Professional Documents
Culture Documents
UNIT – 1
1. VALUES:
Business like other social institutions, develops certain belief systems and
values for which they stand, and there beliefs and values are a source of
institutional drive. These values drive from a multitude source, such as the mission
of business as a social institution, the nation in which business is located, the type
of industry in which it is active and the nature of employees. These values become
guides for employee’s decisions in the interface of business. Second, they become
strong motivators for people in a business.
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2. VIABILITY
Davis and Blomstorms define viability as the drive to line and grow, to
accomplish the potential not yet reached, and to achieve all that a living system is
capable of becoming. If a business is to be a viable, vigorous, institution in
society, it must initiate its share of forces in its own environment rather than
merely adjust to outside forces. Every business needs a drive and spirit all its own
to make it as a positive actor on the social stage rather than reactor or a reflector.
3. PUBLIC VISIBILITY
The term public visibility refers to the extent that organizations activities
are known to person outside the organization. Public visibility is different from
idea of public image. The term public image refers to what people think about an
organizations act, while are known. The importance of public visibility is that it
subjects business activities to public examination, discussion and judgment.
1. Value system: The value systems of the founders and those at the helm of
affairs have important bearing on the choice of business, the mission and
objectives of the organization, business policies and practices. It is a widely
acknowledged fact that the extent to which the value system is shared by all in
organization is an important factor contributing to success.
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2. Mission and Objectives: The business domain of the company, priorities,
direction of the development, business philosophy business policy etc are
guided by the mission and objective of the company.
Example: Ranbaxy’s thrust in to the foreign markets and developments have been
driven by its mission – “to become a researcher based international pharmaceutical
company.”
The Board of Directors being the highest decision making body which sets
the direction for the development of the organization and which oversees the
performance of organization, the quality of the Board is a very critical factor for
the development and performance of company.
5. HUMAN RESOURCES
The characteristics of the human resources like skill, quality, morale,
commitment, attitude etc., could contribute to the strength and weakness of the
organization.
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6. COMPANY IMAGE AND BRAND EQUITY
The image of the company matters while raising finance, forming joint
ventures or other alliances, soliciting marketing intermediaries, entering purchase
on sale contracts, launching new products etc. Brand equity is also relevant in
several of these cases.
7. OTHER FACTORS
A) Research and development determine a company’s ability to innovate and
compete.
B) Marketing – quality of marketing men, brand equity, distribution network
have direct effect on marketing.
C) FINANCE 0 financial policies; financial position and capital structure are
also affecting business performances.
D) Physical Assets – production capacity, technology, distribution logistics
I. Micro Environment
The micro environment is also known as the task environment and
operating environment became the micro environment forces have a direct bearing
on the operations of the firm.
These include the factors like …
1. SUPPLIERS
An important force in the micro environment of a company is the suppliers,
i.e. those who supply the inputs like raw materials and components to the
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company. The importance of reliable source of supply is for the smooth
functioning of business.
2. CUSTOMERS
A business exist only became and its customers. A company may have
different categories of customers like individuals, households, industries and other
commercial establishment and govt. and other institution.
3. COMPETITORS
A firm’s competitors include not only other firms which market the same
products but also all those who compete for the discretionary income of the
consumers.
4. MARKETING INTERMEDIARIES
The immediate environment of the company may consist of number of
marketing intermediaries which are “firms that aid the company in promoting,
selling and distributing its goods to final buyers.”
5. FINANCIERS
Another important micro environmental factor is the financier of the
company. Besides the financing capabilities, their policies and strategies, attitudes,
ability to provide non financial assistance etc are very important.
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6. PUBLICS
“A public is any group that has an actual or potential interest in an impact
on an organizations ability to achieve its interests.” Media publics, citizen action
publics and local publics are some examples.
MACRO ENVIRONMENT
It is also called as general environment and remote environment. The macro
environment is generally uncontrollable than micro environment, the success of
the company depends on its adaptability to the environment.
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3. Demand conditions
The size of demand influences the choice of the technology . The size of
demand influences the choice of the technological scale. Fast growing trend of
demand would encourage development of technology of large scale.
4. Suppliers offering
Many times technological changes are encouraged by the suppliers of a
company, like a capital goods supplier etc.
5. Competitive dynamics
Competition compels the adoption of the best technology and constant
endeavor to innovate.
6. Substitutes
Emergence of new substitutes or technological improvements or substitutes
which alter technological change.
7. Social forces
Certain social forces like pretext against environment pollution or other
ecological problems demand for eco-friendly products.
8. Research organization
The technological environment of business is enriched by researched
organizations which develops new technologies and provide other technical inputs.
9. Govt. policy
The govt. contributes to the development to the technology by its own
direct involvement by establishing research organization and funding R & D. The
govt. may encourage private R & D by various incentives.
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II. DEMOGRAPHIC ENVIRONMENT
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economy, the stage of development of economy, economic resources, level of
income, global economic linkages, economic policies etc.
Low income economies are economies with very low per capita income.
High income economies are economies with very rich income per capita. Middle
income economies are sub divided into lower middle and upper middle income
where income per capita is neither very high nor low.
3. Economic policies
There are several economic policies which can have very great impact on
business. Important economic policies are
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a) Industrial policy
It defines the scope and role of different sectors like private, public, joint
and cooperative. It may influence the location of industrial undertakings. Choice
of technology, state of operation, product mixes etc.
b) Trade policy
It can affect the fortunes of firms. For example a policy of protecting the
home industry may greatly help the import competing industries, while liberation
of the impart policy may create difficulties for such industries. This mean the firm
should come up with quality, cost, and marketing and after sales service etc.
e) Fiscal policy
Govt. strategy in respect of public expenditure and revenue can have
significant impact on business. The pattern of public expenditure may affect the
develop of industries. Such as govt. often use tax incentives or disincentives to
encourage or discourage certain activities. For ex: when industry suffers from
recession, a reduction of taxes like excise duty or sales tax may help improve the
demand.
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f) Monetary policy
The central bank, by its policy towards the cost and availability of credit,
can significantly influence savings, investments and consumer spending in
economy. For example – 1% reduction in cash reserve ratio will significantly
increase loan able funds with commercial banking systems.
The natural environment determines what can be got done in a society and
how institution can function. Resource availability is the fundamental factor is the
development of business in the society.
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Weather and climatic factors affect the demand of certain types of products.
E.g. in region where temperature is very high in summer, there is good demand for
desert coolers.
Weather and climatic factors can affect the demand pattern of clothing,
building materials, food, medicines etc. further, weather and climatic conditions
may call for modification to the products, packaging storage conditions etc.
1. Responsibility to shareholders
The responsibility of a company to its shareholders, who are owners is a
primary one. The fact that the investments in the business should be recognized.
To protect the interests of the shareholders and to provide a reasonable dividend,
the company has to strengthen and consolidate its position.
2. Responsibility to employees
The success of an organization depends to a very large extent on the morale
of the employees and their whole hearted co-operation.
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1. The payment of fair wages
2. The provision of best possible working condition
3. Establishment of fair working standards and norms
4. The provision of labor welfare facilities to the extent possible and desirable
5. Arrangements for proper training and education of the workers
6. Reasonable chances and proper system for accomplishment and promotion
7. Proper recognition, appreciation and encouragement of special skills and
capabilities of workers.
