BUSINESS ENVIRONMENT

NBBA5102

Module I: Introduction

Business Environment: Nature, dimensions and meaning. Components of business

environment: economic, political, technological and social environment.
Consumerism and consumer protection in India. A brief study of capitalism,
socialism and mixed economy.

Module II: Industrial and Legal Environment

Industrial Growth and policy, industrial licensing policy. MRTP, Economic

planning: aims, objectives and framework of development planning in India, Legal
Environment, India’s Fiscal and Monetary Policies.

Module III: Public Sector and Economic Organizations

Public Sector: Concept, Rationale, Government Programmes, Role of Public

Sector in India. Foreign Trade Policies, Development Banks: IFCI, IDBI, SIDBI,
IIBI.

Module IV: Recent Economic Trends Recent Economic Trends

Economic Liberalization, Privatization and Globalization, Foreign investment

policy. Export Promotion councils and boards, Import Control, EXIM policy,
FEMA, IPR (International and Indian Patent Rights Acts), Anti-Pollution Act.
Environmental Groups and Bodies, Euro I, II and III Norms, Introduction to Goods
and Services Tax.
 MODULE 1
UNIT-1
BUSINESS

1. The term business is derived from the word ‘busy’. Thus, business means
being busy.
2. However, in a specific sense, business refers to any occupation in which
people regularly engage in an activity with a view to earning profit.
3. The activity may consist of production or purchase of goods for sale, or
exchange of goods or supply of services to satisfy the needs of other people.

DEFINITIONS OF BUSINESS

According to Steinford (1979); "Business is all those activities involved in

providing the goods and services needed or desired by people“

Or

According to Griffin and Ebert (1996); "Business is an organization that provides

goods or services in order to earn profit.

Or

Business is an economic activity, which is related to continuous and

regular production and distribution of g oods and services for satisfying human
wants.

Or

Business refers to activities involving production or purchase and then sale of

goods desired by the people, with the intention of earning profit.

ENVIRONMENT

Environment refers to the place where the firm is performing its operations.

BUSINESS ENVIRONMENT

According to Keith Davis ‘‘Business environment is the aggregate of all

conditions, events and influences that surround and affect it.”

Or
The sum total of all individuals, institutions and other forces that are outside the
control of a business enterprise but the business still depends upon them as they
affect the overall performance and sustainability of the business.”

Or

‘Business Environment’ refers to all those internal and external factors which
impact the performance of the firm and its decision making strategies.

Features of business environment

 Totality of External Forces:- Business Environment is the sum total of all

the external factors that influence the functioning of the business.

 Specific and General Forces:- Business Environment is made up of both

specific and general forces. Specific forces refer to the customers,
competitors, investors etc. which have a direct effect on the day to day
working of the business while the general forces refers to social, political,
legal, technological and other forces which indirectly affect the operations of
a business.

 Inter-Relatedness:- Various elements of business environment are very

closely related to each other. For example, at present there has been an
increase in demand for products like diet colas, fat free cooking oil, sugar
free products etc. due to increase in awareness for good health among the
consumers.

 Dynamic Nature:- Business environment is dynamic in nature i.e. it keeps

on changing. For example, change in government policies, change in taste
and choice of the consumer, change in technology etc. Such changes could
be triggered by internal or external factors.

 Uncertainty:- It is very difficult to predict the changes of Business

Environment. As environment is changing very fast for example in IT,
fashion industry frequent and fast changes are taking place.

 Complex:- It is very difficult to understand the impact of Business

environment on the companies. Although it is easy to scan the environment
but it is very difficult to know how these changes will influence Business
decisions. Some-time change may be minor but it might have large impact.
For example, a change in government policy to increase the tax rate by 5%
may affect the income of company by large amount.
  Impact:- Business environment has both long term and short term impact.
Environment therefore has different effects on different firms in the same
industry.

 Relativity:- It is a relative concept since it differs from country to country

and region to region. Political conditions in the USA, for example differ
from those in China or Pakistan. Similarly, demand for products may be
fairly high in France whereas it may be almost non-existent in India.

SIGNIFICANCE OF BUSINESS ENVIRONMENT

 Enabling the identification of opportunities and getting the first mover

advantage:- Business environment provides many opportunities to the firms
to improve their performance. The firms which are able to scan these
opportunities at an early stage get maximum benefit and can leave their
competitors behind. For eg:- Higher quality bulbs with lower electricity
consumption.

 Helping in the identification of threats and early warning signals or

Radar effect:- Environment understanding helps an enterprise to recognize
qualitative information in advance, which can be used to prepare it for facing
likely challenges.

For example, if any new multinational company is entering the Indian market,
the manager of an Indian firm dealing with same product as that of the
multinational company, should take it as a warning signal.

He should handle this threat proactively & well ahead of the launch
of MNC’s product, take measures like improving the quality of his product, heavy
advertisement etc.

 Coping with the rapid changes:- Business environment is very dynamic.

One can see changes like new technologies, fragmented markets, more
demanding customers, heavy global competition and so on. Thus, in order to
efficiently cope with these changes, managers must understand the
environment and should adopt appropriate courses of action at the right time.

