Business Perpspectives

7/28/2019 Business Perpspectives

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Monetary policy:

A policy by which RBI controls money supply and its cost (interest rate)

OBJECTIVES OF MONETARY POLICY OF INDIA :-

The main objective of monetary policy in India is growth with stability. Monetary

Management regulates availability, cost and use of money and credit. It also brings institutional

changes in the financial sector of the economy. Following are the main objectives of monetary

policy in India :-

1. Growth With Stability :-

Traditionally, RBIs monetary policy was focused on controlling inflation through contraction of

money supply and credit. This resulted in poor growth performance. Thus, RBI have now adopted

the policy of Growth with Stability. This means sufficient credit will be available for growing

needs of different sectors of economy and at the same time, inflation will be controlled with in acertain limit.

2. Regulation, Supervision And Development Of Financial Stability :-

Financial stability means the ability of the economy to absorb shocks and maintain

confidence in financial system. Threats to financial stability can come from internal and external

shocks. Such shocks can destabilize the countrys financial system. Thus, greater importance is

being given to RBIs role in maintaining confidence in financial system through proper regulation

and controls, without sacrificing the objective of growth. Therefore, RBI is focusing on regulation,

supervision and development of financial system.

3. Promoting Priority Sector :-

Priority sector includes agriculture, export and small scale enterprises and weaker section of

population. RBI with the help of bank provides timely and adequately credit at affordable cost of

weaker sections and low income groups. RBI, along with NABARD, is focusing on microfinance

through the promotion of Self Help groups and other institutions.

4. Generation Of Employment :-

Monetary policy helps in employment generation by influencing the rate of investment and

allocation of investment among various economic activities of different labour Intensities.

5. External Stability :-

With the growth of imports and exports Indias linkages with global economy are getting

stronger. Earlier, RBI controlled foreign exchange market by determining eaxchange rate. Now,

RBI has only indirect control over external stability through the mechanism of managed

Flexibility, where it influences exchange rate by buying and selling foreign currencies in open

market.


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6. Encouraging Savings And Investments :-

RBI by offering attractive interest rates encourage savings in the economy. A high rate of

saving promotes investment. Thus the monetary management by influencing rates of interest can

influence saving mobilization in the country.

7. Redistribution Of income And Wealth :-

By control of inflation and deployment of credit to weaker sectors of society the monetary

policy may redistribute income and wealth favouring to weaker sections.

8. Regulation Of NBFIs:-

Non Banking Financial Institutions (NBFIs), like UTI, IDBI, IFCI plays an important role in

deployment of credit and mobilization of savings. RBI does not have any direct control on the

functioning of such institutions. However it can indirectly affects the policies and functions of

NBFIs through its monetary policy.

Instruments of monetary policy: Quantitative and Qualitative

quantitative methods used by RBI.

The Monetary Policy of RBI is not merely one of credit restriction, but it has also the duty to see

that legitimate credit requirements are met and at the same time credit is not used for

unproductive and speculative purposes RBI has various weapons of monetary control and by

using them, it hopes to achieve its monetary policy.

Quantitative Credit Control Methods :-

In India, the legal framework of RBIs control over the credit structure has been provided

Under Reserve Bank of India Act, 1934 and the Banking RegulationAct, 1949. Quantitative credit

controls are used to maintain proper quantity of credit o money supply in market. Some of the

important general credit control methods are:-

1. Bank Rate Policy :-

Bank rate is the rate at which the Central bank lends money to the commercial banks for their

liquidity requirements. Bank rate is also called discount rate. In other words bank rate is the rate

at which the central bank rediscounts eligible papers (like approved securities, bills of exchange,

commercial papers etc) held by commercial banks.

Bank rate is important because its is the pace setter to other marketrates of

interest. Bank rates have been changed several times by RBI to control inflation

and recession. By 2003, the bank rate has been reduced to 6% p.a.

2. Open market operations :-

It refers to buying and selling of government securities in open market in order to expand or

contract the amount of money in the banking system.This technique is superior to bank rate


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policy. Purchases inject money into the banking system while sale of securities do the opposite.

During last two decades the RBI has been undertaking switch operations. These involve the

purchase of one loan against the sale of another or, vice-versa. This policy aims at preventing

unrestricted increase in liquidity.

3. Cash Reserve Ratio (CRR)

The Gash Reserve Ratio (CRR) is an effective instrument of credit control. Under the RBl Act

of, l934 every commercial bank has to keep certain minimum cash reserves with RBI. The RBI is

empowered to vary the CRR between 3% and 15%. A high CRR reduces the cash for lending

and a low CRR increases the cash for lending. The CRR has been brought down from 15% in

1991 to 7.5% in May 2001. It further reduced to 5.5% in December 2001. It stood at 5% on

January 2009. In January 2010, RBI increased the CRR from 5% to 5.75%. It further increased in

April 2010 to 6% as inflationary pressures had started building up in the economy. As of March

2011, CRR is 6%.

4. Statutory Liquidity Ratio (SLR)Under SLR, the government has imposed an obligation on the banks to ,maintain a certain

ratio to its total deposits with RBI in the form of liquid assets like cash, gold and other securities.

The RBIhas power to fix SLR in the range of 25% and 40%

5. Repo And Reverse Repo Rates

In determining interest rate trends, the repo and reverse repo rates are becoming important.

Repo means Sale and Repurchase Agreement. Repo is a swap deal involving the immediate

Sale of Securities and simultaneous purchase of those securities at a future date, at a

predetermined price. Repo rate helps commercial banks to acquire funds from RBI by sellingsecurities and also agreeing to repurchase at a later date.

Reverse repo rate is the rate that banks get from RBI for parking their short term excess

funds with RBI. Repo and reverse repo operations are used by RBI in its Liquidity Adjustment

Facility. RBI contracts credit by increasing the repo and reverse repo rates and by decreasing

them it expands credit. Repo rate was 6.75% in March 2011 and Reverse repo rate was 5.75%

for the same period. On May 2011 RBI announced Monetary Policy for 2011-12. To reduce

inflation it hiked repo rate to,7.25% and Reverse repo to 6.25%

QUALITATIVE METHODS :-

1. Ceiling On Credit

The Ceilingon level of credit restricts the lending capacity of a bank to grant advances against

certain controlled securities.

2. Margin Requirements :-

A loan is sanctioned against Collateral Security. Margin means that proportion of the value of

security against which loan is not given. Margin against a particular security is reduced or

increased in order to encourageor to discourage the flow of credit to a particular sector. It varies


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from 20% to 80%. For agricultural commodities it is as high as 75%. Higher the margin lesser will

be the loan sanctioned.

3. Discriminatory Interest Rate (DIR)

Through DIR, RBI makes credit flow to certain priority or weaker sectors by charging

concessional rates of interest. RBI issues supplementary instructions regarding granting of

additional credit against sensitive commodities, issue of guarantees, making advances etc. .

4. Directives:-

The RBI issues directives to banks regarding advances. Directives are regarding the purpose for

which loans may or may not be given.