8. The installation for efficient grievance handling system
9. An opportunity for participating in managerial decisions to the extent
desirable.
3. Responsibility to consumers
The customer is the foundation of business and keeps it in existence. It has
been widely recognized that customer satisfaction shall be the key to satisfying the
organizational goals. Some important responsibilities of business to customers are
–
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6. To provide sufficient information about the product including adverse effects,
risks and care to be taken while using the products.
7. To avoid misleading the customers by improper advertisement.
8. To provide opportunity for being heard and to redress genuine grievances.
9. To understand customer needs and to make necessary measures to satisfy these
needs.
4. Responsibility to community
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BUSINESS ETHICS AND CORPORATE SOCIAL RESPONSIBILITY
BUSINESS ETHICS
The term business ethics refers to the system of moral principles and rules
of conduct applied to business. This means that the business should be conducted
according to certain self-recognized moral standards. Business, being a social
organ, shall not conduct itself in a way detrimental to the interests of society and
the business sector itself. A profession is bound by certain ethical principles and
rules of conduct which reflect its responsibility, authority and dignity. The
professionalization of business management, should therefore, be reflected in the
increasing acceptance of business ethics.
NOTE: In the 1930’s Rotary International developed the code of ethics that is still
used extensions. It uses 4 questions that are called the 4 way of ethical behavior
for any business forces –
• Is it truth?
• Is the fair to all concerned?
• Will it build goodwill and friendship?
• Will it be beneficial to all concerned?
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4. Ensure sincerity and accuracy in advertising, labeling and packaging.
5. Do not tarnish the image of competitors by unfair practices.
6. Make accurate business records available to all authorized persons.
7. Pay taxes and discharge other obligation promptly
8. Do not farm cartel agreements, even informal, to control production, price etc
to the common detriment.
9. Refrain from secret kickbacks on payoffs to customers, suppliers,
administrators, politicians etc.
10. Ensure payment of fair wages to and fair treatment of employees.
Objectives
1. To build up an environment of trust and confidence amongst those having
completing and conflicting interest.
2. To enhance shareholders value and protect the interest of other shareholders by
enhancing the corporate performances and accountability.
- Transparency
- Accountability
- Investor protection
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- Societal needs
- Value creation for stakeholders
1. Regulatory Role
Government regulation of the business may cover a broad spectrum
extending form entry into business to the final results of business. The reservation
of industries to small scale, public and co-operative sectors, licensing system etc.,
regulate the entry. Regulations of product mix, promotional activities etc., amount
to regulation of conduct to business. The state also regulates relationship between
enterprises.
2. Promotional Role
The promotional role played by the government is very important is
developed as well as in duping countries. In developing countries, where the
infrastructural facilities for development are inadequate and entrepreneurial
activities are scarce, the promotional role of the govt. assumes significance. The
state will have to assume direct responsibility to build up and strengthen
infrastructure such as power, transport, finance, marketing, institutions for training
and other promotional activities.
The promotional role of the state also encompasses the provisions of fiscal,
monetary and other incentives and development of priority sectors and activities.
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3. Entrepreneurial Role
Entrepreneurial role includes establishing and operating business
enterprises and bearing risks. A number of factors such as socio-political
ideologies, dearth of private entrepreneurship, absence of inadequate competition
in certain segments and resultant exploitations of consumers have contributed for
the growth of state owned enterprises.
4. Planning role
State plays an important role as planner.
GLOBAL ENVIRONMENT
Globalization is an attitude of mind – which views the entire world as a
single market so that the corporate strategy is based on the dynamics of the global
business environment.
1. Business freedom: There should not be necessary govt. restriction like import
restriction, foreign investments etc.
2. Facilities: Enterprise can develop globally from home country bare depends on
facilities available like the infrastructural facilities.
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3. Govt. support: Govt support can encourage globalization, like infrastructural
facilities, R & D support, financial market reforms.
How to go global?
Important foreign market entry strategies –
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7. Assembly operations: Assembly facilities in foreign markets are very ideal
when there are economies of scale in the manufacture. When an assembly
operations are labour intensive and labour is cheap in foreign country.
10. Mergers and acquisitions: It have very good market entry strategy as well
as expansion strategy. It provides instant access to markets and distribution
network.
11. Strategic alliances: It is also used as market entry strategy it is also known
as coalition, this strategy seeks to enhance the long term competitive
advantage of the firm by farming alliance with competitors.
12. Counter trade: It is a form of international trade in which certain export and
import transaction are directly linked with each other.
Types of Mergers
1. Horizontal Merger: Takes place where the two margin companies’ products
similar product in the some industry. E.g. in 1998 – combination of
Chrysler cooperation and similar sense to create Dainles Chrysler.
2. Vertical Merger: Occur when two firms each working at different stages in
the production of the same good combine. E.g. General Motors acquisition
of fisher body company (an auto parts manufacturer).
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Conglomerate Mergers: takes place when two firms operate in different industries.
E.g. Acquisition of Montgomery Ward and Co., (a retailer) by Mobil Oil
Company)
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UNIT – 2
Mixed economy of India consists of public and private sector. Policy on the
public sector has been guided by the Industrial Policy Resolutions 1956 and 1991
which gave a strategic role in the economy. India was based agrarian economy
with weak industrial base, low level savings and investments and near essence of
infrastructural facilities.
Public sector
The object of accelerating the pace of eco-development and the political
ideology, gave the public sector a dominant role in the industrial development of
the nation led to rapid growth of the State Owned Enterprises (SOEs) sector in
India.
Objectives:
It was promoted as an instrument for implementation of the govt.’s socio-
eco policies.
1. To help in the rapid eco growth and development and industrialization of the
country and create the necessary infrastructure for economic development.
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2. To earn return on investment and thus generate resources for development.
3. To promote redistribution on income & wealth
4. To create employment opportunities
5. To promote balanced regional development
6. To assist the development of small scale and ancillary industries
7. To promote import substitution, save and earn foreign exchange for the
economy.
PSEs as a whole have made huge profits mainly because of the enormous
profits made by several public sector monopolies. Many of the loss making PSE
have been either in non-priority sectors or in the sectors where the private sector
has proved to be more efficient.
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Why PSE fails?
Even though formulation of plan is good.
Why PSE?
1. PSE not only for commercialization but to generate employment, promoting
balanced regional development etc.
2. Low return on investment on account of price constraints imposed on certain
infrastructural goods and services of PE.
3. Sick industries taken over by PU.
4. Promoted with long gestation period
5. Periodical wage revision.
New PS policy:
Policy announced on 24-7-1991 the priority areas of growth.
1. Essential infrastructure goods and services
2. Exploration & exploitation of oil and mineral resources
3. Technology development & building of manufacturing capabilities, long
term development of economy
4. Manufacture of goods where strategic considerations
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PSE-8
1. Arms & ammunition: defence equipment, aircraft
2. Atomic energy
3. Coal & Lignite
4. Mineral oils
5. Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and
diamond.
6. Mining of copper, lead, zinc, tin, molybdenum, wolframite
7. Mineral specified in the schedule to the AE (control of production & use)
order 1958.
8. Railway transport
The new industrial policy also indicated that the public sector would
withdraw from the following cases:
Govt. policies:
1. Bring down govt. equity in all non-strategic PSU to 26% or lower, if
necessary.