 Assisting in planning and policy formulation:- Business environment

brings both threats and opportunities to a business. Hence, understanding of
environment helps the management in future planning and decision making.
For example, competition increases with the entry of new firms in the
market.
  Image building:- Environmental understanding generates a feeling among
public that business is sensitive and responsive to its environment. This
helps in building the image or reputation of the firms.

 Long term Survival & growth:- Effective scanning of business

environment is very helpful for business to survive for the longer period of
time.

 Helps in Tapping Useful Resources:- Careful scanning of the Business

Environment helps in tapping the useful resources required for the business.
It helps the firm to track these resources and convert them into goods
and services.

 Improvement in performance:- The enterprises that monitor their

environment closely can adopt suitable business practices not only to
improve their performance but also to become leaders in the industry.

 Effective decision making:- Effective decision making helps businesses to

take the decision at the right time.

 Optimum utilization of resources:- A careful study of market conditions

helps to utilize the resources at an optimum level.

SCOPE/TYPES/FACTORS/COMPONENTS AFFECTING BUSINESS

ENVIRONMENT

Business decisions of the firm are affected by two types of factors which are:-

Internal Business
External
Environment decisions Environment

1. Value System:- The value system of the organization influences its portfolio
strategy, HRM, Marketing strategy, & CSR.
2. Vision, Mission & Objectives:- Vision is the imagination of the
organization what they want to achieve in the future.
For eg:- Apple’s Vision “We believe that we are on the face of the
earth to make great products and that's not changing.”
A mission statement defines what line of business a company is in, and why
it exists or what purpose it serves.
For eg:- Apple’s Mission “to bringing the best user experience to its
customers through its innovative hardware, software, and services.”
 An objective is something you plan to achieve. An organization must
perform there business activities which doesn’t clash with there vision,
mission, & Objective.
3. Organizational Management Structure:- The nature & type of
organizational structure will be having a direct impact on its business
environment & its decision making policies. Some management structures &
styles delay decision making while some other facilitates quick decision
making.
4. Internal Power Relationship:- Factors like the amount of support top
management enjoys from different levels of employees, shareholders have
direct influence on the business decisions & its implementation.Effective
relationship between the internal members of an organization leads to higher
performance.
5. Human Resources:- Human resources i.e., employees who are the key
resources of an organization without which the effective functioning of an
organization is not possible. They should be given comfortable environment
to work & reasonable amount of remuneration.
6. Company Image:- The image of the company matters while raising finance,
forming joint ventures, or other alliances, entering purchase or sale
contracts, launching new products; etc. A positive image of the company
helps business to generate higher amount of profits.
7. Brand equity:- Brand equity is a marketing term that describes
a brand's value. That value is determined by consumer perception of and
experiences with the brand. Positive brand equity has value because
Companies can charge more for a product with a great deal of brand equity.
The above internal factors can influence business environment either
positively or negatively.

External Environment/Factors

 External Factors are those factors which are outside the control of the
organization or the firm.

 These factors are also called ‘Uncontrollable factors’.

 It consists of:-

Micro
Factors

External
Factors
Micro factors

 Micro factors are also called ‘Task’ or ‘Operating’ factors.

 These factors has a direct impact on a firms operation.
 These are:-

1.Suppliers:- It can be defined as:-

 These are the one who supply the inputs like raw material & components to
the company.
 They are wished to maintain a smooth supply of raw material so that
organizational efficiency is maintained.

2.Customers:- It can be defined as:-

 Customer is the king of the market & they are the reason because of which
business exist.
 The major task of businesses is to create & sustain customers for longer
period of time.
 A company can have different types of customers i.e., like individuals ,
households, industries, government etc.

3. Competitors:- A firm’s competitors are not only those organizations who are
making similar products but also those who manufacture related products.

4. Marketing Intermediaries:- It can be defined as:-

 A firm that aids or help the company in promoting, selling & distributing its
goods to the final consumers are called ‘Marketing Intermediaries.’
 It consists of middleman such as agents, merchants who help the company
find customers or close sales with them.
 They are the vital link between company & final consumers.
 A disturbance of the link or a wrong choice of the link may cost the
company very heavily.
5.Financiers:- A financier is the one who helps the businesses to provide the
funds as & when required. They also assist businesses in taking various financing
decisions, analysing the risk ,etc.

6. Public’s:- A public is any group that has an actual or potential interest in an

organization to achieve its interest. A companies must observe their actions before
taking any decision.

Macro factors

 Micro factors are also called ‘General’ or ‘Remote’ factors.

 These factors affects the business in general.

 Political/ Governmental Factors:- These factors include ‘Number of

political parties’, ‘Policies of Political Parties’, ‘Government System’, etc.

 Economical Factors:- These factors include government policies, industrial

policies, trade policies, size & nature of economy, income level &
distribution of income, population size, Monetary Policy, Fiscal Policy,
business cycles.etc.

 Social/Societal Factors:- It includes ‘Cultural values’, ‘Beliefs’, ‘Attitude

of workers’, ‘Labour management relationship’, etc.

