Business Environment Solved Papers: November' 2016 | Dibrugarh University

2016 (November)
Commerce (General/Speciality)

The figures in the margin indicate full marks for the questions
Full Marks: 80
Pass Marks: 24
Time: 3 hours

1. Answer as directed:                                                   1x8=8

a)      Mention any one of the components of Indian business environment.  Ans: Political Environment
b)      Economic growth always increases welfare.                        (Write True or False)
c)       Mention one objective of economic growth.      Ans: Reduction in Inflation
d)      Write one cause of industrial sickness.                   Ans: Lack of Continuous power supply
e)      Mention one advantage of privatization.              Ans: Lack of political interference
f)       In which year was the World Trade Organization set up?                               Ans: 1995
g)      Write the full form of SEZ.                            Ans: Specialised Economic Zone
h)      Write the full form of SAFTA.      Ans: South Asian Free Trade Area
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. 
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. 
b)      Major achievements of the World Bank.
Ans:  Achievements 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.
c)       Phases of business cycle.
Ans: Phases of a Business Cycle: A business cycle will have 5 different phases or stages. They are
(1) Depression: During this period business activity in the country will be much below normal level. It is characterized by a short fall in production, mass unemployment, and fall in prices, low wages, and contraction of credit, a high rate of business failures and an atmosphere of all round pessimism.
(2) Recovery: During this period business activity increases. The industrial production and volume of employment steadily increases. The prices and wages increases. The recovery may take place due to the following reasons:
•New government expenditure
•Exploitation of new sources of energy
•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.

d)      Objectives of the GATT.
Ans: Objectives of GATT
a)      Relation in the field of trade shall be conducted with a view to raising standards of living, ensuring full employment and large and steadily growing volume of real income and effective demand, and expanding the production and trade in goods and services.
b)      To allow for the optimal use of the world’s resources in accordance with the objective of sustainable development.
c)       To make positive efforts designed to ensure that developing countries especially the least developed among them, secure a share in the growth in international trade.
d)      To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade relations.
e)      To develop an integrated, more viable and durable multilateral trading system.
f)       To ensure linkages between trade policies, environment policies and sustainable development.

3. (a) What is SWOT analysis? Discuss the significance and techniques of SWOT analysis.                            4+5+5=14
Ans: SWOT analysis
SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans.
 SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis consists of the following two activities: 
a)      An assessment of the organization’s internal Strengths and Weaknesses and
b)      An assessment of the Opportunities and Threats posed by its external environment
a)      Assessing the Internal Environment
Internal scan or assessment of the internal environment of the organization involves identification of its strengths and weaknesses i.e., those aspects that help or hinder accomplishment of the organization’s mission and fulfillment of its mandate with respect to the following Four Ps:
1)      People (Human Resources)
2)      Properties (Buildings, Equipments and other facilities)
3)      Processes (Such as student placement services, M.I.S etc.)
4)      Products (Students, Publications etc.)
b)      Assessing the External Environment
External scan refers to exploring the environment outside the organisation in order to identify the opportunities and threats it faces. This involves considering the following:
1)      Events, trends and forces in the Social, Technological, Economical, Environmental and Political areas (STEEP).
2)      Identifying the shifts in the needs of customers and potential clients and
3)      Identification of competitors and collaborators.
Techniques of SWOT analysis
An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given below:
1)      Strengths: Strengths are the qualities that enable us to accomplish the organization’s mission. These are the basis on which continued success can be made and continued/sustained. Strengths can be either tangible or intangible. These are what you are well-versed in or what you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an organization, which includes human competencies, process capabilities, financial resources, products and services, customer goodwill and brand loyalty.
Examples of STRENGTHS under SWOT Analysis
a)      Specialist marketing expertise
b)      Exclusive access to natural resources
c)       New, innovative product or service
d)      Location of your business
e)      Strong brand or reputation
f)       Quality processes and procedures
2)      Weaknesses: Weaknesses are the qualities that prevent us from accomplishing our mission and achieving our full potential. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet. Weaknesses in an organization may be depreciating machinery, insufficient research and development facilities, narrow product range, poor decision-making, etc. Weaknesses are controllable. They must be minimized and eliminated.