5. Direct Action

It is too severe and is therefore rarely followed. It may involve refusal by RBI to rediscount bills or

cancellation of license, if the bank has failed to comply with the directives of RBI.

6. Moral SuasionUnder Moral Suasion, RBI issues periodical letters to bank to exercise control over credit in

general or advances against particular commodities. Periodic discussions are held with

authorities of commercial banks in this respect.

EVALUATION OF MONETARY POLICY :-

I. Achievements I Positive Aspects Of Monetary Policy :-

1. Short Term Liquidity Management :-

RBI has developed various methods to maintain stability in interest rate and exchange rate likeLAF, OMO and MSS. RBI has also managed its sterlization operations very well.

2. Financial Stability :-

With the help of controls, regulation and supervision mechanism, RBI has been successful in

maintaining financial stability. During the period of global crisis it has also been able to maintain

macro economic stability.

3. Financial Inclusion :-

Along with NABARD, RBI has made a great impact in the growth of microfinance. RBI has

supported Self Help Group Model and promoted other microfinance institutions.

4. Adaptability:-

In India monetary policy is flexible, as it changes with time. RBI has developed new methods of

credit control and shifted from monetary targeting to multiple indicator approach.

5. Increase In Growth:-

To maintain the growth of economy RBI has used its instruments' effectively. At present India has

the second highest rate of GDP growth after China. Thus monetary policy has played an

important role.

6. Increase In Bank Deposits:-


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The increase in bank deposits over the years indicates trust and confidence of people in banking

sector. Effective supervision of RBI over banks and financial institutions is largely responsible for

trust and confidence of public in banking sector.

CONCEPTS/I TYPES OF DEFICITS :-

When the government expenditure exceed revenue, the government is having a budget

deficit. The government finances its deficit mainly by borrowing from public through selling bonds,

which give rise to public debt. Deficit may also be financed by borrowing from Central Bank. The

important types of deficits are

1) Revenue Deficit :-

It is the difference between revenue receipts and revenue expenditure. It takes place when the

revenue expenditure is more than revenue receipts. Revenue receipts comes from direct andindirect taxes and also by way of non-tax revenue. Revenue Expenditure consist of administrative

expenses, interest payment, defence expenditure, subsidies etc.

2) Budget Deficit :-

The budget is said to be a deficit, when it spends more than what it collects by way of

taxes. A deficit may occur in revenue budget or capital budget or both. India adopts a zero deficit

budget since 1997-98.

But in reality, there are always deficits.

3) Fiscal deficit :-

The fiscal deficit takes place when total expenditure + net lending is more than revenuereceipts + non-debt capital receipts + external grants. This can be expressed as follows :-

FD = (TE + NL) ( RR + NDCR + EG)

Fiscal deficit can be broadly divided into Gross Fiscal Deficit and Net Fiscal Deficit

4) Primary Deficit :-

It is fiscal deficit less interest payments. It is a measure of budget deficit which indicates

the real position of Government finance. Primary deficit can be broadly divided into :-Gross

Primary Deficit and Net Primary Deficit.

Fiscal policy

We can define fiscal policy as the revenue and expenditure policy of Govt. of India .It is prime

duty of Government to make fiscal policy . By making this policy , Govt. collects money from

different resources and utilizes it in different sectors .

Objectives of Fiscal Policy


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1. Development of Country through mobilization and efficient allocation of resources

For development of Country , every country has to make fiscal policy . With this policy all work

work is done govt. planning and proper use of fund for development functions . If govt. does not

make fiscal policy , then it may happen that revenue may be misused

without targeted expenditure of govt.

2. Increasing Employment opportunites

Getting the full employment is also objective of fiscal policy . Govt. can take many action for

increase employment. Government can fix certain amount which can be utilized for creation of

new employment for unemployed peoples .

3 Reduction in Inequality :-

In developing country like India , we can see the difference on basis of earning . 10% of people

are earning more than Rs. 100000 per day and other are earning less than Rs . 100 per day . By

making a good fiscal policy , govt. can reduce this difference . If govt makes it as his target .

4. Fixation of Govt. Responsibility :-

It is the duty of Govt. to effective use of resources and by making of fiscal policy different

minister's accountability can be checked .

5. Price stability and control of inflation

Techniques of Fiscal Policy

1. Taxation Policy

Taxation policy is relating to new amendments in direct tax and indirect tax . Govt. of India passes

finance bill every year . In this policy govt. determines the rate of taxes . Govt. can increase or

decrease these tax rates and amend previous rules of taxation .Govt.'s earning's main source is

taxation . But more tax on public will adverse effect on the development of economy.

If Govt. will increase taxes , more burden will be on the public and it will reduce production and

purchasing power of public .

If Govt. will decrease taxes , then public's purchasing power will increase and it will increase

the inflation.


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Govt. analyzes both the situation and will make its taxation policy more progressive .

2. Govt. Expenditure Policy

There are large number of public expenditure like opening of govt schools , colleges and

universities , making of bridges , roads and new railway tracks . In all above projects govt has

paid large amount for purchasing and paying wages and salaries all these expenditure are paid

after making govt. expenditure policy . Govt. can increase or decrease the amount of public

expenditure by changing govt. budget . So , govt. expenditure is technique of fiscal policy by

using this , govt. use his fund first on very necessary sector and other will be done after this .

3. Deficit Financing Policy

If Govt.'s expenditures are more than his revenue then govt. should have to collect this amount .This amount is deficit and it can be fulfilled by issuing new currency by central bank of country .

But , it will reduce the purchasing power of currency . More new currency will increase inflation

and after inflation value of currency will decrease . So, deficit financing is very serious issue in

the front of govt. Govt. should use it , if there is no other source of govt. earning .

4. Public Debt Policy

If Govt. thinks that deficit financing is not sufficient for fulfilling the public expenditure or if govt.

does not use deficit financing , then govt. can take loan from world bank , or take loan frompublic by issuing govt. securities and bonds . But it will also increase the cost of debt in the form

of interest which govt. has to pay on the amount of loan . So, govt. has to make solid budget for

this and after this amount is fixed which is taken as debt. This policy can also use as the

technique of fiscal policy for increase the treasure of govt.

Limitation of Fiscal Policy

1. After issuing new notes for payment of govt. of expenses , inflation of India is increasing rapidly

and in this inflation , prices of necessary goods are increasing very fastly. Living of poor person

has become difficult . So , these sign shows the failure of Indian fiscal policy.

2. Govt. fiscal policy has failed to reduce the black money . Even large amount of past minister is

in the form of black money which is deposited in Swiss Bank.

3. After taking loan from world bank under the fiscal policy's debt technique , govt. has to obey

the rules and regulations of world bank and IMF . These rules are more harmful for developing

small domestic business of India. These organisation are inter related with WTO and they want to


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stop Indian domestic Industry.

4. After expending large amount for generating new employment under fiscal policy , rate of

unemployment is increasing fastly and big lines on govt. employment exchange can be seen

generally in working days . Database of employment exchanges are full from educated

unemployed candidates .