 Technological Factors:- These factors include ‘Type of technology in use’,

‘Level of technological development’, ‘Speed with which new technology is
adopted and diffused in the market’, etc.

 Legal Factors:- It includes ‘Rules & Regulations of Government’, ‘EXIM

Policy’, ‘Health & Safety law’,etc.

 Ecological Factors:- It includes ‘Environmental degradation’, ‘Anti-

Pollution measures’, ‘Anti- Unfair trade practices measures’, etc.

Other factors:-

 Natural/ Geographical Factors:- It includes ‘Geographical’, ‘ Climatic’,

& ‘Weather Conditions’.

 Demographic Factors:- It includes ‘Age’, ‘Gender’, ‘Family size’,

‘Occupation’, ‘Education’, ‘Religion’, etc.

CONSUMERISM
Consumerism means “the welfare of the consumer by safeguarding their rights by
giving required protection to them from restrictive trade practices and unfair trade
practices, and also from the goods/services injurious to them, and to save them
from the economic exploitations by the well organized and trained
sellers/traders/manufacturers of goods and services.

Consumerism, the “social movement seeking to augment the rights and power of
buyers in relation to sellers,” – Philip Kotler

“The dedication of those activities of both public and private organisation which
are designed to protect individuals from practices that impinges upon their rights
as consumers”.– Harper W. Boyd

“Consumerism is a social force within the environment designed to aid and

protects the consumers by exerting legal, moral and economic pressure on
business”. – Cravers and Hills

“An organised effort of consumers seeking redress, restitution, and remedy for
dissatisfaction they have accumulated in the acquisition of their standard of
living”.– Richard H. Buskirk and James Bushkirk

FEATURES OF CONSUMERISM

 Consumerism is stimulated by dissatisfied and aggrieved consumers with the

unfair dealings of sellers.
 Consumerism is a social movement of consumers.
 Consumerism involves the collaborative effort of the organised consumers.
 Consumerism ensures consumer welfare as well as the interest of society at
large.
 Consumerism explains the rights and responsibilities of the consumer in
relation to the buyer.
 Consumerism involves a wide range of activities such as spreading
consumer education directed towards protection against unfair trade
practices.
 Under consumerism Government, community, NGO’s, consumer courts etc.
all strive for the protection of consumers against exploitation by sellers.

Objectives of Consumerism

 To create awareness among masses regarding basic consumer rights and

their proper enforcement.
  To educate the consumers about their responsibilities and redressal
machinery available for hearing their complaints.

 To prevent unfair trade practices such as black- marketing, adulteration,

price discrimination, poor quality etc. in the society so that less number of
litigations related to consumer affairs can be ensured.

 To ensure strict implementation of various laws framed to protect

consumers against various types of exploitations and unfair dealings.
 To ensure healthy completion among producers and distribution of vital
and correct information among consumers in the marketplace.

 To build up trust and confidence among foreign players such as

Multinational corporations (MNCs), foreign institutional investors that
justice, the welfare of humanity, consumer protection against exploitation
etc. exist in India. This would improve the image of India throughout the
world that leads to more foreign investment in India which is required to
achieve socio-economic objectives of the country.

 To prevent business houses from engaging in fraudulent practices and

earning profit from unethical trade activities.

The consumer has to be protected from evils like unfair trade practices,
adulteration, spurious and injurious manufacturers, black marketing, price hike,
overcharging, misguidance by false advertisements, misuse of trademarks, and
patents, non-labeling and mislabeling, duplications, and similar other deceitful
market practices.

Technically, consumerism refers to protection against duping of the market,

protection against the sale and supply of bad goods, substandard and duplicate
consumer products in the market; non –supply or short supply of consumer
goods, unwarranted and excessive pricing, and false and Misleading
advertisement camouflaging the truth.

Why Consumerism is Important?

Healthy consumption is a big positive for the economy as it indicates that people
are ready to spend; this ensures that there is a circulation of money in the economy.
However, if consumption drops, then it indicates underlying problems. It may be
due to a high unemployment rate, increased interest rates, and so on. Hence,
consumption can be considered an indicator of the overall economic health of a
country.
5 Pros of Consumerism
Experts debate whether consumerism benefits or hurts societal ways of life. Some
possible advantages of consumerism include:

1. 1. Creates jobs: Producing new products and services through

consumerism requires workers. In theory, the more successful companies
that grow out of consumerism, the more jobs created for civilians.
2. 2. Encourages innovation: If your company does well, you’ll most likely
want to expand. Expansion means innovation, creativity, and the funds to
support your new goals.
3. 3. Ensures quality: Because companies compete with one another for your
business, producing high-quality material goods at a competitive price
should serve their goals.
4. 4. Promotes fair prices and consumer choice: Companies compete with
one another for customers in a capitalist society. Consumerism creates a
market with multiple options, allowing you to search for the best price for
similar products.
5. 5. Stimulates economic growth: You can think of consumerism as a
merry-go-round where manufacturers create a product and everyone buys
it, which increases demand, forcing manufacturers to develop more of the
product. The process theoretically allows the economy to grow through
more jobs, better wages, increased spending, and a rise in the gross
domestic product.