Examples of WEAKNESS under SWOT Analysis
a)      Lack of marketing expertise
b)      Undifferentiated products and service (i.e. in relation to your competitors)
c)       Competitors have superior access to distribution channels
d)      Poor quality goods or services
e)      Damaged reputation
f)       Lost brand value
3)      Opportunities: Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in its environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise from market, competition, industry/government and technology. Increasing demand for telecommunications accompanied by deregulation is a great opportunity for new firms to enter telecom sector and compete with existing firms for revenue.
Examples of OPPORTUNITIES under SWOT Analysis
a)      Developing market (China, the Internet)
b)      Loosening of regulations
c)       Removal of international trade barriers
d)      A market led by a weak competitor
4)      Threats: Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization’s business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc.
Examples of THREATS under SWOT Analysis
a)      A new competitor in your home market
b)      Competitor has a new, innovative substitute product or service
c)       New regulations
d)      Increased trade barriers
e)      Taxation may be introduced on your product or service
Advantages of SWOT Analysis: SWOT Analysis helps in strategic planning in following manner:
a)      It is a source of information for strategic planning which helps in achieving desired objectives at a minimum cost.
b)      SWOT analysis plays a big role in forecasting as it provides important information that might be required in making forecast for the future.
c)       SWOT analysis builds organization’s strengths.
d)      Reverse its weaknesses by identifying weak areas.
e)      Maximize its response to opportunities.
f)       Overcome organization’s threats.
g)      It helps in identifying core competencies of the firm.
h)      It helps in setting of objectives for strategic planning.
i)        It helps in knowing past, present and future so that by using past and current data, future plans can be chalked out.
Limitations of SWOT Analysis: There are certain limitations of SWOT Analysis which are not in control of management. These include:
a)      Price increase;
b)      Inputs/raw materials;
c)       Government legislation;
d)      Economic environment;
e)      Searching a new market for the product which is not having overseas market due to import restrictions; etc.
(b) Discuss the changing dimension of business environment in India since 1991.           14
Ans: Changing Dimensions of Indian Business
Business Environment is the world around a company over which it has no direct control. It covers many dimensions impacting a company's activities & performance. It is an aggregate of all forces & factors external to the business enterprise, but which influence it's functioning. There is a mutual inter-dependence between business and its environment. A business enterprise is an open system and it continuously interacts with its environment. Businesses take inputs like raw material, capital, labour, energy, etc. from the environment, and transform them into goods & services, and then send them back into the environment. Interaction between business and environment is in various ways such as: exchange of information, resources, influence & power.
There are several layers of influences surrounding a business. The outermost layer, called the macro-environment, consists of dimensions that impact almost all companies in an economy. These factors are the six aspects of business environment - Political, Economical, Social, Technological, Environmental, & Legal.
Political environment: Political environment includes factors like a country's political system, type of government, centre-state relations, public opinion, law & order, nature of government policies towards business - particularly those related to taxation, industrial relations, regulation of business & industry, and foreign trade regulations. It also relates to the stability of the government in power, the risk of major political disturbances, or threats from anti-social elements, terrorists or other countries.
In the period prior to liberalisation, India's annual growth rate was low at around 3.5%, only a few licenses were given out for important sectors like steel, electrical power, energy and communication, and these licence owners built up powerful corporate empires. India at that time was a socialistic economy with excessive govt. control. Core industries were directly managed by the govt. as public sector enterprises and banking and airline industries were nationalised. A huge public sector emerged and state-owned enterprises made large losses. There was public sector monopoly and investment in infrastructure was poor. Licence Raj established the self-perpetuating bureaucracy that still exists in India and corruption flourished under this system.
GOI began the process of privatisation in 1991. Privatisation means having private ownership, management and control into public sector undertakings. The purpose of privatisation is to improve the efficiency of public undertakings and to raise funds for public investment. As a result financial institutions have become more active, working culture is improving and management is being professionalised, there is improvement in technology, better investment behaviour of Indian entrepreneurs and companies are aware of the significance of human capital. The banking, financial services & insurance (BFSI) and airline sectors have become extremely competitive, but are in need of reforms. There have been some negative effects like curtailed growth in some industries, reduced employment opportunities due to adoption of capital intensive technology, sell-outs & takeovers by foreign companies, losing markets and declining capacity utilisation.