Finance commission of India

The finance commission came into existence in 1951 under article 280. It was formed to define

financial relations between centre and state. So far 13 finance commissions have been appointed

Recommendations of 13 th finance commission

Reduction of fiscal deficit to 3%

FRBM Act to be amended ( Fiscal responsibility & Budget management act)

Reduction of revenue deficit

Centre/state financial relations

Financial requirements of states are increasing on the one hand and on the other hand centre is

gradually encroaching on the financial powers of the state.

State Governments prefer allocation of financial resources through finance commission as its is

constitutionally mandated body and not through planning commission which is a creation of union

government

Ethics

The term Ethics is derived from the Greek word ethos which refers to character. The term ethics

refers to a code of conduct that guides an individual while dealing with others. It relates to social

rules and cardinal values that motivate people to be honest in dealing with others. Ethics direct

human behavior and also differentiates between good and bad, right and wrong fair and unfair

human behavior or actions.

Business Ethics

Business Ethics refers to the system of moral principal applied to business activities. It deals with

morality in the business. There should be ethics behind every business activity. This means

business activities should be conducted according to certain self recognized moral standards.

Business ethics refers to a code of which businessmen are expected to follow while dealing with

others. The coverage of business ethics is very wide as it deals norms relating with customers,


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shareholders, employees, dealers, Government and competitors. These are, in fact, different area

of business ethics.

Business ethics is a part of social responsibility which the businessmen have to honour in

practice. According to Wheeler Business Ethics is an art or science of maintaining harmonious

relationship with society, its various groups and institutions as well as reorganizing the moral

responsibility for the rightness or wrongness of business conduct.

According to Dr. C.B. Mamoria and Dr. Satish Mamoria, business ethics is defined as

businessmans integrity so far as his conduct or behavior is concerned in all fields of business as

well as towards the society and other business.

Factors of Business Ethics:-

1. Code of conduct;- it is the code of conduct which businessmen should follow while conducting

their normal business activities.

2. Moral and social values:- it is based on well accepted moral and social values. It suggestsmoral principles/rules of conduct for businessmen. They include self-control, service t society, fair

treatment to social groups and not to harm/exploit others.

3. Protection of social groups:- business should give priority to social interest or social good.

Such ethical approach creates good name and status to business and facilitates its expansion.

4. Provides basic framework:- it provides basic framework within which business should be

conducted. It suggests legal, social, moral, economic and cultural limits within which business is

to operate. It suggests what is god and what is bad in business.

5. Needs willing acceptance for enforcement :- it cannot be enforced by law or by any other force.

It must be accepted as self discipline by businessmen. It should come from within6. education and guidance required for introduction:- businessmen should be given proper

education, guidance and training in order to motivate them to follow ethical business practices.

7. Not against profit making:- it is not against profit making. However, it is against profiteering by

cheating and exploiting consumers, employees or investors. It supports expansion of business

activities but by fair means and not through illegal activities or corrupt practices.

8. Act as summum bonum of human life:- it passes judgments of value upon human actions with

reference to the moral values. Judgment of value are judgment of what ought to be. Such

judgments may be different from the judgments of facts as they are judgment of what is.

Role of Ethics is business:-

Good Ethics is good business, this quotation/slogan/observation suggests the importance of

ethics in business. It provides protection, justice and fair treatment to all social groups. In

addition, ethical business expansion and growth. Ethical business is equally profitable.

Businessmen should therefore support the concept of business ethics.

Business ethics is important to business community, consumers and the society at large.

Businessmen have economic power which they can use for making the life of people happy or

miserable. Businessmen should conduct business in a fair and ethical manner and make people


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happy. They may earn quick profit through unethical business practices. Along with this they may

also invite consumer displeasure, government control and non co-operation from the

employees.

These factors harm the future prospects of business.The slogan Good ethics is Good business

has special significance/relevance in India. Ethical business is useful to businessmen and also to

the society. Businessmen should act as a friend and well wishers of consumers. This is possible

when they avoid the exploitation of different social groups but offer protection and support to

them. It is rather unfortunate that in todays world, moral and ethical scruples fall prey to neglect

and finally decay.

It is always desirable to strike a balance between economic performance and social performance

of a business unit. Business ethics facilitates such balance. Businessmen should decide what is

socially good and what is socially undesirable and act beneficial to them and to the society at

large. Business also gets public support when it is conducted in a fair manner.

Business ethics is important as it has wider social significance. It is important as it offersadvantages to businessmen, consumers and employees. It provides advantages to

businessmen/management like it provides favourable social image, guidance to businessmen,

social consciousness, fair business etc. and advantages to consumers like consumer protection,

control of business practices, protection to environment etc. it also provides advantages to

employees such as fair deal, fair wages, fair treatment, benefit of profit sharing etc.

Need of ethics in business:-

It is a fact that many undesirable and unethical practices entered in the business field along withits growth and development. Market competition, large scale production, lust for money and

economic power are some major factors responsible for the down fall of the ethical values in

business. Conduct of business activities on unethical principles is harmful to the society and also

to the businessmen in the long run. Ethical principle and values should be introduced in the

business. The following points justify the need of ethics in business.

1. Checking business mal practices:- it needed to make business activities fair to consumes. It

checks business malpractices and offers protection to consumers.

2. Improving consumers confidence:- it is needed in order to improve the confidence of

consumers as regards quality, price, reliability etc. of goods and services supplied.

3. Making businessmen conscious of social responsibilities:- it is needed in order to make

businessmen conscious as regards their duties and responsibilities towards consumers and other

social groups. The old fashioned slogan that the business of business is business is no more

valid. Businessmen have to accept certain social responsibilities for their benefit and also for the

welfare of the society.

4. Safeguarding consumer rights and social welfare:- it is needed for the protections of rights of

consumers at the business level. It is also needed for raising social welfare.


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5. Protecting other social groups:- it is needed in order to protect the interests of all those

concerned with business the employees, shareholders, dealers and suppliers. It avoids their

exploitation through unfair trade practices.

6. Developing cordial relations between business and society:- it is needed in order to develop

cordial and friendly relations between business and society. It is also needed for social

recognition and support to business.

7. Creating good image of business:-it is needed to create a good image of businessmen in the

society and also for avoiding public criticism. Ethical business gets public support while unethical

business is criticized by all.

Corporate social responsibility

It refers to corporate actions that protect and improve the welfare of society along with the

corporations own interests. According to Rogene Bucholz, a private corporation has a socialresponsibility to society that goes beyond the production of goods and services at a profit and that

a corporation has a broader constituency to serve than that of stockholders alone.

SOCIALAUDIT :

A social audit identifies social issues in which a corporation should be involved, examine what an

organization is actually doing with regard to social issues and determine the performance of the

organization in the realisation of social work. Social audit is a statutory requirement in European

countries like Germany, France, Spain & Norway. However, it is voluntary in the United States.The measurement of social performance of corporation was first attempted by Theodore Kreps.

However, Clark Abt used the term social audit for the first time in his work Audit for

Management. Any project or programme implemented for generating social benefits can be

subjected to social audit. The following social are the benefits of social audit:-

1. It helps to ascertain the usefulness of the corporation to the community with reference to

communitys needs & requirements.