4 Cons of Consumerism
Experts argue that consumerism negatively affects society and contributes to the
degradation of traditional ways of life. Drawbacks of consumerism include:

1. 1. Consumer exploitation: Consumerism depends on your desire to buy

things, even if it hurts you financially or psychologically to do so. It
encourages reflexive consumption and an association between purchasing
something and your happiness.
2. 2. Creates class barriers: Consumerism, specifically conspicuous
consumption, reinforces class barriers by creating a divide between those
who can afford nice things and those who cannot. Learn more
about income inequality with economist Paul Krugman.
3. 3. Negative impact on the environment: Consumerism affects natural
resources through overproduction. These behaviors lead to draining natural
resources to extinction and creating pollution that damages the
environment and leads to climate change.
4. 4. Wasteful: Disposable products and planned obsolescence mean people
are buying new versions of the same things repeatedly, creating an
abundance of waste. New features every year, making your old phone seem
obsolete.
 Consumer rights and Consumer Protection Act, 1986

The consumer protection Act, 1986 was enacted on 24th of December 1986. Every
year 24th December is celebrated as “National Consumer Rights Day” in India.
The consumer protection act 1986 came into existence based on United Nations
guidelines with the objective to provide better protection of the consumers’
interests and for that purpose to make provision for the establishment of consumer
councils and other authorities for the settlement of consumers’ disputes and for
matters connected therewith.

WHO IS A CONSUMER?

A. Consumer of goods means any person who—

“buys any goods for a consideration which has been paid or promised or partly
paid and partly promised, or under any system of deferred payment and includes
any user of such goods other than the person who buys them, when such use is
made with the approval of buyer, but does not include a person who obtains such
goods for resale or for any commercial purpose”.

B. Consumer for the purpose of services means any person who –

“hires or avails of any services for a consideration which has been paid or
promised or partly paid and partly promised, or under any system of deferred
payment and includes any beneficiary of such services other than the person who
hires or avails such services with the approval of the hirer, but does not include a
person who avails of such services for any commercial purposes”.– Consumer
Protection Act (1986)

FEATURES OF CONSUMER PROTECTION ACT, 1986

The 'Consumer Protection Act, 1986' boasts several distinct features that
differentiate it from other legislation. These features cater to the different needs of
consumers and the market, making it a robust and comprehensive Act. Some of the
salient features of this Act include:

o Broad Coverage: The Act applies to all goods and services and covers the
private, public, and cooperative sectors.
o Wide Definition of Consumer: The Act includes not only those who
purchase goods or services but also the users of such goods or services,
provided they are used with the approval of the actual buyer.
o Redressal Mechanism: The Act establishes a three-tier dispute redressal
mechanism at the district, state, and national levels.
 o Protection against Unfair Trade Practices: The Act protects consumers
from unfair and deceptive trade practices.
o Provision for Consumer Education: The Act emphasizes consumer
education, enabling consumers to make informed decisions.

NEED FOR CONSUMER PROTECTION ACT IN INDIA

Consumer rights in India were historically overlooked, leading to rampant

exploitation of consumers by businesses. This necessitated the creation of a robust
legislation to protect consumers from unfair practices, hence the 'Consumer
Protection Act, 1986' was introduced. The main needs for this Act in India include:

o To Safeguard Consumers: With an increasing array of products and

services available in the market, consumers needed protection against unsafe
and substandard goods and services.
o To Curb Unfair Trade Practices: Unfair trade practices like misleading
advertisements, hoarding, black marketing, etc., needed to be curtailed.
o To Provide Legal Recourse: Consumers needed a legal recourse to seek
compensation for damages caused by unfair trade practices or defective
goods and services.
o To Promote Responsible Consumerism: The Act promotes
informed consumerism by enforcing rights such as the right to information
and the right to education.

WHAT ARE CONSUMER RIGHTS?

Consumer Protection Act (1986) defined Consumer right as “the right to have
information about the quality, potency, quantity, purity, price and standard of goods
or services’, as it may be the case”.

Consumer rights are framed by Government, Consumer courts, voluntary

organisations in order to safeguard the rights and interests of consumers.

Consumer Protection Act (1986) listed the consumer rights which are discussed as
follows:
1. Right to safety
2. Right to Information
3. Right to choose
4. Right to be heard
5. Right to seek redress
6. Right to Consumer education

Right to safety
 Right to safety is defined as “the right to be protected against marketing of goods
and services which are hazardous to life and property”. – Consumer Protection
Act (1986)

Basically, Right to safety applied to healthcare, pharmaceuticals and food

processing areas which have a severe effect on the health of users of products and
services. Adulterated food products like butter, Milk, pulses etc. and poor quality
electronic appliances can jeopardize the health and well-being of consumer. Reliable
and valid verification need to be done before putting such hazardous products into
consumption chain. Consumers must consume such products and services which
adhere to safety guidelines. Even safe products can pose health risks to consumer if
the consumer does not follow instructions and conditions under which products
should be stored and used. For example, It is mandatory for a mineral water bottle to
have ISI mark.