Economic Factors: Economic factors relate to the general condition of the economy within which a business operates. It comprises of the factors and forces concerned with means of production and distribution of wealth. It refers to the nature of economic system, economic policies of the country, organisation of capital & money markets, GDP, income level, growth rate, inflation rate, interest rates, money supply, and unemployment rate. The Indian economy is currently the 9th largest in the world by nominal GDP and the 4th largest by purchasing power parity (PPP). Economic growth rates are projected at around 7.5%-8% for the financial year 2011-2012.
Economic Liberalisation was when India adopted free market principles and it included opening India for international trade and investment, deregulation, initiation of privatisation, tax reforms and inflation-controlling measures. The fruits of liberalisation reached their peak in the year 2007 as India reached its highest GDP growth rate of 9%. With this India became the 2nd fastest growing economy in the world, next only to China.
However dealing with powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies, are some areas that still need economic reforms. India will soon allow foreign direct investment (FDI) in the retail industry, as it has been passed by the cabinet.
Globalisation is a process of integration of business activities and growing economic inter-dependence between countries in the world economy. Growing similarities of countries in terms of availability of infrastructure led to globalisation. It has exposed firms to international competition, resulting in an increase in employment opportunities and widening of competition.
The impact of these economic reforms was that total foreign investment in India grew manifold and cities like Ahmadabad, Bangalore, Chennai, Hyderabad, Pune, NOIDA, Gurgaon, Ghaziabad, Jaipur and Indore have risen in prominence and economic importance. They have become centres of rising industries and destination for foreign investment and firms. With GDP growth predicted to be around 8% over this decade, India is set to reap the benefits of development.
Socio-cultural environment: Socio-cultural environment covers factors such as social customs, traditions, culture, lifestyle, attitude of people, saving & spending patterns, size of population, demographic profile, education level, occupational structure, trade unions, and other factors that influence and describe the behavioural characteristics typical of the people. It would also include the Corporate Social Responsibility initiatives undertaken by companies.
CSR in India is in a nascent stage. It is still one of the least understood initiatives in the Indian development sector. A lack of understanding, inadequately trained personnel, non-availability of authentic data and specific information on the kinds of CSR activities, coverage, policy etc. further adds to the reach and effectiveness of CSR programmes. However the situation is changing as CSR is coming out of the purview of 'doing social good' and is becoming a 'business necessity'. The business case for CSR is gaining ground and corporate houses are realising that what is good for workers – their community, health and environment is also good for business.
Technological Environment: Technological dimension covers the nature of technology available and used by an economy. It also covers the extent to which development in technologies are likely to take place. This may be reflected in factors like expenditure on R&D and rate of obsolescence. Technical obsolescence occurs when a new product or technology supersedes the old, and it becomes preferred to utilize the new technology in place of the old. Some examples of technological obsolescence are telephone replacing the telegraph, and DVD replacing VCR. Products are becoming obsolete and getting replaced by newer versions. Not many people will remember the days of the floppy disk. Computers are becoming smaller but faster, and TVs are becoming sleeker with more features.
Environmental factor: Environmental factor refers to the physical or geographical environment affecting the business. It also includes the considerations like environmental pollution, climate change, carbon footprint, etc. Carbon footprint is the total set of greenhouse gas (GHG) emissions caused by an organization, event, product or person. Greenhouse gases can be emitted through transport, land clearance, and the production & consumption of food, fuels, manufactured goods, materials, wood, roads, buildings, and services. The mitigation of carbon footprints through the development of alternative projects, such as solar or wind energy or reforestation, represents one way of reducing a carbon footprint and is often known as carbon offsetting.