2. It helps to inform & convince opinion makers and influential institutions such as consumer

forums, financial institutions, non-government organizations, and the government itself, about the

social involvement of the corporation.

3. It helps to establish good corporate image and identify & generate goodwill for the corporation.

4. It helps to make a cooperative study of the efficacy of social work with that of non-government

organizations and social or extension work undertaken by the government, universities &

colleges.

5. It has huge publicity value and implicit or qualitative benefits to the corporation.

Corporations should strive for higher levels of social responsibility and make their presence felt to

all concerned at least in the area surrounding their locations. A code of social service ethics


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should be developed & implemented by all well-meaning corporations. Corporations should also

have an interface with other socially involved institutions such as the NGOs, universities,

colleges & extension departments of the government and financial institutions. A helping hand by

the corporates in the event of natural calamities like earthquakes & floods and in drought or

drought like situations would only integrate corporations with the society in which it operates. On

going corporate social work can be done in the areas of adult literacy, education, health care,

wildlife & environmental conservation.

MANAGERS ROLE IN SOCIAL RESPONSIBILITY:

The manager is the primary link between the corporation and the society. Managerial decisions

must reflect the values and expectations of all the stakeholders of the society. Managers must

interact with a number of clients both within and without the corporation. Every client or group of

people approaches a situation with different values, perceptions & expectation and hencemanagers must be flexible in their approach. The traditional role of the manager was limited to

the internal organization of the corporation. Now with the widespread acceptance of the concept

of corporate social responsibility, the role of the manager has increased in its scope and

dimension. Now managers must ensure that the corporation works in harmony with the

environment and with the societys expectations. Managers must recognize the social and

economic dimension of business operations. Managers must treat employees with respect and

provide a better quality work of life. The manager must adopt a more participative approach with

regard to employee needs. Managers are expert to set goals which are in harmony with the

personal goals of the employees. Thus, participation of all concerned in pursuit of organizationalgoals in the new management credo and while this is being done each one of the employer is

given the freedom to decide upon his way of achieving the organizational goals. Mangers are also

expected to be effective in social relationships that are external to the organization. The

managers are must be conversant with micro and macro sociological aspects of the society. In a

micro-social system i.e. the organization, the manager deals with others from a position of

authority while in the macro-social system which is external, the managers must learn to deal with

equality. The managers must be equipped with problem solving abilities to be successful in the

macro-social system.

ARGUEMENTS IN FAVOUR OF SOCIAL RESPONSIBILITIES :-

The arguments made to emphasize the social responsibility of business deals with the mutual

benefits that both the society and the business enterprise are likely to enjoy as a result of

involvement of businesses in social activities. There are implicit economic returns for explicit

social responsiveness by the firms. The following five arguments in favour of social responsibility

made to emphasize the social responsibility on business:-

1. An important argument is that businesses exist because they satisfy important needs of society


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and therefore businesses should change along with the changes in society. They should both

cater to the needs of the society and also create new needs. Thus, while being responsive,

businesses should also be pro-active.

2. The second argument made to emphasize social responsibility is that if the results are

beneficial to both the society and business, social responsiveness should be encouraged. On

account of social responsiveness, businesses may benefit in terms of employer loyalty, improved

QWL and increased public support for the operations.

3. Thirdly, Business can avoid additional government regulation, which curtails business freedom,

adds economic cost and reduce flexibility in decision making.

4. Fourthly, a socially responsive business organization will have a good public image.

5. Lastly, it is the moral obligation of business to solve social problems and help both the society

& the government.

Arguments against corporate social responsibility:-

The most important economic argument made against corporate social responsibility is that of the

economic doctrine of profit maximization. When business maximizes profit by improving efficiency

and reducing the cost, it is the society which benefits in the ultimate analysis. Thus, the society

will benefit much more if business is left to do its own business. The topmost priority of businessmust be economic efficiency and mixing up the economic function with the social function will only

reduce the economic efficiency of business for there is an opportunity cost involved in social

involvement and the return on social involvement cannot be cardinally measured or explicitly

accounted. Hence, economic criteria can only be the criteria to measure the success of business.

MILTON RRIEDMAN says, if business followed a socially responsive course, their actions would

raise the price for customers or reduce the wages of employees and hence the only responsibility

of business is to maximize profit. Business person should therefore concentrate on shareholders

demands and expectation. According to Friedman, the four basic obligations of business to

society are:

(1) Obey the law,

(2) Provide goods and services,

(3) Employ resources efficiently and

(4) Pay resources owners fairly in accordance with the market.

Following Friedmans argument, it can be concluded that the result of social involvement will be a

net economic loss to the business. Another argument made against social responsibility is that as

a result of social involvement, business will become weak and defunct. A more charitable view on


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corporate social responsibilities is that business could spend small amount of its resources in

social obligations and that business cannot afford major commitments for social involvement

unless the cost is born by another institutions. Excessive social involvement would increase the

economics costs and reduce the competitiveness of business. Some thinkers vies that business

is a powerful organization and social involvement of business will only enhance the power of

business which is not a very desirable idea. Further, business people are found wanting in skills

and perceptions to effectively deal with social issues.

Business has no direct responsibility to both employees and society and here there is no valid

reason for social involvement of business. Business should therefore keep away from social

involvement and pursue the sole goal of profit maximization until society develops rules that

establish social accountability of business. Finally, it is argued that social involvement of business

lacks support from all quarters of the society. Social involvement of business would encourage

stockholders dissent and would adversely affect the pursuit of economic objectives.

Corporate governance

It refers to the way a corporation is governed.

Corporate Governance deals with the manner the providers of finance guarantee themselves of

getting a fair return on their investment. Corporate Governance clearly distinguishes between the

owners and the managers. The managers are the deciding authority. In modern corporations, the

functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.

Corporate Governance deals with determining ways to take effective strategic decisions. It gives

ultimate authority and complete responsibility to the Board of Directors. In todays market-

oriented economy, the need for corporate governance arises. Also, efficiency as well as

globalization are significant factors urging corporate governance. Corporate Governance is

essential to develop added value to the stakeholders.

Corporate Governance ensures transparency which ensures strong and balanced economic

development. This also ensures that the interests of all shareholders (majority as well as minority

shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that

the organization fully recognizes their rights.

Corporate Governance has a broad scope. It includes both social and institutional aspects.

Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.

2. Strong corporate governance maintains investors confidence, as a result of which,

company can raise capital efficiently and effectively.

3. It lowers the capital cost.

4. There is a positive impact on the share price.


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5. It provides proper inducement to the owners as well as managers to achieve objectives

that are in interests of the shareholders and the organization.

6. Good corporate governance also minimizes wastages, corruption, risks and

mismanagement.

7. It helps in brand formation and development.

8. It ensures organization in managed in a manner that fits the best interests of all

Industrial sickness

Industrial sickness is defined in India as "an industrial company (being a company registered for

not less than seven years) which has, at the end of any financial year, accumulated losses equal

to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and

the financial year immediately preceding such financial year".