2. Restructure & revive potentially viable PSUs
3. Close down PSUs which cannot be revived
4. Fully protect the interest of workers
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A disinvestment department was also set up.
GAIL & MTNL were given same status. All these were given freedom to incur.
1. Capital expenditure
2. Decide on joint venture
3. Set up subsidiaries/officers board
4. Enter into technology & strategic alliances
5. Raise funds from capital markets (international & domestic)
6. Enjoy substantial operations and managerial autonomy
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Private Sector
The Industrial Policy Resolution of 1956 has made it very clear that “as an
agency for planned national development, in the context of the country’s
expanding economy, the private sector will have the opportunity to develop &
expand. Outside the schedules of A&B would be undertaken ordinarily through
the initiative and enterprise of the private sector. It was the policy of the state to
encourage the development of these industries in the private sector, in accordance
with the programmed formulated in successive Five Year Plans, by ensuring the
development of transport, power and other services and by appropriate fiscal and
other measures.
The IPR of 1956 has clearly stated that the “private sector have necessarily
to fit into the frame work of the social & economic policy of the state and will be
subject to control & regulation in terms of industries (Development & regulation)
Act and other relevant legislation. Private sector is dominant in the FMCG, Capital
Goods Industries.
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consumer sovereignty. Consumption plan in a centrally planned economy is
dictated by state. Ex: USSR, Chez Republic, Hungary, Poland and China.
2. In b/n capitalist and free market economic system is the mixed economy,
under which both public & private sector co-exist as in India. In many
mixed economies, the strategic & other nationally very important industries
are fully owned or dominated by the state.
3. The freedom of PS is the greatest in the market economy.
In market economy
a. The factors of production (labour, land, capital) are privately owned.
b. Income is in monetary form – from sale & profits
c. Members have freedom of choice – consumption, occupation,
savings and investment.
d. Not planned, controlled and regulated by govt.
This is far from real one. Ex: US, Japan, Australia and Canada
Structure of Economy
The contributions of sectors like primary (agri), secondary (industrial) and
tertiary sectors form structure of economy.
The share of service sector increased from 1980 – 39% to 46% in 2000 in
India. Internationally it has increased 1990 – 12%.
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This indicates decrease in price, increase in quality, increase in
competitiveness of downstream industries.
Formulation of Plans: To prepare five year plan usually spread over a period of 2-
3 years.
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Fourth got delayed due to disrupted the development process like the aggressions
of China & Pakistan and severe drought in the country.
1965-66 – Fall income, increase in price, decrease in savings, devaluation of rupee
by 36.5% in June 1966.
4th Five Year Plan was put off by 3 years. This period had annual plans (66-67, 68-
69). This period is referred to as “Plan Holiday.
Central Change: Premature end to five year plan, Janata Party in 1977 terminated
the 5th plan at the end of 4th year i.e. March 1978 instead of 1979 and formulated a
draft five year plan for 1978-83. It also introduced the concept of “Rolling Plan.”
Under this plan “when one year elapses another year is added to the planning –
horizon so that we will always have a ‘Five year plan.’
Objectives:
1. utilization of the natural resources
2. Ultimate removal of unemployment & poverty
3. Increased standard of living
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Increase in GDP, increased human well being, consumption of food and
other consumer goods, but also education, health, availability of drinking water
and basic sanitation.
Performance
Although we have failed to achieve targets & 30% still under poverty line.
India is one of the largest industrial powers in the world and has the 3rd largest
stock of scientific manpower.
Characteristics of Industries
Until 1991, the development of the private sector was under strict Govt.
control, was exercised through industrial licensing. Low like the Industries
(Development & Regulation) Act, the Companies Act gave enormous control over
the management and control of functioning of the industries. The M.R.T.P. Act
controlled merges, amalgamations and takeovers.
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Capital Goods Vs Consumer Goods
Basic and capital goods were considered as pride of place and the consumer
goods given low priority. In the process of capital accumulation, certain capital
intensive or large scale, sectors producing non-importable commodities, transport,
electricity are bound to grow. Imports cannot be expanded.
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Substitution Industrializaiton Strategy (ISI) followed in India has had adverse
effects. The high protection from foreign competition, resulted in high costs, poor
quality, indifference towards consumers and lack of innovativeness.
In mid 1950’s Jute & cotton industries (textiles) were denied foreign
exchange and with liberalization non-essential industries were given import
substitution.
The import restrictions, high costs and poor quality also very severely
affected India’s export performance.
Capacity Utilization
Under utilization – amounts to wastage of scarce resources, leads to cost-
push inflation. Creates demand supply imbalance, affect balance of trade,
employment, saving and investment. Under utilization of Industrial policy is due
to factors like as “planned excess capacity” calculated to meet the demand in the
foreseeable future, tech “invisibilities” which may create capacity in excess
[present demand]; and “initial testing” troubles of new industries which is
incapable in the developing economy.
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An Evaluation
Since 1951, large investments have been made in building up capacity over
a wide spectrum of industries. India is a major industrial power in world.
7th year revival states:
1. Substantial diversification
2. Produce large & broad range of industrial products
3. Self-reliance [achieved]
4. Capital & basic goods contribute 1½ of total value added in manufacturing
5. Virtual sufficiency achieved
• Between 1950 & 2000, IP increased 22 fold.
• GDP increased by 13% in 1950-51 to 25%, 50 years of
industrialization
• Technological, managerial, operational development
• Development of skilled manpower was also achieved.
Agricultural Sector
Agriculture contributes over 1/4th of India’s GDP, provides 2/3rd of
population livelihood, supplies raw materials for number of industries and
contributes 1/5th of the export earnings. The rural market accounts for well over
55% of the demand of FMCGs.
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4. Eighties – Attention to markets & trading investments frame work to
minimize the handicaps of small & marginal farmers and maximize benefits
of agri.
According to these projects the Irrigation department may use water in bulk
from the agency at mutually agreed price for distribution to the farmers. It also
been mobilized through issue of public bonds.
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The most far reaching event was the introduction of high yielding varieties
(HYV) of a number of field crops and hybrids of millets in particular. This covers
wheat, rice, maize, jowar and bajra. Has revolutionalized agri and increased
production of foodgrains in country. The HYV increases demand for plant
nutrients and protectants like fertilizers, insecticides and pesticides.
Banks are also giving credit to agri projects (RRB), commercial banks and
primary co-operative are the major source.
For all related activities and finances relating to it. NABARD – National
bank for Agricultural & Rural Development was established – plays financial and
development roles of RBI and Agri Refinance and development Corporation
(ARDC).
1971 – The Agro Service Centre Scheme – Employment for trained entrepreneurs,
Inputs at door step of farmers.
1965 – The Food Corporation of India
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Agricultural Marketing:
6th Plan – Three essential elements of marketing.
1. Support prices adjusted with cost of production to ensure fair returns to the
farmers.
2. Arrangements for procurement of agri produce at support prices, if prices
decrease.
The organization look after this is Food Corporation of India, The Cotton
Corporation of India, The Jute Corporation of India and the Co-operatives with the
National Agricultural Cooperative Federation of India (NAFED) as their Apex
Organization.
Regulated Markets:
The regulated market is a market where the activities are regulated by law
and is meant for dealing in a specific commodity or group of commodities.
The main objective of the regulated market is to save the farmers from the
exploitation of unscrupulous market intermediaries and to ensure a fair price for
their produce.