Carbon dioxide emissions into the atmosphere, and the emissions of other GHGs, are often associated with the burning of fossil fuels like natural gas, crude oil and coal. The Kyoto Protocol defines legally binding targets and timetables for cutting the GHG emissions of industrialized countries that ratified the Kyoto Protocol. Nations which have failed to deliver their Kyoto emissions reductions obligations can enter Emissions Trading to purchase instruments like Certified Emissions Reductions (CERs) and Emissions Reduction Units (ERUs) to be sold on international markets, in order to cover their treaty shortfalls. Within the next few years China, India and the United States are some of the nations scheduled to start participating in Emissions Trading Schemes.
Legal Environment: Legal or regulatory dimension describes the framework of legislation impacting business. It includes all the laws, legal system and judicial system of the country. A business has to work within the framework of a country's laws and regulations. Laws important to business relate to areas like monopolies & restrictive trade, consumer protection, employment, industrial relations, health & safety, and joint stock companies. Even today industry is subjected to harassment by at least 35-40 various inspectors of the GOI. Every city in Maharashtra has Octroi duty, which leads to long queues at the city borders causing delays of over 24 hours in deliveries. Excise & Customs duty is another area of concern. There is practically no internal mechanism to control corruption in govt. depts. which are manned by high-handed bureaucrats. There also exists massive political patronage & influence leading to corruption on unprecedented scale.
Inspite of dismantling licence raj, for every small thing corporates still need to use middlemen to lobby the govt. depts. setting up manufacturing units in excise-free zones has been a popular option for business houses in India. However there has been random creation of excise-free zones as sops to backward states. Most of these states (with the exception of Uttarakhand) have not bothered to create any infrastructure. Baddi in Himachal Pradesh has no infrastructure to support industries and no sanitation either.
4. (a) What do you mean by economic growth? Explain the main hindrances of economic growth of India.  4+10=14
Ans: Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced. In economics, "economic growth" or "economic growth theory" typically refers to growth of potential output, i.e., production at "full employment," which is caused by growth in aggregate demand or observed output.
 As an area of study, economic growth is generally distinguished from development economics. The former is primarily the study of how countries can advance their economies. The latter is the study of the economic aspects of the development process in low-income countries. As economic growth is measured as the annual percent change of gross domestic product (GDP), it has all the advantages and drawbacks of that measure.
Hindrances/Obstacles in Economic Growth
Some of the major problems in economic growth of India are given below:
1. Misuse of Resources due to Market Imperfections: Main reason for the economic back wardens of the under developed countries is the misuse of resources owing to market imperfections by the market imperfections we mean the immobility of the factors of production , price rigidities, ignorance regarding market , trends static social structure , lack of specialization etc. These market imperfections are great obstacles in the way of economic growth. It is due to market imperfections that productive efficiency in these countries is low, the resources are either unutilized or underutilized and the resources are misallocated. When the resources are perfectly mobile and there is perfect competition among them, they can easily move from one sector to another in search of a better return and in this way they make an optimum contribution to the national output.
2. Low Rate of Saving and investment: Another main reason of the poverty and under development of the under – developed countries is that the rate of saving and investment in these countries is very low. In these countries only5-8 percent of the national income goes into savings, whereas the rate is 15-20 percent and even more in the developed countries. When the rat of saving in a country is low the rate of investment is bound to be low and the rate of capital formation is low too. Since capital per man is low, the productivity is also low productivity being low, the per capita income and the national income too are low.
3. Demonstration  Effect: The under development of the economically backward countries is also due to what has been called the demonstration effect the demonstration effect  increases propensity to consume which reduces the rate of savings and investment . A very important principle has been propounded regarding consumption. That an individual’s consumption does not merely depend on individuals own income but it is very much influenced by the standard of living or consumption of his friends and relations. When a man sees that some of his friends and relatives have refrigerator, scooter, radio or TV set. Thus , consumption does not depend upon absolute real income but on relative level of real income the is consumption expenditure does not depend on our own purchasing power but on what in being spent by other son the purchase of luxury articles.
4. Rapidly Growing Population: In the under – developed countries, especially in the over populated countries of Asia, population increases very rapidly. this has very adversely affected their rate of economic growth. In fact rapid population growth is the greatest obstacle to economic growth. Whatever increase takes place in the national output and income in such countries as a result of development is devoured by the ever pouring torrent of babies. It is like writing on the sand. That is why their standard of living and income per capita cannot rise. For example the major part of increase in national income that has accrued in India during the five year plans has been nullified by the rapid population growth.
