs and be more efficient which is not possible in case of government companies.
2. To reduce corruption: The second most objective of privatisation is to reduce corruption by eliminating government interference. It is argued that governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense.
3. To provide better service to the consumers: It is a well known fact that the services of government companies to its customers are very poor. Privatisation is also done with a view to improve the services to its customers.
4. 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.
5. To raise fund for its welfare activities: Selling government owned assets to the private sector raised significant sums for government which can be utilised in various welfare activities.
Benefits of Privatisation:
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.
(b) 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:
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

6.       (a) What is international business? Explain the main features of international business.     14
Ans: International Business
International business refers to business activities that take place across national frontiers. Though many people use the terms international business and international trade synonymously, the former is a much broader term. International business involves not only trade in goods and services, but also other operations such as production and marketing of goods and services in foreign countries.
Reasons: The primary reason for international business is that nations cannot efficiently produce all that they require. Due to differences in resource endowments and labour productivity, countries find it much more advantageous to produce goods and services in which they have cost advantage and trade the surplus in such goods and services with other nations in exchange of goods and services which others can produce more efficiently.
Scope: Scope of international business is quite wide. It includes not only merchandise exports, but also trade in services, licensing and franchising as well as foreign investments.
Benefits: International business benefits both the nations and firms. Nations gain by way of earning foreign exchange, more efficient use of domestic resources, greater prospects of growth and creation of employment opportunities. The advantages to the business firms include: prospects for higher profits, greater utilisation of production capacities, way out to intense competition in domestic market and improved business vision.
Modes of entry: A firm desirous of entering into international business has several options available to it. These range from exporting/importing to contract manufacturing abroad, licensing and franchising, joint ventures and setting up wholly owned subsidiaries abroad. Each entry mode has its own advantages and disadvantages which the firm needs to take into account while deciding as to which mode of entry it should prefer.
The important features of international business are as follows:
a)      Large scale operation: In international business, all the operations are conducted on a very huge scale. Production International Business and marketing activities are conducted on a large scale. It first sells its goods in the local market. Then the surplus goods are exported.
b)      Integration of economies: International business integration (combines) the economies of many countries. This is because it uses finance from one country, labour from another country, and infrastructure from another country. It designs the product in one country, produces its part in many different countries and assembles the product in another country. It sells the product in many countries, i.e. in the international market.
c)       Dominated by developed countries and MNCs: International business is dominated by developed countries and Japan dominated (fully control) foreign trade. This is because they have large financial and other resources. They also have the best technology and research and development (R & D). They have highly skilled employees and managers because they give very high salaries and other benefits. Therefore, they produce good quality goods and services at low prices. This helps them to capture and dominate the world market.
d)      Benefits to participating countries: International business gives benefits to all participating countries. However, the developed (rich) countries get the maximum benefits. The developing (poor) countries also get benefits. They get foreign capital and technology. They get rapid industrial development of the developing countries. Therefore, developing countries open up their economies through liberal economic policies.
e)      Keen competition: International business has to face keen (too much) competition in the world market. The competition is between unequal partners i.e. developed and developing countries. In this keen competition, developed countries and their MNC s are in a favourable position because they produce superior quality goods and services at very low prices. Developed countries also have many contacts in the world market. So, developing countries find it very difficult to face competition from developed countries.
f)       Special role of science and technology: International business gives a lot of importance to science and technology. Science and Technology (S & T) help the business to have large-scale production. Developed countries use high technologies. Therefore, they dominate global business. International business helps them to transfer such top high-end technologies to the developing countries.
g)      International restrictions: International business faces many restrictions on the inflow and outflow of capital, technology and goods. Many governments do not allow international businesses to enter their countries. They have many trade block, tariff barriers, foreign exchange restrictions, etc. All this is harmful to international business.
h)      Sensitive nature: The international business is very sensitive in nature. Any changes in the economic policies, technology, political environment, has a huge impact on it. Therefore, international business must conduct marketing research to find out and study these changes. They must adjust their business activities and adapt accordingly to survive changes.
(b) Discuss, in detail, about the various activities of World Bank.                                                             14
Ans: 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:
a)      To make sure availability of funds in the market.
b)      To provide the funds at the lowest possible cost to the borrowers through appropriate currency mix of its borrowing and opting to borrow when interest rates are expected to rise.
c)       To control volatility in net income and overall loan changes.
d)      To provide an appropriate degree of maturity transformation between its lending and the borrowing. Maturity transformation depicts the Bank’s capacity to lend for longer period than it borrows.
Functions and objectives of World Bank
a)      To assist in the reconstruction and development of the territories of its members by facilitating the investment of capital for productive purposes.
b)      To promote private foreign investment by means of guarantee of participation in loans and other investments made by private investors and, when private capital is not available on reasonable terms, to make loans for productive purposes out of its own resources or from funds borrowed by it.
c)       To promote the long term balanced growth of international trade and the maintenance of equilibrium in balance of payments by encouraging international investment for the development of the productive resources of members.
d)      To arrange loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent projects, large and small alike, will be dealt first.
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:
a)      India has received a lot of assistance from the World Bank for its development projects.
b)      Aid India Club was founded in 1950 by the efforts of the World Bank with a view to help India. This club is now called India Development Forum. This Forum had decided to give loans amounting to $ 600 crore to India for implementing its structural adjustment.
c)       The bank’s role in solving the Indus water dispute between India and Pakistan has been invaluable.
d)      General loans have also been granted by the World Bank to India, to be utilised as per its own discretion.
e)      As a member of the World Bank, India has become the members of International Finance Corporation, International Development Association and Multilateral Investment Guarantee Agency also.
f)       India has received technical assistance from time to time from the World Bank for its various projects. The Expert Team of the Bank has visited India and given valuable suggestions also.
g)      The massive population of India has always created problems in the economic development of the country. World Bank has been helping India in the population control programmes and urban development. For this purpose loans amounting to $ 495 crore have also been given to India.
h)      World Bank has been giving financial assistance to NGOs operating in India e.g. Leprosy Elimination, Education Projects, Child development service projects etc.
(Old course)
Full marks: 80
Pass marks: 32