Co-op Marketing: It was started to help small farmers, grains & agri products are
graded and stored and sell at advantageous price. Marketing is the important
function of co-op. marketing.
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Agri commodities like wheat and paddy have procurement prices fixed for
them.
Minimum Support Prices: for barley, gram, moong, urad, mustard, ground nut,
sunflower seed, soyabean and cotton (kapas).
Statutory Minimum Price: for sugarcane, jute and tobacco.
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Contribution of service to value added as % of GDP.
Region/country 1980 1990 1999
World 56 60 61
High Income Economics 59 64 64
Low and Middle Income economies 42 46 54
(developing countries)
India 39 42 46
Trends in GDP
Govt. expenditure as % of GDP
10% in 20th century
20% in 1960
50% in 1995
In developing countries, the central govt. expenditure was nearly 15% of
GDP.
Unit – III
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Monetary and Fiscal Policy
Monetary and Fiscal policy are two powerful instruments of economic
management. Why? Necessary? In free enterprise economy.
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6. Health balance of payments
These objectives are met under long-run price stability at maximum feasible o/p.
There are two theories.
1. Keynesian theory
It states that changes in the money supply work their way through the
system in a way that does not result in a close and stable linkage between changes
in the money supply and changes in the level of income.
2. Monetarist theory:
See the close and stable linkage. The monetary transmission mechanism is
the mechanism by which changes in the money supply produce effects that interact
with the real sector to create changes in income and in the price level. Two
primary mechanisms is applied,
Portfolio Mechanism: The way monetary policy affects the assets portfolio of
households and firms. This consists of two major schools of thought.
1. The Keynesian school: Treats changes in the market rate of interest that result
from changes in money supply as the significant aspect of the monetary policy. It
emphasizes on credit effect. To understand this, the households keep their
resources in the form of cost, financial assets (bonds, securities, shares and real
assets (plants and buildings, apartments and land etc.)
Assume that,
Central Bank of the country conducts an open market (exchange) purchase
and increase the money supply. With this cash balance is increased in individual
portfolio and securities with them are exchanged for the central bank notes. This
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creates temporary imbalance of excess cash. To correct this they buy financial
assets. This will continue until no further substitution can be made and is
profitable. By this substitution they increase the value of these assets and reduce
market rate of interest. The reduced rate of interest will inturn encourage the firms
to increase via the investment multiplier. The money supply increase demand –
increase national income and product via changes in the market rates in interest.
2. The Monetarist School: The direct change in the money supply as the most
relevant aspect of monetary policy. They follow Keynesian school but do not hold
the changes in the interest rate as a pre-requisite for the changes in the demand for
goods and service.
II. The Wealth Mechanism: Its based on the manner in which changes in the
quantity of money affect non-human wealth and how this in turn affects aggregate
demand.
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H = Quantity of nominal high powered money [is the sum of currency, required
reserves and excess reserves]
PVK = Market [on nominal present value of cash]
Instruments
Targets of Monetary policy:
The instruments of monetary policy refer to the exo variable that the
Central Bank can change at its discretion with a view to controlling and regulating
the money supply and the availability of credit.
The measures of monetary policy are classified under two categories.
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I. Quantitative measures of monetary control
II. Qualitative and selective credit controls
Why Rediscount?
When commercial banks, faces a shortage of cash reserves, they approach
the Central Bank to get their bills of exchange rediscounted. …. Of its functions –
it is lender of lost Resort Central Bank. For rediscounting the bills of exchange,
the central bank changes the rate. This rate is traditionally called “Bank rate or
discount rate.”
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Bank Rate is the rate which the Central bank charges on the loans and advances to
the commercial banks.
The Central Bank can change this rate - ↑ or decrease depending on whether
it wants to expand or contract the flow of credit from commercial bank. It ↑ credit
creation capacity – reduces discount rate and vice versa. This is called Bank rate
policy or discount rate policy. This was first adopted by Bank of England in 1839.
It was an effective bank of market was introduced in 1922.
Generally, the Central Bank rate is 1% point higher than the discount rate
charged by the commercial banks. E.g. Central banks want to control the flow of
bank credit, to achieve this objective, it will raise the discount rate. This action of
the Central Bank reduces the flow of the credit in three ways.
1. ↑ Discount rate (interest rate) decrease net worth of govt. bonds (treasury
bills and promissory notes), against which commercial banks borrow funds
from the Central Bank. Reduces the banks capacity to borrow.
2. When discount rate of Central Bank ↑, Commercial Bank raises their
discount rate. ↑ DR, ↑ cost of credit, discourages business sector to get their
bills of exchange discounted. It also ↑ interest rate structure and decrease
demand for funds. This policy is called “Dear Money Policy”. A reverse
process is “cheap money policy.”
3. Bankers lending rate is adjusted to deposit rate. ↑ Bank rate, ↑ deposit rate.
This turns borrowers into depositors, savings in bank are in form of
deposits.
Limitations
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1. Effective only when commercial bank borrows from Central bank, because
they have their own financial resources.
2. With growth in credit institutions & financial intermediaries, the Capital
Market has widened. The share of banking credit has declined.
3. Variations in the discount rate become effective only where demand your
credit is interest elastic.
iii) The CSR & SRR: Cash reserve ratio, CRR is the percentage of total deposits
which commercial banks are required to maintain in the form of each cash reserve
with the Central Bank.
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& Additional credit = 75 x 4 = 300 M
i) Credit Rationing: When there is shortage of institutional credit available for the
business sector, the large and financially strong sectors or industries tend to
capture the lions share, in the total instalments. Credit priority sectors and weak
industries are starved of necessary fund and bank credit goes to non-priority
sector.
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a) Imposition of upper limits on the credit available to large industries and
firms.
b) Charging higher interest rate on bank beyond a certain limit.
This was used by RBI first time in 1949. objective is to control speculative
activity in the stock market.
By 1956, extensive use in scarce agricultural products – like food grains,
cotton, oil seeds, vegetable oil, sugar, Khandsari and gur, cotton textile and yarns,
decrease price secures loans. This increases the buying, power and stocking and
future mortgaging and borrowing.
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Limitations of Monetary Policy:
1. The time lag: the time taken in checking out the policy action, its
implementation and working time. Its divided into two parts:
i) Inside tag or preparatory lag:
a) Identifying nature of probability
b) Identifying sources of probability
c) Choice of appropriate policy action
d) Implementation of policy action
ii) Outside lag or response lag:
The time taken by households and the firms to react in response to the policy
action taken by the monetary authorities. This lag is long.
2. Problems in forecasting
Reliable assessment of magnitude of the problem recession or inflation as it
helps in determining the appropriate policy measures.
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FISCAL POLICY
Def: As the govt’s programme of taxation expenditure and other financial
operations to achieve certain in national goals.
Objectives:
1. Eco growth
2. Promotion of employment
3. Economic stability & higher priority
4. Eco justice or equity
RBI was originally established as share holder’s bank in 1935 with the
nationalization in the west central government on January 1, 1949 acquired entire
capital and became a state owned institution.
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Functions of RBI
I. General Central Banking Functions:
The model for RBI is the Bank of England and its Central banking
functions are similar.