5. Social and political obstacles to growth: There are several other factors which have retarded the economic growth of under developed countries, Among this we may mention the following in the under developed countries like India agriculture has been carried on in a very inefficient manner. Lack of adequate irrigation facilities and fertilizers, primitive agricultural practices. Poverty of the peasant out molded systems of tenure. The under developed countries are generally wanting in dynamic entrepreneurship. No wonder trade and industry have been conducted at a very low level and few new grounds have been broken. Economic development requires an army of trained and skilled personnel who serve as instruments of economic progress these the under- developed countries lack and consequently remain backward. Not only have the economic factors handicapped economic progress of the under developed countries but social factors too. Have played their part to keep them economically backward. has divided the Indian society into ware tight compartments and has rendered co operation in the economic sphere impossible. It has created divergence between aptitude and the occupation actually pursued. By making functions here dietary. It killed imitative and enterprise. Untouchability   has demolished millions of our propel striking at the very root of dignity of labour.
6. Economic Factors Impeding Growth: Most of the countries of Asia and Africa, which are under developed, have been at one time or another under an alien rule. The most important cause of poverty in India and it’s under- development is its subjection to the British rule. The foreign rulers, naturally, exploited the dependent countries and used their resources to promote their own interest. These countries were made to supply raw material at low prices. The foreign industrialist also made investments in primary industries such as mining, drilling of oil wells, tea, coffee etc. Thus the foreign masters used these countries as suppliers of raw materials to their industries and markets for their manufactured goods. They did not take any interest in their economic development.
(b) What do you mean by economic environment of business? Explain the elements of economic environment of business.                             4+10=14
Ans: ECONOMIC ENVIRONMENT: Economic environment consist of Grosse national product, corporate profits, inflation rate productivity, employment rates, interest rates, debt and spending economic environment has stronger influence over organization policies and action. The survival and success of each and every business enterprise depend fully on its economic environment. The three main factors/components that affect the economic environment are:
(a)    Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital etc.
(b)   Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, Monetary policy, Foreign investment policy, Export –Import policy (Exim policy)
(c)    Economic System: The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
(d)   Economic Planning: The management of national economy must begin with national level economic planning within the framework provided by the general economic policy of the government. An economic planning is a mechanism for allocation of available resources and encourages efficient decision making process in an economy to achieve pre determined objectives of plans like increasing growth rate, reducing inflation, creating employment , obtaining self sufficiency etc. A government plays an important role as it has the authority of drafting and implementing financial plans keeping in mind the interest of various business industries and social welfare.
(e)   Regional economic groups: They promote cooperation and free trade among members by removing tariff and other restrictions. They provide opportunities to member countries and threats to non-member counties. Examples are: SA ARC: South Asian Association for Regional Cooperation. ASIAN: Association of South East Asian Nations. EU: European Union.
5. (a) Discuss the salient features of New Industrial Policy of India, 1991.                                 14
Ans: New Industrial Policy, 1991: In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:
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.
e)      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:
f)       The Government reduced the number of industries under compulsory licensing to six.
g)      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.
h)      Government will encourage foreign trad­ing companies to assist Indian exporters in export activities.
i)        Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
j)        Automatic permission was now granted for technology agreements with foreign companies.
k)      Relaxation of MRTP Act (Monopolies and Restrictive Practices Act) which has almost been rendered non-functional.
l)        Dilution of foreign exchange regulation act (FERA) making rupee fully convertible on trade account.
m)    Disinvestment was carried out in case of many public sector industrial enterprises incurring heavy losses.
n)      Abolition of wealth tax on shares.
o)      General reduction in customs duties.
p)      Provide strength to those public sector enterprises which fall in reserved areas of operation or in high priority areas.
q)      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
a)   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.
b)   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.
c)    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.
d)   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.
e)   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
(b) Explain the EXIM Policy of India.                       14
Ans: Export – Import Policy or Foreign Trade Policy
No country is self-sufficient in the world today.  Therefore, every country has to import goods and to pay for imports it has to export goods to other countries.  The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage.  But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports. 