Right to safety informed us two things –

i. Consumer should buy only good quality products. They should not compromise
on the quality part otherwise results may be hazardous.
ii. Read all instructions, conditions, ingredients, expiry date before buying and
while using the product.

2. Right to information

Right to information is defined as “the right to be informed about the quality,

quantity, potency, purity, standard and price of goods or services, as the case may be
so as to protect the consumeragainst unfair trade practices”. – Consumer
Protection Act (1986)

Consumer should be provided with all necessary information in a complete and

precise way which facilitate him/ her to make a better purchase decision. Indian
consumers get information from two sources either from advertising or word of mouth
communication which is biased and unreliable. For rational decision making,
sufficient information about the wide variety and competitor products available in the
marketplace need to be given. The manufacturer is liable to provide complete
information on product packaging related to nutritional information, date of
manufacture, date of expiry, how to use the product, warnings, product guarantees etc.

With the aim to provide easy access to information for Indian citizens, RTI Act was
passed in 2005 so that there is accountability and transparency of working of public
authority.

3. Right to Choose
 Right to Choose is defined as “the right to be assured, wherever possible, to have
access to a variety of goods and services at competitive prices”. – Consumer
Protection Act (1986)

There must be the availability of wider range of products from various companies in
the marketplace and Consumer must have complete freedom and authority to buy
goods and services of his/ her choice and taste. A marketer cannot impose restrictions
or influence the consumer choice in any way. Healthy competition among traders
should be encouraged so that consumer can access to the variety of quality products
and services at reasonable price.

4. Right to be heard

Right to be heard is defined as “the right to be heard and to be assured that

consumer’s interests will receive due consideration at appropriate forums’ is the
definition of the right to be heard”. – Consumer Protection Act 1986

Consumer has right to be heard for their complaint. Consumer has authority to file a
complaint regarding an unsatisfactory performance of used products and services,
before the consumer disputes redressal forums established under the Consumer
Protection Act, 1986. At present several business organizations have created special
consumer service cell with the aim of giving the right to be heard to the consumer.
After hearing the complaints of the consumer, consumer service cell takes appropriate
steps to remove the cause of grievances and to satisfy them.

5. Right to seek redress

Right to redressal is defined as “the right to seek redressal against unfair trade
practices or restrictive trade practices or unscrupulous exploitation of consumers”.

6. Right to education
The right to consumer education is a right which ensures that consumers are
informed about the practices prevalent in the market and the remedies available to
them.

For spreading this education, media, or school curriculum, or cultural activities,

etc. may be used as a medium.

Note that the Central Council’s object is to ensure these rights of the consumers
throughout the country while the State Councils look to ensure these rights to
consumers within their territories.
 The consumer has the right to file a claim to pay for the loss they suffer on
account of purchasing goods and availing services. This right provides
compensation in the form of replacement of the product, free repair of the product,
repayment of an amount paid by the consumer, indemnifying the loss occurred due
to the use of product and service or any other exemplary punishment to the
defaulter.

Under Section 9 of the Consumer Protection Act, 1986 Three-tier Judiciary to

redress consumer grievances has been established namely District Forum, State
Commission, National Commission
PROCESS OF FILING A COMPLAINT UNDER THE CONSUMER
PROTECTION ACT, 1986

The 'Consumer Protection Act, 1986' simplifies the process of filing a complaint
for consumers. Here are the steps involved:

o Writing the Complaint: The complainant needs to provide complete details

of the complaint in writing. This should include details of the transaction,
the problem encountered, and the redress sought.
o Filing the Complaint: Depending o n the value of the goods or services in
question, the complaint is filed with the District, State, or National
Consumer Disputes Redressal Commission.
o Payment of Fees: A nominal fee is to be paid along with the complaint,
depending on the value of the claim.
o Hearing and Decision: The Commission will hear the case and provide its
decision. If the complainant is not satisfied with the decision, they can
appeal to the higher levels of the consumer court.

FILING A COMPLAINT

There are three tier Consumer Grievances machinery under the Consumer
Protection Act, 1986 and their jurisdiction.

 District Forum – The value of goods or compensation claim does not exceed Rs.
20 lakh.
 State Forum – The value of goods or compensation is more than Rs. 20 lakh but
does not exceed one crore.
 National Forum – It takes up all the cases exceeding the value of Rs. 1 crore.

ECONOMIC SYSTEM
An economic system is a means by which societies or governments organize and
distribute available resources, services, and goods across a geographic region or
country.

Or

An economic system is an organized way in which a country allocates resources

and distributes goods and services across the whole nation or a given geographic
area.

Or

An economic system is the set of principles by which problems of economics are

addressed, such as the economic problem of scarcity through allocation of finite
productive resources. The scarcity problem, for example, requires answers to basic
questions, such as:

 What to produce?

 How to produce it?

 Who gets what is produced?

CAPITALIST ECONOMIC SYSTEM

 Under capitalism, all farms, factories and other means of production are the
property of private individuals and firms.