Causes of industrial sickness

External Causes:

1. Power Cuts:

A large number of industrial units, particularly in West Bengal and Bihar, face power cuts from

time to time. Power cuts are necessitated by the fact that generation of power is much below its

actual requirements.

2. Erratic Supply of Inputs:

Lack of regular supply of raw materials and other inputs disturb the production schedule causing

losses to the unit. This is particularly the case of units depending upon the supply of imported

inputs. Also transport bottlenecks sometimes affect the supply of inputs.

3. Recession:

General recessionary trends in the market adversely affect the demand for most of the goods

resulting in unsold stocks and losses to individual units. Products with high prices like cars,

tractors, VCR etc. depend for their sustained demand on easy availability of credit to buyers. If

credit is restrained, the buyers are not able to arrange for finance and consequently the demands

for such products suffer and ultimately such manufacturing units get sick.

4. Official Policy:

Sudden and unfavourable changes in the government policy regarding taxation, export and

import can turn viable units into sick units. For example, liberal import policy for a particular

product might cause damage on domestic units producing similar products.

Internal Causes:

1. Mismanagement:

The most important internal cause of sickness is mismanagement. Faulty managerial decision

regarding production, finance, marketing and personnel and poor control can ruin a business.


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According to a study of the Reserve Bank of India sickness of more than 52 per cent of large

industrial units can be attributed to mismanagement, 23 per cent to market recession, 14 per cent

to faulty initial planning and other technical defects and 11 per cent to other causes.

2. Faulty Initial Planning:

Wrong location of an industrial unit might lead to its ruin. If the place of industrial location lacks

infrastrcutrural facilities, the industry is bound to face difficulties.

Another fault is lack of proper demand forecasting for the products to be sold. Small industries

start production without making a market survey and plunge into difficulties later.

Some industries start with a defective capital structure and some spend lavishly on unproductive

assets. Moreover, inability to raise adequate finance to withstand operational losses is a severe

constraint.

3. Financial Problems:

A growing shortage of working capital appears to be a real constraint. The equity base of many

small scale units is very weak and slight disturbance in the market puts them into trouble and

turns them into sick units.

4. Improper Choice of Technology:

Small entrepreneurs cannot afford to take technical guidance from experts in choosing proper

machinery. An improper choice of technology, unsuitable product mix and single product

technology contribute to industrial sickness.

5. Labour Problems:

Bad employer-employee relations result in strikes, lockouts and even closure of industrial units. If

wages, bonus and dearness allowances problems are tackled promptly to the satisfaction of

labour, these problems may not cause sickness.

The Tiwari Committee in its report on industrial sickness (1984) pointed out the cause of sickness

of industrial units.

Sickness of 52 per cent large scale industrial units is due to mismanagement, 23 per cent to

market recession and environmental factors, 14 per cent to technical factors and faulty initial

planning, 9 per cent to infrastructural factors and 2 per cent to labour troubles

Preventive measures

Macro-economic Policy changes: The industrial entrepreneurs should make their own appraisal

within a predictable macro-economic environment. For this, policy changes should not be abrupt,

have to be pre-announced and gradual.


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(ii) Sub-Sectorwise Long term Policy: For each sub-sector, the long-term policy (e.g. for a period

of 5 years) should be announced by the Government so that entrepreneurs appraisal of the

policy implications do take a near-accurate shape.

(iii) Implementation of the Announced Polices: There should be effective co-ordination amongst

the various ministries, Govt. Departments and relevant agencies involved for proper

implementation of policies related to industrialization.

(iv) Development of Small Industry Sector: The small industry sector is characterized by lowlevel

of technology, low equity base, traditional management practices, poor marketing outlets and

undeveloped sub-contracting arrangement. The small industries should not be left to the market

forces only

(v) Rationalization of Tariff : In cases where deemed necessary, some protective measures

should be taken by restricting import of the locally produced finished goods so that fiscal

anomalies could be removed.

(vi) Improvement of Infrastructural Facilities: Insfrstructural facilities including utilities should be

made available to the entrepreneurs at low cost and at the appropriate time.

(vii) Monitoring of Saturation in Particular Industry Sub-sector: There should be some agency

entrusted with the task of monitoring the establishment of too many units in the same sub-sector

so that over-crowding could be prevented.

(viii) Development of Linkage Industries: In order to mitigate the problem of on availability/scarcity

of raw-material as well as marketing of finished goods, backward and forward linkage industries

should be set up in a planned way. Moreover, close linkage of Industry with agriculture will help

ease problem of scarcity of raw-material.

(ix) Active Support of Banks and Financial Institutions:

(a) In case of industrial units where term loan is needed, the availability of working capital should

be ensured as part of the financial package.

(b) Banks should provide due attention to process the working capital needs of the industrial units

without any delay.

(c) BMRE Loan should be actively considered by the banks and financial institutions for the

existing industrial units undergoing the reality of rapid change in technology so that productive

capacities are not rendered idle/underutilized.


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(d) Interest rate on loan should be made lower by improving operational efficiency of the banks.

This will help reduce financial costs of the industria l units and thus gain access to

competitiveness.

(e) Bank-client relationship should be based on understanding of the mutual problems and

prospects for greater interest of survival of both the entities.

Remedial measures:

Despite all preventions and sincerity of the policymakers and stakeholders, some industrial units

would genuinely face sickness. In order to provide scope for timely revival of those units, effortsshould be underway from all concerned. However, some unviable units should be allowed to die a

natural death without delay.

The suggested remedial measures for the industrial units approaching towards sickness and

already turned sick, are as follows :

(i) Every bank and financial institution should have a Project Rehabilitation Cell manned by the

experts of various disciplines. There should be ongoing process of evaluation of the heath of the

assisted units by the banks to detect early warning signals. For this, congenial bank-clientrelationship is a must for extending co-operation to each other.

(ii) Genuine sick units capable of being revived should be allowed rehabilitation package by way

of rescheduling of existing loans, waiver/remission of interest payments, conversion of short term

liabilities into long term obligations, etc. depending on the merit of the each case.

(iii) There might be one Interest Remission Committee to be formed by the Govt. from time to

time to address the genuine problems of small sick units (where investment ceiling may be upto

Tk. 1 crore). However, this step should not encourage the non-sick units to avail of this temporary

facility. The screening process should be strict enough to select the genuine sick units for such

concession. As it was followed previously, the Govt. may compensate upto 50% of the waived

interest to the concerned banks.

(iv) If necessary, change of management of the sick units should be brought in to facilitate

successful running of the projects.

(v) Only financial and management rehabilitations of the sick units will not bring the desired result

unless Govt. assistance in the form of reduced taxes, duties, concessions on various charges like

gas, electricity, etc., imposition of restriction on related import items etc are made available.


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(vi) Bangladesh Bank may set up a Sick Industry Cell to monitor the performance of the lending

institutions in handling the problems of sick units and to co-ordinate the rehabilitation efforts of

banks, financial institutions, Govt. and other agencies involved.