India's Foreign Trade Policy also known as Export Import Policy (EXIM) in general, aims at developing export potential, improving export performance, encouraging foreign trade and creating favorable balance of payments position. Foreign Trade Policy is prepared and announced by the Central Government (Ministry of Commerce). Foreign Trade Policy or EXIM Policy is a set of guidelines and instructions established by the DGFT (Directorate General of Foreign Trade) in matters related to the import and export of goods in India.
The foreign trade policy, has offered more incentives to exporters to help them tide over the effects of a likely demand slump in their major markets such as the US and Europe. Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP). While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries.
EXIM Policy Governing Body
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.
The EXIM Policy is updated every year on the 31st of March and the modifications, improvements and new schemes became effective from 1st April of every year. All types of changes or modifications related to the EXIM Policy is normally announced by the Union Minister of Commerce and Industry.  Union Minister of Commerce and Industry co-ordinates with the Ministry of Finance, the Directorate General of Foreign Trade and network of DGFT Regional Offices.
DGFT (Directorate General of Foreign Trade) is the main governing body in matters related to EXIM Policy. The main objective of the Foreign Trade (Development and Regulation) Act is to provide the development and regulation of foreign trade by facilitating imports into, and augmenting exports from India. Foreign Trade Act has replaced the earlier law known as the imports and Exports (Control) Act 1947.
Indian EXIM Policy contains various policy related decisions taken by the government in the sphere of Foreign Trade, i.e., with respect to imports and exports from the country and more especially export promotion measures, policies and procedures related thereto.
The principal objectives of the policy are:
a)      To facilitate sustained growth in exports of the country so as to achieve larger percentage share in the global merchandise trade.
b)      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.
c)       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.
d)      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.
e)      To generate new employment opportunities and to encourage the attainment of internationally accepted standards of quality.
f)       To establish the framework for globalization.
g)      To promote the productivity competitiveness of Indian Industry.
h)      To augment export by facilitating access to raw material, intermediate, components, consumables and capital goods from the international market.
i)        To promote internationally competitive import substitution and self-reliance.
6. (a) Explain the concept of ‘International Economic Grouping’. Discuss its importance on the economic development of India.                    4+10=14
Ans: International Economic Grouping
After the Second World War, when the entire economy of the world was destroyed and a transformation was going on from the wartime economy to peacetime economy, the world leaders have started to give thought on the line of increasing the world trade. After the two world wars the countries of the world erected tariff wall to reduce import. This ultimately resulted in fall in trade. Secondly, the need was felt for an international institution which will monitor and act as the regulator of the world trade. All these come out in the form of General Agreement on Trade and Tariffs (GATT). Later on it was replaced by world Trade Organization (WTO). At the regional level also several groups emerges to promote cooperation and trade at the regional level. Some of these are ASEAN and SAARC. After the World War II, in order to revive the international monetary system a necessity was felt for an international financial institution to support the economies which were damaged due to the war and also to help the countries to run their economy efficiently. So, two international financial institutions came out which are International Monetary Fund and World Bank.
GATT / World Trade Organisation and its Impact on Indian economy
The first half of the 20th century was marked by a major worldwide economic depression that occurred between the two world wars and that all but destroyed most of the industrialized nations. International trade got a setback when after the First World War countries erected high tariff walls and raised other tariff barriers to intolerable heights. All this resulted in to the great depression. This was also one of the fundamental reasons of the World War II.
After the Second World War leaders creates General Agreement on Tariffs and Trade (GTTO), to avoid the repletion of the same. GATT was a forum for the member countries to negotiate a reduction of tariffs and other barriers to trade. Countries including India signed the GATT. The original agreement provides a process to reduce tariffs and created an agency to serve as a watchdog over world trade.
GATT came into existence with effect from 1st January 1948 and remained in force till December 1994. Various rounds of negotiations have taken place under the auspices of GATT to reduce tariff and non-tariff barriers. The last one, known as the Uruguay Round, was the most comprehensive one in terms of coverage of issues, and also the lengthiest one from the point of view of duration of negotiations which lasted over a period of seven years from 1986 to 1994.