1.       Answer as directed:                                                               1x8=8
a)      Mention one component of internal business environment.  Ans: Quality of Human Resources
b)      SEZ stands for what?              Ans: Special Economic Zone
c)       Write one cause of industrial sickness of India.           Ans: Lack of specialised labour
d)      There is no difference between economic growth and economic development. (Write True and False)
e)      What is EXIM policy?            
Ans: EXIM Policy or Foreign Trade Policy is a set of guidelines and instructions established by the Directorate General of Foreign Trade in matters related to the import and export of goods in India. The Foreign Trade Policy of India is guided by the Export Import in known as in short EXIM Policy of the Indian Government and is regulated by the Foreign Trade Development and Regulation Act, 1992.
f)       Capital market deals in short term/ long term Loanable funds.  (Choose the correct answer)
g)      In which year was the International Monetary Fund (IMF) established?         Ans: 1945
h)      Write the full form of SAFTA.              Ans: South Asian Free Trade Area
2.       Write short notes on the following:                                                                                                 4x4=16
a)      SWOT analysis
b)      Economic growth
c)       WTO
d)      MRTP Act
3.       (a) What is business environment? Discuss the various components of business environment.           2+10=12
(b) Discuss the external factors of business environment                                                              12
4.       (a) What is industrial sickness? Explain in detail, the main causes of industrial sickness2+9=11
(b) What is meant by the concept of business cycle? Explain the different phases of business cycle          2+9=11
5.       (a) Discuss the salient features of Government of India’s Industrial Policy for the North-Eastern region of India. 11
(b) Discuss the salient features of New Industrial Policy, 1991 of India.                    11
6.       (a) What is meant by Monetary Policy? Discuss the role of monetary policy in developing economy.                4+7=11
(b) What is money market? Explain the functions of money market.        4+7=11
7.       (a) What is meant by international business? Discuss the main features of international business.     4+7=11
(b) Discuss the role of International Monetary Fund as an International Financial Institution.           11

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