2. Bankers to Govt.
It is bankers agent & advisor. The RBI has obligations to transact the
banking business of the central and state govts. It accepts money and makes
payment on the govt. behalf and carry out exchanges and remittances, manages the
public debts and issues new loans.
RBI [Govt]
1. Advices Govt. on quantum and terms of new loans
2. Sells treasury bills
3. Makes wages and means of advance short term loans, repayable within 90
days from the date of advance.
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4. RBI is the sole agent for transacting govt. receipts and payments.
5. Advices on banking policies, financial matters and planning & resource
mobilization.
3. Bankers Bank:
Controls commercial banking system under the RBI Act, 1934 and Banking
Regulation Act 1949. Assists scheduled commercial banks [Banks where affairs
are not conducted in a manner detrimental to depositors interest must maintain a
cash reserve (as decided by RBI). With RBI against their demand and time
liabilities RBI can also direct the bank to maintain 100% CR against all deposits
received after a specified date; these banks should submit weekly statement of
their transactions to the RBI] and state Co-op. Banks. RBI considers factors such
as the financial its tending policy and securities offered. While making advances to
it. It can deny residenting without any reason.
The regulatory functions of RBI under Banks Regulatory Act 1949 are:
1. Licensing of Banks
2. Branch Expansion
3. Liquidity of assets of commercial bank
4. Management and methods of working
5. Amalgamation
6. Reconstruction and liquidation
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2. Banker to the Govt.
It is banker, agent and advisor. The RBI has the obligation to transact the
banking business of the central and state government. It accepts money and makes
payment on the govt. behalf and carry out exchange and remittance, manages
public debt and issues loans.
RBI Govt.
1. Advices govt. on quantum and term of new loans
2. Sells treasury bills
3. Makes ways and means of advance – short term loans, repayable within 90
days from the date of advance.
4. SBI is the sole agent for transacting govt. receipts and payment
5. Advices on banking policies, financial matters.
Developmental activities
RBI established the deposit insurance corporation of India in 1962 with the
12% of period of security to deposits.
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suatium. It also influences commercial banks lending policy, rate of interest, form
of securities against loans and portfolio distribution.
5. Credit control
Has all authority to use qualitative and quantitative methods of credit
control, but are ineffective.
6. Agricultural Finance
Other integrated scheme of agriculture credit was implemented, RBI role
from lender of last resort changed to that of an active agency for promotion of
appropriate specialized agencies of agricultural, finance the setting up of
NABARD in 1982.
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Effectiveness depends on 3 factors
- Commercial banks in the country should not be oversee to availing
rediscounting facility from the central bank.
- Bank do not maintain any excess can be reserve agreement deposit and if
extra ordinary demands are made by the depositors, they should get bills
rediscounted from central bank.
- Banks must hold adequate quantity of such credit instruments which will be
rediscounted by the central bank as per the legislation.
- Last two conditions are not satisfied in India. Firstly commercial bank are
not much dependent on RBI for financial assistance.
- Sedcondly in the absence of a will organize bill market, they lack adequate
quantity of eligible bill which can be rediscounted from the RBI. Carries of
money market each pre requisite for the success of RBI bank rate policy.
Fiscal Policy
Def: Is the government’s programme of taxation, expenditure and other financial
operations to achieve certain national goals. The objectives are derived from the
aspiration and goals of the society.
Objectives are:
i) Economic growth
ii) Promotion of employment
iii) Economic stability &
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iv) Economic justice or equity
These objectives vary from country to country and from time to time. The
objectives are growth, employment and equality. The two basic instruments that
are used to achieve the social goals are taxation and public expenditure.
CRR – RBI Act 1956 – RBI acquired the power to change reserve requirement of
CB’s between 5 & 20% in reserve respect of their demand liabilities between 2 &
8% in respect of their time liabilities. RBI direct scheduled bank to keep certain
reserves of their liabilities created after a specified date in cash.
RBI Act was again amends in 1962 which fixed CRR at 3% for all
liabilities. Range is 3-15%. This tech is been implied for last 2½ decades for
controlling inflation.
SLR: BR Act 1949, enabled the CB’s to liquidate their govt. security holdings
wherever RBI increase CRR. The logphole was what a minimum of 25% SLR
could be maintained. RBI can raise amounts 15%
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Formulation of Tax Policy
Tax policy existed due to recommendations of dozens of tax enquiry
committees and review panels and deliberations on the recommendations in the
parliament. It is formulated, reformulated to make it fair, equitable and efficient.
This started in early 1950’s by appointment of a number of committees.
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India’s Taxation Policy 1950-1990
Was formed primarily to meet the financial needs of the country in the post-
independence period. The problem faced was how to mobilize adequate financial
resources to finance the development programmes chalked out in 5 year plans.
Financial resources has to be increased 4 times, so that rate of capital formation
could be stepped up from 5% of national income to say 20%. The known source of
development finance taxation, domestic borrowing, external borrowing on foreign
aid had the potentials of yielding adequate development finance. Taxable potential
was very low as income was low and per capita borrowing was lower. The
repayment near slow. So taxation policy was formulated.
Revenue function
Revenue collection is the primary objective of India’s tax policy. The state
and central government levies taxing power extensively and intensively. The taxes
imposed are from 1950,
1. estate duty
2. Wealth tax
3. Gift tax New in 1950
4. Expenditure tax
5. Capital gains tax
A tax rates were imposed on direct indirect taxes. Central Excise duty is imposed
on all imaginable non-agriculture products. High import duty is imposed on almost
all items of exports.
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1) Agricultural income tax on large holding tax
2) Surcharge of cash crops
3) Profession tax
4) Tax on urban property
5) Sales tax on motor spirit
6) Motor vehicle tax
7) Tax on passengers and goods, entertainment
Industrial Finance
Sources of finance for small and medium scale industries
Both medium and small scale industries require capital for plant and
machinery, production and final disposal. The capital varies in rural areas they
have to borrow from money lenders or land owners and pay high interest rate. In
urban areas, capital is better mobilized. The banks charge rate of interest often
ranging between 24 to 36% and not be able to raise necessary capital.
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Co-op (DICGC). This operates 5 schemes – 4 for small borrowers and one for S &
MI. The advances to small borrowers is Rs. 25,600 crores. 515 Credit institute are
participating in the 5th scheme.
Functions are
1. To secure govt. order for output of SI unit.
2. To provide financial, technical and other assistance to fulfil orders.
3. To secure coordination between large and small scale industries to enable
small scale. In order to manufacture ancillaries and component parts
required by the large-scale industries.
4. To underwrite and guarantee loans from banks and other credit institute.
SIDBI
Set up by Govt. of India under a Special Act of the Parliament in April
1990 as wholly owned subsidiary of SIDBI. It has taken over the outstanding
portfolio of IDBI relating to the small scale sector worth over Rs. 4,000 crores.
Authorised capital of SIDBI is Rs. 250 crores – which can be increased to Rs.
1,000 crores.
Role:
1. Principal interest for SBI
2. Coordinate functions of other banks and financial institutions
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3. Administer small industries for fund and national equity fund.
Functions:
1. Refinances loans and advance extended by primary lending institute and
provide resources support system.
2. Rediscount on discounts bills arising from sale of machinery.
3. Grants direct assistance as well as refinance loans extended by primary
lending institute for financing export of products manufactured by last for
industrial concerns in SSI.
4. Extends financial support to state small industries development corporation
for providing scarce raw materials to marketing the end products of
industrial units in the SSI.