One of the key achievements of the Uruguay Round of GATT negotiations was the decision to set up a permanent institution for looking after the promotion of free and fair trade amongst nations. Consequent to this decision, the GATT was transformed into World Trade Organisation (WTO) with effect from 1st January 1995. The head quarters of WTO are situated at Geneva, Switzerland. Establishment of WTO, thus, represents the implementation of the original proposal of setting up of the ITO as evolved almost five decades back.
Though, WTO is a successor to GATT, it is a much more powerful body than GATT. It governs trade not only in goods, but also in services and intellectual property rights. Unlike GATT, the WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states. It is, moreover, a member driven rule-based organisation in the sense that all the decisions are taken by the member governments on the basis of a general consensus. As the principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations, it has a global status similar to that of the IMF and the World Bank. India is a founding member of WTO. As on 11th December 2005, there were 149 members in WTO.
IMF and Its Contribution in Indian Economy
Introduction to IMF: The IMF was established on December 27, 1945 in Washington on the recommendations of Bretton Woods Conference. But it started working on March 1, 1947. The fund has 185 member countries accounting for more than 80 per cent of total world production and 90 per cent of world trade. The purpose of the Fund is to promote international monetary cooperation, to facilitate the expansion and balanced growth of international trade, to promote exchange stability and to prevent unnecessary exchange depreciations, to remove all exchange controls and restrictions and to establish multi-convertibility of all currencies and lastly to help member countries with funds to correct maladjustments in their balance of payments. The fund of the IMF is SDRs 216.75 billion and to replenish its resources it borrows from the world financial markets and member countries. IMF’s own fund is contributed by member countries.
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.
SAFTA is an abbreviation for the South Asian Free Trade Area. It is a proposed free trade agreement between the seven members of the SAARC group. These include Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The ultimate aim of Safta will be to put in place a full-fledged South Asia Economic Union on the lines of the EU. Among its aims are promoting and enhancing mutual trade and economic cooperation by eliminating barriers in trade, promoting conditions of fair competition in the free trade area, ensuring equitable benefits to all and establishing a framework for further regional cooperation to expand the mutual benefits of the agreement.
It could lead to enhancement of foreign investment among Saarc nations. The visible spurt in foreign investment within Asean countries and the increase in investments by India in Sri Lanka and vice versa following the India-Sri Lanka FTA bear testimony to the potential of such agreements in boosting investments.
The agreement can be structured to ensure that such investments don’t harm the domestic industries of member-nations. RTAs, like the proposed Safta, can also catalyse beneficial industrial restructuring in member-countries through cross-border corporate marriages and acquisitions.
(b) What are the objectives of International Monetary Fund? How far is the Government of India benefited from the International Monetary Fund?                                  7+7=14
Ans: IMF: The IMF was established on December 27, 1945 in Washington on the recommendations of Bretton Woods Conference. But it started working on March 1, 1947. The fund has 185 member countries accounting for more than 80 per cent of total world production and 90 per cent of world trade. The purpose of the Fund is to promote international monetary cooperation, to facilitate the expansion and balanced growth of international trade, to promote exchange stability and to prevent unnecessary exchange depreciations, to remove all exchange controls and restrictions and to establish multi-convertibility of all currencies and lastly to help member countries with funds to correct maladjustments in their balance of payments. The fund of the IMF is SDRs 216.75 billion and to replenish its resources it borrows from the world financial markets and member countries. IMF’s own fund is contributed by member countries.
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.
IMF has played an importance role in Indian economy. IMF had provided economic assistance from time to time to India and has also provided appropriate consultancy in determination of various policies in the country. India is the founder member of IMF. It played a significant role in the formulation of Fund Policies. The Finance Minister is ex-officio Governor in IMF Board of Governors. Till 1970, India was among the first five nations having the highest quota with IMF and due to this status India was allotted a permanent place in Executive Board of Directors.