 They are free to use them with a view to making profit.

 The desire to earn profit is the sole consideration with the property-owners
in the use of their property.

 Under capitalism everybody is free to take up any line of production he

wishes and is free to enter into any contract with a view to earn profit.

 Prof. Loucks defines it as “Capitalism is a system of economic organization

featured by the private ownership and the use for private profit of man-made
and nature-made capital.”

 Hong Kong, Canada, Switzerland etc are some examples following this
system.

FEATURES OF CAPITALISM
 Private Property and Freedom of ownership:- A capitalist economy is
always having the institution of private property. An individual can
accumulate property and use it according to his will. Government protects
the right to property. After the death of every person his property goes to his
successors.

 Price Mechanism:- This type of economy has a freely working price

mechanism to guide consumers. Price mechanism means the free working of
the supply and demand forces without any intervention.

 Profit Motive:-In this economy the desire to earn profit is the most
important inducement for economic activity. All entrepreneurs try to start
those industries or occupations in which they hope to earn the highest profit.

 Economic freedom:- In this system, people have freedom to invest or

consume in a way they like. They have freedom to invest the money in any
kind of industry & every person has the right to set up any industry or
business.

 Commodity Economy:- In a capitalist economy, almost all the production

is made for consumption. The goods produced for sale are called
‘commodity’ and the goods produced for exchange are called ‘Commodity
Economy’.

 Unplanned Economy:- No central economic planning is done in a capitalist

economy. No central agency undertakes its regulation and direction. The
productive function is the result of decision taken by a large number of
entrepreneurs.

 Presence of Competition:- The competition may be found in different

forms of Economic systems. The labour category has competition among
themselves for jobs; the employees compete to get suitable workers and
among the industrialists to subscribed sufficient capital.

MERITS OF CAPITALIST SYSTEM

 Individual Motivation:- The capitalist economic system motivates the

businessmen to develop new items, produce in good quality and undertakes
innovative activities because of the initiative of larger profits.

 Increase in Production:- A Capitalist brings improvement in production

and increases productivity because the property belongs to him. This leads to
increase in income, saving, and investment, and to progress.
 Quality Products at Low Costs:-The twin freedoms of consumers and
producers lead to the production of quality products, and lowering of costs
and prices.

 Progress and Prosperity:-The presence of competition under capitalism

leads to increase in efficiency, encourages producers to innovate and thereby
brings progress and prosperity in the country.

 Maximises Welfare:- The automatic working of the price mechanism under

capitalism brings efficiency in the production and distribution of goods and
services without any central plan, and promotes the maximum welfare of the
community.

 Flexible System:- Capitalism is a highly flexible system which can adapt

itself to changing economic conditions. If there are shortages or surpluses in
the economy, they are corrected automatically by the forces of demand and
supply.

 Optimum use of Resources:- Under capitalism, producers undertake the

production of only those goods which appear to yield maximum profits in
anticipation of demand. This leads to optimum use of resources.

DEMERITS OF CAPITALIST SYSTEM

 Increase Inequalities:- It increases inequalities in wealth, income and

opportunities. Increase in the economic inequalities creates economic and
social problems.

 Inefficient Production:- The capitalist always produces with motive of

profit only. He always produces goods for use by higher income class of the
community so that maximum profits can be obtained. There is no place in
the mind of capitalist to produce for consumption by common people.

 Leads to Monopoly:- Competition which is regarded as the very basis of

capitalism contains within itself the tendency to destroy competition, and
leads to monopoly.

 Neglect of National Interest:- They are mainly oriented towards self-

interest of maximization of profits for which they compete with each other.
They neglect social as well as national interest.
 Class Conflict:- A capitalist society is characterised by class conflict. The
poor are exploited by the rich. This leads to mutual distrust between the
workers and the employers and to social unrest.

SOCIALIST ECONOMIC SYSTEM

 According to Hicks, Socialism is an economic system in which the means of

production are owned and operated by the state for the maximization of
social welfare.

 The Government is authorized to control not only production and

distribution, but also consumption.

 The production and distribution of goods will be done for the welfare of the
people and not for the profit of the individuals.

 Private property does not exist. Every individual has to work to the best of
his ability, and the Government takes the responsibility for fulfilling his
needs.

 All factories and firms will be nationalized and production will be done in
the public sector.

 Norway, Denmark, Sweden, Iceland & Finland Follows socialism strictly.

FEATURES OF SOCIALISM

 State ownership:- All the factors of production are owned by the State. The
government or the community owns the land and factories. There is no
private sector.

 Freedom of consumption & production:- The consumers have freedom of

choice to select from. In addition to this, the production is made according to
the needs & wants of people.

 Central Planning and control:- There will be a planning authority in

Socialism. This authority will decide what to produce, how to produce and
for whom to produce. The planning Authority prepares the national plan for
utilizing the resources of the economy. Production and distribution will be
done accordingly. The price mechanism will be suppressed.