5. Provided financial support to NSIC for providing leasing, hire purchase and
marketing support to IU.
Mission:
1. Stimulate the promotion of new industries
2. Assist the expansion and modernization
3. Furnish technical and managerial aid
1. Long term or medium term loans, both rupee loans and foreign currency
loans.
2. Participates in equity capital and in debenture and underwrites new issues
of shares and debenture.
3. Guarantees loans from other private investment sources.
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4. Provides financial services such as deferred capital, leasing credit,
instalment sale, asset credit and venture capital.
5. The total financial assistance amounted to Rs. 12,480 crores in 1955 up to
March 1990. While its disbursement amounted to Rs. 8090 crores. This
consisted of foreign currency, loans, rupee loans, guarantee and
subscription of shares and debentures.
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UTI – Unit Trust of India
Initial capital was 5 Crores which was subscribed fully by RBI, the LIC, the
SBI and scheduled banks and other financial institutions. The management and
direction is entrusted in the hands of the trust and in hands of Board of Trustees.
1. Stimulate and pool the savings of the middle and low income group.
2. Enable them to share the benefits and prosperity of the reply granting
industrialiszation in the country.
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Industrial Reconstruction Bank of India (IRBI)
On August 1984, the Govt. of India passed and act converting the IRCI into
Industrial Reconstruction Bank of India (IRBI). IRBI was established in March
1985, for revival, assisting and promoting industrial development and
rehabilitating industrial concern. IRBI extends credit to sick small scale units
emphasis on continuous modernization, improve productivity and upgrade
technology.
Capital Resources
Authorized capital of Exim Bank is Rs. 200 crore and paid up capital is Rs.
100 Cr. Wholly subscribed by the Central Govt. can raise currency from govt. and
foreign currency from other countries.
Functions:
1. Financing for exports and imports of good and services
2. Financing for exports & imports of machinery
3. Financing of joint ventures in foreign countries
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Presently 9 lending operations are undertaken:
1. Loans to Indian companies
a) Direct financial assistance to exporters
b) Technical consultancy services
c) Oversees investment
d) Pre-shipment credit
2. Loans to foreign govt. companies & PI are provided under:
a) Overseas buyers credit scheme
b) Lifes of credit to foreign govts and relending facility to banks
overseas.
c) Overseas Investment
d) Pre-shipment credit
3. Loans to cities in India include
a) Export bills re discounting schemes of short bills
b) Refinance of export credit.
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2. Refinance term loans repayable between 3-10 years given by
scheduled banks or state cooperative banks.
It can refinance bank and state cooperative banks.
3. Special Assistance: IDBI Act 1964 has provided for the creation of a
special fund known as the development assistance fund.
Industrial Finance
1. Short-term finance:
Refers to the funds required for a period of less than one year required to meet
variables seasonal or temporary working capital requirement. Banks are primary
sources.
Corporate Securities
1. Ownership securities
Are the shares by which the owned capital is raised.
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Kinds of shares:
1. Preference shares: are those which have preference that right to the
payment of dividend during the life time of the company and a preferential
sight to the return of capital when the company is wound up.
Characteristics
1. Dividends are fixed
2. Those who hold PS get their dividends before others
3. During wind up also they get the money first.
Kinds
1. Cumulative PS: Have fired dividends whether these are profits or no
profits. If profits are not sufficient then dividend are accumulated and paid
the next year.
2. Convertible cumulative PS: Introduced in 1955. the CCP share can be
converted to equity any time between the third and fifth years of the issue.
3. Non cumulative PS: They cannot claim arrears of dividends of any year out
of the profits of subsequent year.
4. Participating preference shares: Shareholders receive a fixed rate of
dividend in priority to ordinary share, have sight to participate in the
balance of profit in an agreed proportion together with ordinary
shareholders have voting rights.
5. Non-participating PS: Entitled to only fixed share of dividends and have no
claim in surplus profit, do not have voting right.
6. Redeemable PS: Shares which can be purchased back by the company at
any time.
7. Irredeemable PS: That cannot be purchased back
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Equity Shares
Shares that are not preference shares are equity shares. They don’t have
fixed rate of dividend. Once the claims of dividend of PS are complete the FS get
them. They are irredeemable and holders handle normal voting rights.
Creditorship Securities
Consists of Debentures and bonds and credit instruments that are used by
companies to raise funds. The complaint raised is known as “Borrowed Capital or
Debt Capital.”
Debentures: A document under the company’s scale which provides for the
payment of a principal sum and interest thereon at regular intervals which is
agency secured by a fixed or floating charge on the company is property or
undertaking which acknowledges a loan to the company.
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Classes:
1. Redeemable and sure deemable (perpetual)
2. Mortgage and simple
3. By a charge on the assets or property of the company
4. Spread over in different cities
5. Estimates of deposit and annual turnover is not available
6. RBI has no control over the lending activities
Indigenous bankers are individual firms which receive deposits and give loans and
thereby operate as banks. The activities not regulated. They do not constitute a
homogeneous group.
Organized Sector
Commercial Banks, FI, Mutual Funds and Discount and Finance House of
India Limited. The principal constituents of the Indian Money Market is
1. The Call Money Market: Overnight and money at short notice for periods
upto 14 days. It is meant to balance the short term needs of banks, exist in
developed markets.
2. Market which deals with treasury bills is called treasury bills market. They
are short term liability of the Central Govt. Issue to meet revenue deficits.
The market is undeveloped. RBI is the captive holder of these bonds. It is
also auctioned.
3. The Repo Market: Is a money market which helps in collateralized short
term borrowing and lending through sale purchase operations of debt
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instruments. It is sold by their holder to an investor with an agreement to
repurchase them at a predetermined rate and date.
4. The Commercial Bill market: Is sub market where commercial bills trade
bill are handled. The commercial bill is a bill drawn by one merchant firm
on the another. They arise only out of domestic transactions. Purpose is to
reimburse seller, but buyer delays payments.
5. The Certificate of Deposit Market: Issued by bank to depositors of funds
that remain on deposit at the bank for a specified period. They are similar to
term deposits but are negotiable and trade able in the short term money
market.
6. Commercial Paper: Is short term instrument of raising funds by corporates.
It’s a sort of unsecured private placement: Is the sale of an entire issue of
securities by a company directly to one or few investors, usually financial
institutions.
The appeal made to sell and buy through brokers. E.g. Insurance
companies, investment companies, trust accounts, pension and provident funds
etc. the growth of institutional investors ha increased the scope of private placing.
Methods:
1. Standing Behind the issue:
Underwriter guarantees the sales of a specified number of shares within a specified
period. If it doesn’t sell underwriter buys it.
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New Issues – Marketing of Securities
The securities market may be divided into:
i) New Issue Market and ii) Stock Exchange
Limitations:
1. For a new company with new and unknown promoters, it is not advisable.
2. If company fails to generate sufficient response, this is a flop.
Money Market
Money market refers to a mechanism whereby on the one hand borrowers
manage to obtain short term loanable funds and on the other, tenders succeed in
getting credit worthy borrowers for their money.
Unorganized sector
Confined to small towns and villages. The indigenous bankers are financial
intermediaries. Among these the most prominent are financial companies, chit
funds and Nidhis. They give loans to retail on wholesalers, artisans and other self-
employed persons. They charge from 36-48% of interests. The chit funds are
saving institutions.