India has taken loans in foreign currencies from IMF or improving its balance of payments imbalances. India has also taken technical consultancy for solving its internal economic problems. The expert groups of the IMF have visited India on various occasions. India is benefited from IMF in the following manner:
1. Independence of the Indian Rupee: Before the establishment of the IMF, the Indian rupee was linked with the British Pound Sterling. But Indian rupee has become independent after the establishment of IMF. Its value is expressed in terms of gold. It is not determined by the Pound Sterling. It means that Indian rupee is easily convertible into the currency of any other country.
2. Membership of the World Bank: India has become a member of the World Bank also by virtue of its membership of the Fund. As a result, India got several loan facilities from the World Bank for the development purposes.
3. Availability of Foreign Currencies: The Government of India has been purchasing foreign currencies from the Fund from time to time to meet the requirements of development activities. The large amount of availability of foreign currencies has greatly promoted the economic development of the country.
4. Reputation in International Circle: India is one of those six countries which have occupied a special place in the Board of Directors of the Fund. Thus, India had played a creditable role in determining the policies of the Fund. This has increased India’s prestige in the international circles. India takes keen interest in the formulation of Fund’s policies.
5. Guidance and Advice: Being member of the Fund, India got the expert opinion from the Fund for solving its economic problems. The attitude of the Fund towards India has always remained sympathetic. The Fund has given valuable advice to the Government of India with regard to the financing of the Five-Year Plans.
6. Timely Help: India has received timely help from the Fund to eliminate the deficit on its balance of payments. The Fund granted loans to meet the financial difficult is arising out of the Indo-Pak conflict of 1965 and 1971. Thus, the fund has given timely help to solve economic crisis.
7. Freedom from Sterling: Indian rupee was convertible into other currencies through the medium of sterling before becoming the member of the fund. With the fixation of paper value of the rupee in gold, Indian currency is now freely convertible into any other currency.
8. Sale and Purchase of Foreign Exchange: Fund has entrusted the sale and purchase of foreign exchange worth more than Rs. 2 lakh to Reserve Bank of India. The latter cannot enter into any transaction of foreign exchange that is of the value of less than Rs. 2 lakh.
9. Economic Consultation: In the financial management of Five- Year Plans, IMF has given valuable advice to Government of India and to suggest measures for its economic development.
10. Help during Emergency: India got a large amount of financial assistance from the Fund to solve its economic crisis arising due to natural calamities like flood, earthquakes, famines etc.
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1. Answer as directed:                                                   1x8=8
a)      Mention any one natural element of business environment.      Ans: Legal Environment
b)      Mention one drawback of privatization.                                Ans: Concentration of economic power
c)       Economic growth always increases welfare. (Write True or False)         Ans: False
d)      Write the full form of MRTP.                       Ans: Monopolistic and Restrictive Trade Practices
e)      Mention one objective of the IMF.          Ans: To Provide fund to the member countries
f)       In which year was the World Trade Organization set up?                               Ans: 1995
g)      Write one function of capital market.                     Ans: To Provide long term funds to the industries
h)      Write the full form of GATT.                        Ans: General Agreement on Tariffs and Trade
2. Write short notes on the following:                                     4x4=16
a)      External factors of business environment.
b)      Phases of business cycle.
c)       International Monetary Fund.
d)      Differences between capital market and money market.
3. (a) Explain the concept and significance of business environment.                       6+6=12
(b) Discuss the internal factors of business environment.                                               12
4. (a) Discuss the causes of industrial sickness with reference to North-East India.              11
(b) What do you mean by economic environment of business? Explain the elements of economic environment of business.                    4+7=11
5. (a) Explain the concept of privatization. Discuss its advantages and disadvantages.       4+7=11
(b) What is Special Economic Zone? Explain the causes for developing the Special Economic Zones. What is the role of such a zone in fostering economic development of a country?                                                              2+5+4=11
6. (a) What is meant by monetary policy? Discuss the objectives of monetary policy in a developing economy.  4+7=11
(b) Discuss the role of monetary policy in promoting savings and investment in developing countries.                     11
7. (a) Discuss the impact of globalization on Indian trade and industry.                                 11
(b) Prepare a note on International Business Environment.                        11

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