(vii) Possibilities of mergers and acquisitions may be explored in case of sick industrial units not

capable of being revived by their own strengths. Suitable policy guidelines may be framed in this

regard

Board for Industrial and Financial Reconstruction (BIFR)

The Government of India, in order to tackle the problem of industrial sickness, had set up a Board

for Industrial and Financial Reconstruction (BIFR), under the purview ofSick Industrial Companies

(Special Provisions) Act,1985 (SICA). It had been established as a quasi-judicial body in

the Department of Economic Affairs,Ministry of Finance, for revival and rehabilitation of

potentially sick undertakings and for closure/liquidation of non-viable and sick industrial

companies. The Industrial Finance Division of the ministry dealt with the appointment of the

Chairman and the Members of BIFR and Appellate Authority for Industrial and Financial

Reconstruction (AAIFR) as well as with all the other matters relating to industrial sickness.

Under SICA, it is mandatory for the Board of Directors of a sick industrial company to make

areference and report to BIFR for formulation of revival and rehabilitation schemes and otherremedial measures to be adopted with respect to such a company

On receipt of such a reference, BIFR will conduct an inquiry and ascertain whether the company

is indeed sick or not. For this purpose, the Board may, through any operating agency, cause to

prepare with respect to the sick company:-

A complete inventory of that company which includes all assets and liabilities as well as

all books of accounts, registers, maps, plans, records, documents of title or ownership of

property and all other documents of whatsoever nature relating thereto;

A list of shareholders and of creditors (showing separately the list of secured creditors

and unsecured creditors);

A valuation report in respect of the shares and assets of the company;

An estimate of its reserve price, lease rent or share exchange ratio; and

Performa accounts, where no up-to-date audited accounts are available.

On the basis of such an enquiry, if BIFR is convinced that the company has become sick, it will

either give reasonable time to the company concerned to make its net worth positive or it will
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appoint anoperating agencyconsisting of certain banks and financial institutions to prepare a

package for the revival of such sick industrial units. The package may consist of any one or more

of the following measures:-

Restructuring the capital base of the company.

Inducting more capital to improve its resource position.

Merger and amalgamation of the sick company with a healthy unit.

Providing soft loans to the company.

Bringing about technological changes and modernisation in the company.

Bringing about a change in its management

Writing off the interest burden of the company.

Rescheduling its loans.

Providing fiscal concessions like tax rebate,tax exemptions or tax reliefs to it.

If BIFR is of the opinion that the sick industrial company is not likely to make its net worth exceed

its accumulated losses within a reasonable time and that it is not likely to become viable in future

and also it is just and equitable that the company should wound up, it could imitate proceedings

with the High Court, for winding up of the company.

The decision of the BIFR is binding on all the concerned parties. The entire responsibility for

diagnosing, identifying, investigating, rehabilitating, reviving and ultimately recommending the

winding of such a sick unit lies with the BIFR. Along with it, certain measures may also beinitiated by the Reserve Bank of India (RBI) by instructing banks to keep a constant track of

borrower's profile and try to identify sickness at the initial stages,that is,when a unit has started

becoming weak. It has issued detailed guidelines for rehabilitation of these units and matters

relating to better coordination between commercial banks and term-lending institutions for

formulation and implementation of rehabilitation programmes.

But, under theSick Industrial Companies (Special Provisions) Repeal Act, 2003, which

replaced Sick Industrial Companies (Special Provisions) Act,1985 (SICA), the Board for Industrial

and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and FinancialReconstruction (AAIFR) stand dissolved. The work of revival and rehabilitation has been

entrusted to National Company Law Tribunal (NCLT) in place of BIFR and any appeal against the

order of the NCLT will be made to the National Law Appellate Tribunal (NCLAT) instead of AIFR.

The institutional structure relating to NCLT/NCLAT has been provided under theCompanies

(Second) Amendment 2002. According to the Act:-

The Central Government shall, by notification in the Official Gazette, constitute a Tribunal

to be known as the National Company Law Tribunal to exercise and discharge such

powers and functions as are, or may be, conferred on it by or under this Act or any other
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law for the time being in force.

The proposed NCLT shall continue the functions and powers currently discharged by

the Company Law Board, the BIFR and the High Courts in respect of liquidation, winding

up, amalgamation and merger of a sick unit.

It shall consist of a President and such number of Judicial and Technical Members notexceeding sixty-two, as the Central Government deems fit, to be appointed by that

Government, by notification in the Official Gazette.

Under the Act, the Board of Directors of a sick company shall make a reference to the

NCLT and prepare a scheme of its revival and rehabilitation and submit the same to the

Tribunal along with an application containing such particulars as may be prescribed, for

determination of the measures which may be adopted with respect to such a company.

The application shall be accompanied by a certificate from a panel of auditors approved

by the Tribunal indicating the reasons for the net worth of the company becoming fifty per

cent or less; or for default in repayment of its debt making such company a sick industrialcompany, as the case may be.

If the Tribunal, after considering all the relevant facts and circumstances, is of the opinion

that the sick industrial company is not likely to make its net worth exceed the

accumulated losses within a reasonable time while meeting all its financial obligations

and that the company is not likely to become viable in future and that it is just and

equitable that the company should be wound up, then it may order winding up of the

company.

SSI ( small scale industries)

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED)

Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

(a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production of

goods pertaining to any industry specified in the first schedule to the industries (Development and

regulation) Act, 1951). The Manufacturing Enterprise aredefined in terms of investment in Plant &

Machinery.

(b) Service Enterprises: The enterprises engaged in providing or rendering of services and

are defined in terms of investment in equipment.

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro EnterprisesDoes not exceed twenty five lakh rupees

Small Enterprises

More than twenty five lakh rupees but does not

exceed five crore rupees

Medium

Enterprises

More than five crore rupees but does not

exceed ten crore rupees

Service Sector

Enterprises Investment in equipments

Micro Enterprises

Does not exceed ten lakh rupees:

Small Enterprises More than ten lakh rupees but does not exceed

two crore rupees

Medium

Enterprises

More than two crore rupees but does not

exceed five core rupees
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Small-scale industries in India could not progress satisfactorily due to various problems that they

are confronted with while running enterprises. In spite of having huge potentialities, the major

problems, small industries face are given below.

1. Problem of skilled manpower:

The success of a small enterprise revolves around the entrepreneur and its employees, provided

the employees are skilled and efficient. Because inefficient human factor and unskilled manpower

create innumerable problems for the survival of small industries. Non-availability of adequate

skilled manpower in the rural sector poses problem to small-scale industries.

2. Inadequate credit assistance:

Adequate and timely supply of credit facilities is an important problem faced by small-scale

industries. This is partly due to scarcity of capital and partly due to weak creditworthiness of the

small units in the country.

3. Irregular supply of raw material:

Small units face severe problems in procuring the raw materials whether they use locally

available raw materials or imported raw materials. The problems arise due to faulty and irregular

supply of raw materials. Non-availability of sufficient quantity of raw materials, sometimes poor

quality of raw materials, increased cost of raw materials, foreign exchange crisis and above all

lack of knowledge of entrepreneurs regarding government policy are other few hindrances for

small-scale sector.