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Outright Purchase
The underwriter purchase the issue outright and resell the securities to
investors. Purchase price may be negotiated or may be determined by competitive
bidding.
Advantages
1. Relieves the issue of the risk.
2. To fulfil minimum requirements
3. Reduces specialized functions
4. Have expert knowledge of the capital market conditions
5. Assist in mobilization of funds in the capital market
6. Help stabilize capital markets
Participation Certificate
Like certificate of deposits PCs are also issued by banks normally for
periods ranging from three months to 6 months. Maximum period to one year. In
need of funds, it allows a bank to obtain from other banks and financial
institutions.
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Characteristics
1. Lack of integration
No coordination between organized and unorganized sector. One doesn’t
have effect on others. There is no coordination and cooperation between them. The
indigenous bankers have no connections with RBI.
Reform measures
1. Introduction of stamp duty
2. Deregulation of interest rates from May 1985 by RBI have activated MM
3. Many MM Instruments are realtered
4. The introduction of Repo in December 1992, its an agreement with CBs
and RBI.
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Capital Market
Capital – Health used in the production of funds wealth. It is the money and
money value investors in business unit.
A business enterprise can raise capital from various sources. Long term
trends can be raised either through issue of securities by borrowing from certain
institutions.
Lenders are:
Individual investors
Institutional investors
Banks
Special Industrial financing institutions
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Role of Capital Markets in India’s Industrial Growth
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ii) Provision of underwriting facilities
iii) Assistance in promotion of companies
iv) Participation in equity capital
v) Expect advice i\on management of investment in industrial
service
Function
Provides services to both corporate and investor class sectors useful
services.
2. Protection to Investors
The functioning is regulated and conducted by well laid rules. Provides
safety to investors. After 1992 scare everything comes under (SEBI).
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5. Promotion of Industrial Growth
The funds are invested in productive channels than unproductive sections
like real estate, building etc. this stimulates industrial growth.
Advantages
1. Benefits to community:
a) Promotes industrial growth and eco. Development
Inculcates habits of saving and accelerates the process of capital for margin
Optimum utilization of saree resource
Give picture of the economic of state and country
Manages fund for public sector
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Management: It is managed by an Executive Committee Council of Management /
Governing body which is an elects body. The government is empowered to
nominate not more than three members on the government body.
Functions
1) Ensure – Rules are observed by members
2) To protect the interests of the investing public
3) To approve the quotation of new shares.
Remisieres act as agents for the members and receive commission on the business
procedure by them. Also known as they commission men.
Types of Dealings
1. Ready delivery contracts: These involves investment transactions care known
as cash trading. The settlement is done within a fixed time, noted seven days
from date of contract. When settled same day it is spo delivery contracts.
2. Forward Delivery contracts: Involves speculative transactions are known as
forward. Trading the speculators are interests in dealings. It is done on fixed
settlement days on the end of every fortnight through clearing house only.
3. Clearing house: An institution share accounts brokers are settled. All
transactions are taken into account.
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4. Speculation and speculators: Speculation – Refers to making quick profits by
anticipating the changes in the prices of shares. Speculative transactions are
carried out in the stock exchange day in and day out.
5. Bulls: Speculators who are optimist and crytallise in prices and purchase
shares.
6. Bears: Speculators who sell in anticipation and fall of prices in future.
7. Stages: who buy large amount of a new issue of share enabling them to sell
these shares at a profit.
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provides facility for trading of equal instruments, warrants, debentures,
preferences shares etc. both the segments of the NSE have grown substantially
over the years.
Export Contribution
Export contribution can be divided in three phases.
1) FD loans because of Jute, tea, cotton, textile, oil seeds and vegetable oil,
raw cotton, hide a etc.
2) Export duties affected the export commodities
3) Growing strength of domestic demand was increased.
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Phase II – started in 1973 and lasted for decrease. Exports were given high
priority. Effective nominal exchange rate of the rupee depreciate in the 1970.
Import Substitution
Objectives are:
1. To save scarce foreign exchange for the import of more important goods.
2. To achieve self reliance in the production of as many goods as possible.
Import Policy
1. I Phase – Import substitution mostly took the form of domestic production
of consumer goods.
2. II Phase – Emphasis shifted to the replacement of the import of capital
goods.
3. III Phase – Emphasis was on reducing the dependency on imported
technology by developing and encouraging the use of indigenous
techniques.
The immediate aim of import substitution in this country was the conservation of
foreign exchange. It long fun objective was to initiate structural changes of far
reaching significance in the economy. The result is industrial sections as achieved
diversification and depth necessary for future growth.
Indian Society
Social system is a very broad concepts. It includes the people, the
government, political, educational and industrial economic environments imbibed
in it.
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India than any other country. The quality of life have improved due to
employment and high earning. The society stands for certain beliefs, values which
are a source of institutional drive.
The different languages keep people bonded together. Indian society is very
sensitive culture of Indian society has changed slowly, but will require much more
time to adapt to modernization. No. of prejudices exists in these environment.
Acceptance of new is not immediate.
The change is gradually taking place, from ethical and tradition to modern
and silicon.
Culture
Refers to that part of the total repertoire of human action (15 product)
which is socially as opposed to genetically transmitted.
Culture is
- There is human product of social interaction
- Provides pattern for meeting biological and socio needs.
- Handed down from generation to generation
- Symbolic quality
- Learned by each person
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- A basic determinant of personality
- For continued functions of society
Elements of Culture
1. Knowledge and belief: Refers to a peoples prevailing motions of reality.
They include myths and metaphysical beliefs as well as scientific realities.
2. Ideals: Refers to societal norms which define what is expected; customary,
right or proper in a given situation. Follows norms of proper behavior.
Organization of culture
Refers to the social structure and the integration of traits, complexes and
patterns that make up the cultural system.
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Cultural adaptation
Refers to the manner in which a social system or an individual fits into the
physical or social environment. Adaptation is essential for survival e.g. oil energy
crisis.
Cultural Transmission
The important character is its transmissive quality. It is transmitted from
one generation to the next and to the new members admitted to the culture. Culture
accumulates more techniques, ideas, products and skills. Cultural transmission
takes place by means of symbolic communication. A symbol is any sign signal or
word that conveys a meaning. It also facilitates cultural diffusion is the spread of
cultural elements from one place to another. Can be done through high educational
change and communication.
Cultural conformity
Individuals in a community either conform or deviate from cultural norms.
Cultural conformity follows that the most important process in society is that
which ensures that people do indeed meet their role obligation.
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Cultural Traits
1. Low context and high context cultures:
High context is one that places great value on the intangible aspects of a
negotiation or business deal. They look beyond facts and figures and take into
consideration factors like personal relationships, atmosphere and attitudes towards
respect, religion and trust.
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Polychronic: uses time to accomplish diverse goals simultaneously and to interact
with as more individuals as possible – even at same time.
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8. Achievement Vs. Ascription
Politics
There are not radical differences in the philosophic of major political
parties in some countries, the situation is quite different in others. The government
system in a number countries, including several countries which are making rapid
eco progress and having liberal policies towards foreign capital and technical is
not very democratic.