 Controlled production and consumption:- Production of essential

commodities will be done first. Production is done not for profit, but for
 social use. Even if there is any profit, it will go to the State. Mass
consumption will not be allowed. Each will be given according to his need.

 Social Security:- The State provides all social security measures such as
unemployment benefit, health insurance. etc.

 Reduction of inequalities:- Socialism attempts to reduce the difference

between the rich and the peer. It aims at a classless society and eliminates
class struggle by giving equal opportunity to work.

MERITS OF SOCIALISM

 Optimum Utilization of Resources:- In Socialism, the resources are owned

and controlled by the state in a socialist economy. The central planning
authority allocates the resources in the best possible manner. There is no
self-interest of private individuals and so no profit motive.

 Equal Opportunity to all:-All people get income for the work done by
them in the form of salary or wage. Wage structure is so designed that there
are no wide inequalities in it. There is equal opportunity for all under this
system.

 Rapid Economic Development:- Economic planning is closely associated

with socialism. Planning ensures rapid economic development along
desired lines.

 Full Employment:- Central planning authority gives boost to employment

on behalf of the state. So it eliminates unemployment. As the government
directs production and distribution, there is no possibility of depression and
unemployment as in capitalism.

 Wastage avoided:- The planning authority decides everything after careful

calculations of the need of the society. Production is done under the control
of the State. So, there is no scope for wastage of resources by advertisement,
transport, competition, etc.

 Economic equality:- The greatest merit of socialism is its economic

equality. It does not recognize private property. It does not allow anyone to a
mass wealth. So, there is no scope for becoming rich. There will be
economic equality in society. The struggle of the poor against the
exploitation of the rich will be absent in socialism.
 Maximum Welfare:-By reducing inequalities in society by making just
distribution of goods, by giving employment for all and by protecting all
socially, socialistic system can promote greater welfare to the people.

DEMERITS OF SOCIALISM

Concentration of Economic and Political Powers in the State:- In socialistic

economy, all economic and political power gets concentrated in the state. This
makes the state autocratic and it starts to make undue interference in the daily
life of the people. This creates dissatisfaction among the people of the country.

 Lack of initiative on the Part of People:- Under socialism, people are not
offered incentive for greater work, efficiency and enterprise. They always
receive the wage and salaries fixed by the Government. So they lack
initiative.

 No Occupational Freedom:- Under socialist economy, people do not have

occupational freedom. They have to take up the employment decided by the
Government. There is no freedom for workers to choose their occupation.
Human labour will be considered just as any other resource. Those who do
not work shall not eat. Those who do not obey, shall not eat.

 Wastage of resource:- Wastage of resources is possible as the factors are

owned by the State itself. As there is no price for resources, there may be
wrong allocations and wastage of resources.

 Administrative burden:- The burden of administration will be very heavy

in socialistic economy because the government interferes in every activity of
the people.

 Loss of liberty:- In socialism, there is loss of liberty. It takes away the

freedom of the people. There is no freedom for consumers to choose the
commodities.

 Reduction of overall Productivity:- In socialism, Government servants and

bureaucrats manage the economic affairs. People are more interested in their
salaries rather than the productivity. It reduces the overall productivity in
the economy.

MIXED ECONOMY
 Mixed economy is that economy in which both government and private
individuals exercise economic control.” –Murad.
 Mixed economy is the golden combination of capitalism and socialism.

 Mixed economy is operated by both, private enterprise and public enterprise.

 The public and private sectors work in a co-operative manner to attain the
social objectives under a common economic plan.

 India is regarded as the best example of a mixed economy in the world.

FEATURES OF MIXED ECONOMY

 Public Sector:- The public sector is under the control and direction of the
state. All decisions regarding what, how and for whom to produce are
taken by the state. Public utilities, such as rail construction, road building,
canals, power supply, means of communication, etc., are included in the
public sector. They are operated for public welfare and not for profit motive.

 Private Sector:- There is a private sector in which production and

distribution of goods and services are done by private enterprises. This
sector operates in farming, plantations, mines, internal and external trade,
and in the manufacture of consumer goods and some capital goods. This
sector operates under state regulations in the interest of public welfare.

 Joint Sector:- A mixed economy also has a joint sector which is run jointly
by the state and private enterprises.

 Cooperative Sector:- Under a mixed economy, a sector is formed on

cooperative principles. The state provides financial assistance to the people
for organizing cooperative societies, usually in dairying, storage, processing,
farming, and purchase of consumer goods.

 Freedom and Control:- A mixed economy possesses the freedom to hold

private property, to earn profit, to consume, produce and distribute, and to
have any occupation. But if these freedoms adversely affect public welfare,
they are regulated and controlled by the state.

 Economic Planning: In a mixed economy we have a central planning

authority. All sectors of the economy follow the economic plan of the state
to achieve various targets and goals. The plan is not rigid but more of a
general guideline for economic growth and prosperity of the nation.

 Social Welfare: One of the main aims of a mixed economy is social welfare.
It aims to reduce the wealth gap in the country and fight the inequalities of
our society. The aim is to reduce poverty and unemployment. And at the
 same time also improve social security, public health care, public education
system, etc.