4. Absence of organised marketing:

Another important problem faced by small-scale units is the absence of organised marketing

system. In the absence of organised marketing, their products compare unfavourably with the

quality of the product of large- scale units. They also fail to get adequate information about

consumer's choice, taste and preferences of the type of product. The above problems do not

allow them to stay in the market.

5. Lack of machinery and equipment:

Small-scale units are striving hard to employ modern machineries and equipment in their process

of production in order to compete with large industries. Most of the small units employ outdated

and traditional technology and equipment. Lack of appropriate technology and equipment create

a major stumbling block for the growth of small-scale industries.

6. Absence of adequate infrastructure:

Indian economy is characterized by inadequate infrastructure which is a major problems for smallunits to grow. Most of the small units and industrial estates found in towns and cities are having


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one or more problems like lack of of power supply, water and drainage problem, poor roads, raw

materials and marketing problem.

Thus absence of adequate infrastructure adversely affect the quality, quantity and production

schedule of the enterprises which ultimately results in under-utilization of capacity.

7. Competition from large-scale units and imported articles:

Small-scale units find it very difficult to compete with the product of large-scale units and imported

articles which are comparatively very cheap and of better quality than small units product.

8. Other problems:

Besides the above problems, small-scale units have been of constrained by a number of other

problems also. They include poor project planning, managerial inadequacies, old and orthodoxdesigns, high degree of obsolescence and huge number of bogus concerns. Due to all these

problems the development of small-scale industries could not reach a prestigious stage.

Policies and Incentives for SSI

The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry for formulation of

policies, programmes and schemes, their implementation and related co-ordination, for the

promotion and development of small scale industries in India. The role of the Ministry is to assist

the States in their efforts for the growth of the small scale sector, by enhancing their

competitiveness in an increasingly liberalised economy. It is assisted by an attached office and

two public sector enterprise, namely:-

Micro, Small and Medium Enterprises Development Organisation (MSME-DO) :- the

Office of the Development Commissioner (Micro, Small and Medium Enterprises) [earlier

known as the O/o the DC (SSI)] is also known as Micro, Small and Medium Enterprises-

Development Organisation (MSME-DO). It is the apex body for assisting the Government

in formulating, coordinating, implementing and monitoring policies and programmes for

micro, small and medium enterprises (MSMEs) in the country. MSME-DO provides a

comprehensive range of common facilities, technology support services, marketing

assistance, entrepreneurial development support, etc.

National Small Industries Corporation Ltd (NSIC) :- was established by the Government

with a view to promoting, aiding and fostering the growth of micro, small and medium

enterprises in the country, with a focus on commercial aspect of their operations. It

implements several schemes to help the MSMEs in the areas of raw material

procurement, product marketing, credit rating, acquisition of technologies, adoption of
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improved management practices, etc.

Khadi and Village Industries Commission (KVIC) :- established under the Khadi and

Village Industries Commission Act, 1956, as a statutory organisation engaged in

promotion and development of khadi and village industries for providing employment

opportunities in the rural areas. Coir Board :- is a statutory body, established under the Coir Industry Act, 1953, for the

promotion and development of coir industry in India as well as for uplifting the living

conditions of the workers engaged in this industry.

Also, aNational Commission on Enterprises in the Unorganised Sector (NCEUS)has been set up

for addressing the wide range of issues affecting the productive potential of the unorganised

micro and small productive units.

Besides, there are three national level 'Entrepreneurship Development Institutes (EDIs)' for the

development of training modules, undertaking research and providing consultancy services for

entrepreneurship development in the small scale sector. These include:-

National Institute of Small Industry Extension Training (NISIET) renamed as theNational

Institute for Micro, small and Medium Enterprises (NIMSME) at Hyderabad

National Institute of Entrepreneurship and Small Business Development (NIESBUD) at

Noida

Indian Institute of Entrepreneurship (IIE) at Guwahati.

In order to protect, support and promote small enterprises as also to help them become self-

supporting, a number of protective and promotional policy measures have been undertaken by

the Government. The promotional measures cover:- (i) industrial extension services; (ii)

institutional support in respect of credit facilities; (iii) provision of training facilities; (iv) supply of

machinery on hire-purchase terms; (v) assistance for domestic marketing as well as exports; (vi)

technical consultancy and financial assistance for technological upgradation; etc.

The Reservation Policy is the most important policy of the Government for the sector. It has the

twin objectives of ensuring increased production of consumer goods in the small scale sector;

and expanding employment opportunities through setting up of small scale industries.

Reservation of items for exclusive manufacture in SSI sector is statutorily provided for in

the Industries (Development and Regulation) Act, 1951. The overwhelming consideration for

reservation of an item is its suitability and feasibility for being made in the small scale sector

without compromising the quality aspect. But, with a view to providing to the sector, opportunities

for technological upgradation, promotion of exports and economies of scale, items so reserved

have been dereserved from time to time. The issue of reservation/de-reservation of product is

examined on a continual basis by an Advisory Committee on Reservation constituted under the

Act. During the year 2006-07, 180 items reserved for manufacture in small scale industries have
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been dereserved. As on 13th March, 2007, 125 items were dereserved and as on 8th February,

2008, 79 more were dereserved. At present, the total number of items reserved for exclusive

manufacture in the micro and small scale sector are 35.

Recognising the role of credit for the small scale sector, a focusedcredit policyhas been in place

since the early days. Priority sector lending is its most important component. Under it, banks are

compulsorily required to ensure that defined percentage of their overall lending is made to the

priority sectors, which includes small industries. As a part of the institutional arrangement,Small

Industries Development Bank of India ( SIDBI )has been set up as the apex refinance bank. Term

loans are provided by State Financial Corporations (SFCs) and Scheduled Banks.

The other important policies for the sector relate to:- (i) excise duty; (ii)foreign direct investment

approval;andlabour laws.

Besides, several schemes and programmes have been undertaken by the Government with the

aim of facilitating access to:- (i) adequate credit from financial institutions; (ii) funds for technology

upgradation and modernisation; (iii) integrated infrastructural facilities; (iv) modern testing

facilities and quality certification laboratories; (v) modern management practices,

entrepreneurship development and skill upgradation through appropriate training facilities; etc.

The schemes so announced include:-

Tax Holiday Scheme

Composite Loan Scheme

Industrial Estate Scheme

Scheme for International Cooperation

Scheme of Surveys, Studies and Policy Research

Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

Scheme of Product Development, Design Intervention and Packaging (PRODIP)

Scheme of Khadi Karigar Janashree Bima Yojana for Khadi Artisans

Scheme of Interest Subsidy Eligibility Certification (ISEC)

Small Industry Development Organisation also operates a number of schemes for the sector:- Credit Linked Capital Subsidy Scheme for Technology Upgradation

Credit Guarantee Fund Scheme for Small Industries

ISO 9000/ISO 14001 Certification Reimbursement Scheme

Scheme for reimbursement of fees to adopt barcoding

Integrated Infrastructure Development (IID Scheme)

Scheme for setting up of Mini Tool Rooms

Scheme for setting up of testing centres

Scheme for Market Development Assistance (MDA) for SSI exporters

Assistance for Strengthening of Training Infrastructure of existing and new
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Entrepreneurship Development Institutions

Scheme of Micro Finance Programme

National Small Industries Corporation Ltd (NSIC)schemesfor small scale industries relate to:-

Bill Financing

Working Capital Finance

Export Development Finance

Equipment Leasing Scheme

Raw Materials Procurement Support

Marketing Assistance Programme and Exports Assistance;

Stores Purchase Programme

Single Point Registration Scheme and other services.