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Positive of modernization on business and society
1. Leads to innovations
2. Increases productivity
3. Produce technically superior goods
4. Cost reduction
5. Spread of competition outside the national boundary
6. Greater output
7. Short working hours
8. Skilled jobs
9. Safe working conditions
10. Efficient use of raw materials
11. On standards of living increase
Negatives
1. Displacement of labour [unemployment]
2. Lower wages
3. Aged immobility [idleness]
4. Gap between management workers
5. Old crafts and craftmenship declines
6. Loss of identity as man becomes machine
7. In fast changing society
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Poverty level is as high as 48.44% and the per capita income (2004) is as
low as $ 620 which is not even 1/6th of the USA’s income. In rural India 37.3%
and urban 32.4% are under poverty line.
Another factor is low capital formation results in slow growth and it is also
due to technological backwardness.
Racisim, casteism is also a major social issue. This has led to harassment of
the workers. Child labour and corruption has creped into the society as a devil
which cannot be fought.
With increase in population the rise in the slum population has also caused
problems. Land acquisition, deforestation is also part of this evil. Water, air, noise,
pollution has increased.
A shift to urban cities have brought in urban culture and values, beliefs of
traditions are decreasing.
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Environmental Issues
Till recently the business had not cared for ecological effects of its
activities. Guided entirely by its profit maximization goals the industry caused
tremendous damage to exhaustible natural resources such as minerals and forests.
It also contaminated water and polluted air. Environmental degradation is in the
process. Expensive of industrial towns has caused for pollution to reach
population. The pollutants discharged by these industries damage the health and
reduce output from local agriculture and industry damage infrastructure and
buildings.
Some of the wastes that are thrown are not disposable safely. The ability of
natural environment to absorb waste is not infinite. Parts of natural environment
may serve more than one function. E.g. ocean are important in delimining the life
support system of the global and micro climates; they are sources of many
minerals and other resources, they assimilate many different wastes; and they also
provide the space and opportunity for marine past times.
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World development Report 2003 categorizes cites into low income cities, low-
middle income, upper-middle income and high income cities.
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Modernisation has brought women from home to office differentiated their
tasks and distinguished their earnings. New techniques of cooking ranges have
reduced the time spent in kitchens.
Modernisation has also and is also saving lifes, makes desert bloom and
brings music in our living rooms.
Due to the gender bias there is tremendous fall in the birth rate. There is a
steady raise in income. Machines have taken over man. The technologies,
automation and even rationalization are hinderance to labour.
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Heterogeneous culture is being adopted. The immigration problem gets
reduce due to political friendline between the countries. But this will increase
multi cultural complexities and adds new challenges and opportunities.
The marketers have to involve in diverse roles to satisfy each and every
member of the society.
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Modernisation has number of adverse effects your society. Films have
immoral effect on society. There is concentration of economic power in few
hands.
The Foreign Exchange Regulation Act (FERA) 1973 served as a tool for
implementing the national policy on foreign private investment in India. FERA
empowered RBI to regulate or exercise direct control over the activities of foreign
companies and foreign nationals in India. RBI has given general permission to
hold title of immovable properties.
New Policy
The industrial policy statement of July 24, 1991, which observes that while
freeing the Indian economy from official controls, opportunity for promoting
foreign investment in India shall also be fully exploited has liberalized the Indian
policy towards foreign investment and tech.
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The new policy has also made the import of capital goods automatic
provided the foreign exchange requirement for such import is ensured through
foreign equity.
Silent Feature
1. FDI is eligible for automatic approval.
Unit Dec. 1996, only 36 industries were eligible for automatic approval of FDI
upto to 5!% of the total equity.
Now there are different types industries depending on the ceiling of foreign
equity participation.
Statistic:
1. Definition, scope and application, classification and tabulation, histogram,
standard deviation, strawness, correlation, Regression.
2. Probability multiple and partial correlation pass on distribution
3. Hypothesis or anova
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2. Demographic
Income I Stage – single or mallied head, under increase no
children
Age II stage – married head, under 40 young children with
or without older children
Education III Stage – married head, under 40, older children
Stage in life cycle IV stage – married head, 40 or older, no children under
20
Social class V Stage – head living along over 40, no children
Sex
Occupation
Religion
Race
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Segmentation – Need
1900’s markets were segmented automatically each product was tailored to
the needs of the buyer who had ordered it.
Why?
Concept of market segmentation is based on the fact that market is not
homogeneous, but heterogeneous in the potential buyers are homogeneous. But a
group of potential buyers do share contain characteristics of distinctive
significance to marketing and each group is a market segment. To apply market
segmentation successfully a particular segment must be measurable accessible of
sufficient size to make it, worthwhile cultivating.
Segmentation
Industrial Consumer
Industrial users Ultimate consumers
Large quantities industries Buy in smaller quantities
Employ professional to buy For consumption over short period
Specialised buying No systematic in buying
Use little time to buy
Buys broad spectrum goods
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ISSUES IN INTELLECTUAL PROPERTY RIGHTS
1. Patents
2. Copyright and related rights
3. Trademarks
4. Industrial designs
5. Layout designs of integrated circuits
6. Undisclosed information (trade search)
7. Geographical indication
1. PATENTS
Patent is a legal protection granted for an invention that is new, non-
obvious and useful. The patent grants the patent holder the exclusive right to make
use or sell the patented products. The main purpose of the patent system is to
benefit the society. Patent, by providing an opportunity to recoup the cost of
inventions and to make profit out of inventions, encourage research and dup and
thereby contribute to society.
According to Indian patents Act 1970, inventions mean any new and useful
(i) process of manufacture, (ii) machine, apparatus, article, (iii) substance produce
by manufacturer and any new and useful improvements in them.
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While the patents grant the exclusive right to the inventor to exploit his
inventions for commercial gain for a specific period of time, it also imposes on
him the duty of fully disclosing the inventions. Under the 1970 Act, patent expiry
period is 5-7 years for some and 14 years to other products or 20 years.
2. COPYRIGHT
Exclusive privileges to authors to reproduce, distribute, perform or display
their creative works.
Criteria: Life of authors & 70 years from creation of work
Copy right act 1957
3. TRADEMARKS
Brands and trade marks used very extensively in modern marketing to
maintain product identity and to help product promotion, have become very
popular terms.
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It includes words, symbol, logo used by manufacturer to identify goods
which are distinctive and non-descriptive in nature.
Subject matter:
1. Reputation, 2. Goodwill and 3. To avoid duplication
Term of Protection
10 years from the date of registration.
MULTINATIONAL COMPANY
Why to go global?
1. The MNC’s main objective is profit maximization, not the development needs
of the countries.
The flow of direct foreign investments to India has been comparatively limited
because of the type industrial development strategy and the very cautious foreign
investment policy followed by nation.
Until 1991, India companies made very little investments abroad. Although
Govt. of India’s policy had been one of the encouraging foreign investments by
Indian companies, subject to certain conditions, several factors like domestic
economic policy and domestic economic situation were deterrent to foreign
investments by Indian companies.
Objectives
The primary objective of GATT was to expand international trade by
liberalizing trade so as to bring about all round economic prosperity. And the other
important objectives are
Rules of GATT
1. Any proposed change in tariff, or other type of commercial policy of a
member country should not be undertaken without consultation of other
parties to the agreement.
2. The countries that adhere to GATT should work towards the reduction of
tariffs and other barriers to international trade, which should be negotiated
within the framework of GATT.