Globalization in IndiaIn early 1990s the Indian economy had witnessed dramatic policy changes. The idea behind the

new economic model known as Liberalization, Privatization and Globalization in India (LPG), was

to make the Indian economy one of the fastest growing economies in the world. An array of

reforms was initiated with regard to industrial, trade and social sector to make the economy more

competitive. The economic changes initiated have had a dramatic effect on the overall growth of

the economy. It also heralded the integration of the Indian economy into the global economy. The

Indian economy was in major crisis in 1991 when foreign currency reserves went down to $1

billion and inflation was as high as 17%. Fiscal deficit was also high and NRI's were not

interested in investing in India. Then the following measures were taken to liberalize and globalizethe economy.

Steps Taken to Globalize Indian Economy

Some of the steps taken to liberalize and globalize our economy were:

1. Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18

to 19%.

2. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the

private sector.

3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as

Insurance (26%), defense industries (26%) etc.

4. NRI Scheme: The facilities which were available to foreign investors were also given to NRI's.

Merits and Demerits of Globalization
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The Merits of Globalization are as follows:

There is an International market for companies and for consumers there is a wider range

of products to choose from.

Increase in flow of investments from developed countries to developing countries, whichcan be used for economic reconstruction.

Greater and faster flow of information between countries and greater cultural interaction

has helped to overcome cultural barriers.

Technological development has resulted in reverse brain drain in developing countries.

The Demerits of Globalization are as follows:

The outsourcing of jobs to developing countries has resulted in loss of jobs in developed

countries.

There is a greater threat of spread of communicable diseases.

There is an underlying threat of multinational corporations with immense power ruling the

globe.

For smaller developing nations at the receiving end, it could indirectly lead to a subtle

form of colonization.

Effects of Globalization

The spectacular change which we have seen in the Indian economy last decade is all credited to

globalisation. Particularly, software/IT sector is credited to be the most global. This makes us tothink on what good and bad effects globalisation can have. Globalisation has various aspects

which affect the world in several different ways..

Industrial emergence of worldwide production markets and broader access to a range of

foreign products for consumers and companies. We have so many foreign brands available here.

Be it Nike from US,Adidas from Germany, Nokia from Finland, Samsung from South

Korea orSony from Japan, we dont really differentiate.

Financial The advent of so many foreign finance firms are a live example of this.ABN-

AMRO,HSBC, Barclays, ING Vysya,Citibank and many have established a strong foothold in theIndian market. As a result, the BFSI [banking, financial services and insurance] is seen as

growing sector of business.

Economic realization of a global common market, based on the freedom of exchange of

goods. The co-operation among countries has definitely increased due to globalization. The Euro

as a single currency to represent the whole of European Union is a testimony to this. The

affiliations among different nations for economic growth is becoming common. Countries like

Sudan (where one of the worst ever humanitarian crisis took place), Angola, Egypt, Morocco and

several other African, American countries are showing an average of 12% economic growth every

year, thanks to the flattening process. The middle classes across the globe are growing rapidly.
http://www.nike.com/nikeos/p/nike/language_select/http://www.nike.com/nikeos/p/nike/language_select/http://www.adidas.com/com/homepage.asphttp://www.nokia.com/http://www.samsung.com/http://www.samsung.com/http://www.sony.com/http://www.abnamro.com/http://www.abnamro.com/http://www.hsbc.com/http://www.barclays.com/http://www.ingvysyabank.com/http://www.citibank.com/us/home.htmhttp://www.citibank.com/us/home.htmhttp://www.nike.com/nikeos/p/nike/language_select/http://www.adidas.com/com/homepage.asphttp://www.nokia.com/http://www.samsung.com/http://www.samsung.com/http://www.sony.com/http://www.abnamro.com/http://www.abnamro.com/http://www.hsbc.com/http://www.barclays.com/http://www.ingvysyabank.com/http://www.citibank.com/us/home.htm


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So,theres more demand of goods in the market, and space for more industries to come. If human

desires are infinite, sure the scope for trade and business is infinite.

Political Politically, the US has enjoyed a position of power among the world powers; in part

because of its strong and wealthy economy. With the influence of globalisation and with the help

of The United States own economy, China has experienced some tremendous growth within the

past decade (since 2001) to be precise. 2001 was a very important year for globe,not because of

a 9/11, but because China joined the world market. If China continues to grow at the rate

projected by the trends, then it is very likely that in the next twenty years, there will be a major

reallocation of power among the world leaders. China will have enough wealth, industry, and

technology to rival the United States for the position of leading world power. The European Union,

Russia and India are among the other already established world powers which may have the

ability to influence future world politics. Hegemony of any one country will go down. Particularly,

the US.

Informational increase in information flows between geographically remote locations. The

Internet is acting as a fuel to globalisation. People from two remote corners of earth, can interact

without hassle using the Internet. A website of any Malaysian college is accessible from any

place, Mauritius, Estonia or even the Antarctica!

Cultural growth of cross-cultural contacts; advent of new categories of consciousness and

identities such as Globalism which embodies cultural diffusion, the desire to consume and enjoy

foreign products and ideas, adopt new technology and practices, and participate in a world

culture; loss of languages (and corresponding loss of ideas). People of entirely different cultures

and traditions will have more interaction. This will lead to fusion of cultures, and differences will

be lost with time. The East has to meet the West, the Conservatives have to adjust with the

Liberals. Liberal values will spread more due to globalization, and lets hope fundamentalism gets

non-existent as kids in future will grow knowing the cultures of various places of earth, and not

merely there own.

Ecological the advent of global environmental challenges that can not be solved without

international cooperation, such as climate change, cross-boundary water and air pollution, over-

fishing of the ocean, and the spread of invasive species.

Transportation fewer and fewer Indian cars on Indian roads each year (the same can also be

said about many countries) and the death of distance through the incorporation of technology to

decrease travel time. Newer concepts like video conferencing, online file sharing, remote desktop

control, online shopping and bill payment makes us to hit the roads less frequently, and results in

reduced travel costs and time for the corporates. This is of more advantage to people considering

the oil price hike by OPEC.

International cultural exchange

o Greater international travel and tourism

o Greater immigration, including illegal immigration


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o Spread of local consumer products (e.g. food) to other countries (often adapted to their

culture).KFC,McDonalds,Subway,Taco Bell all have set up shops in India.

o World-wide fads and pop culture such as Pokmon, Sudoku, Numa Numa, Origami, YouTube,

Blogging, Orkut, Facebook, and MySpace.

o World-wide sporting events such as FIFA World Cup and the Olympic Games.

o Formation or development of a set of universal values.

MNC and TNC

MNC (multi national Corporation) is defined as an enterprise which is he

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