MERITS OF MIXED ECONOMY

 Efficiency:- There will be competition between public and private

industries, which will result in greater efficiency and production in a mixed
economy.

 Reduced inequality:-The profit of public sector industries goes to the

Government and as a result inequalities of income will be reduced in mixed
economy.

 Systematic plan:- In a mixed economy, economic activities are carried out

as per plan. The entire economic system is subject to systematic planning of
the Government.

 Economic Stability:-The economic activities take place in a planned

manner. So there will be economic stability in mixed economy.

 Consumer sovereignty:- Goods are produced as per the wishes of the

consumers, which results in consumer’s sovereignty in a mixed economy.

 Promotion of social welfare:- Mixed economic system gives importance to

the promotion of social welfare. Under this system, both private and public
sectors work for the welfare of people.

 Planned Economy:- The entire economic structure is subject to the

planning of the Government. Mixed economy is a planned economy. The
planning commission decides the objectives, targets and allocation of
resources etc.

 Motive of Business Concerns:- The motive of the business concerns is

profit but coupled with the objective of social welfare.

 Reduction of Inequalities of Income and Wealth:- The Government takes

steps to reduce inequalities of income and wealth.

 Complete Economic Freedom:- There is complete economic freedom in

mixed economy. Hence, the consumer is free to buy any commodity they
like.

DEMERITS OF MIXED ECONOMY

  Unhealthy Competition:-There is unhealthy competition between private
and public sectors in a mixed economy.

 No freedom to pvt sector:- There is no freedom to private sector in mixed

economy. This is because Government regulates private industries through
its various regulations and licensing.

 Inefficient public sector:- Inefficiency of public sector is another demerits

of mixed economy. They may suffer heavy losses. People will have to bear
these losses. The objective and targets of economic planning also may not be
achieved in a mixed economy.

 Unemployment and Uncertainties:- On account of capital scarcity,

Government regulation and control, the growth of private sector may be less
than what is fixed in plan. It may lead to unemployment and uncertainties in
a mixed economy.

 Threat of Nationalization:- There is always a threat of nationalization in

the mixed economic system because of which the private sector does not
work actively.

CAPITALISM V/S SOCIALISM

BASIS FOR
CAPITALISM SOCIALISM
COMPARISON

Meaning Capitalism refers to the The economic structure in

economic system prevalent which the government has
in the country, where there ownership and control over
is private or corporate the economic activities of
ownership on the trade and the country is known as
industry. Socialism.

Basis Principle of Individual Principle of Equality

Rights

Advocates Innovation and individual Equality and fairness in

goals society
Means of Production Privately owned Socially owned

Prices Determined by the market Determined by the

forces Government

Competition Very High No competition exists

between firms

Degree of distinction in High Low

the class of people

Wealth Each individual works for Equally shared by all the

the creation of his own people of the country
wealth

Religion Freedom to follow any Freedom to follow any

religion religion but it encourages
secularism

Efficiency Much Less

Government Interference No or marginal Government decides

everything
 MODULE 2

INDUSTRY

An industry is a group of manufacturers or businesses that produce a particular

kind of goods or services.

Or

An industry is a sector of the economy that is concerned with the production and
manufacturing of goods, extraction of minerals, or the provision of services.

Or

Industry refers to that sector of the economy which involved in the process of
making products by using machinery and factories

INDUSTRIAL POLICY

Industrial Policy is the set of standards and measures set by the Government to
evaluate the progress of the manufacturing sector that ultimately enhances
economic growth and development of the country.

Or

Industrial policy is government policy to encourage the development and growth

of all or part of the economy in pursuit of some public goal.

Or

Industrial Policy is defined as the strategic effort by the state to encourage

economic transformation, i.e. the shift from lower to higher productivity activities,
between or within sectors.

Or

The government takes measures to encourage and improve the competitiveness and
capabilities of various firms.

OBJECTIVES OF INDUSTRIAL POLICY

 to maintain a sustained growth in productivity;

 to enhance gainful employment;
 to achieve optimal utilisation of human resources;
 to attain international competitiveness; and
  to transform India into a major partner and player in the global arena.
INDUSTRIAL POLICY RESOLUTIONS
 Industrial Policy Resolution of 1948
This was the first Policy that was implemented after gaining independence. It
ushered in a mixed economic model in the country. Existing industries in India
were categorized into the following sectors –It made clear that India is going to
have a Mixed Economic Model.
It classified industries into four broad areas:
I. Strategic Industries (Public Sector): It included three industries in
which Central Government had monopoly. These included Arms and
ammunition, Atomic energy and Rail transport.
II. Basic/Key Industries (Public-cum-Private Sector): 6 industries viz.
coal, iron & steel, aircraft manufacturing, ship-building, manufacture of
telephone, telegraph & wireless apparatus, and mineral oil were
designated as “Key Industries” or “Basic Industries”.
III. These industries were to be set-up by the Central Government.
IV. However, the existing private sector enterprises were allowed to
continue.
V. Important Industries (Controlled Private Sector): It included 18
industries including heavy chemicals, sugar, cotton textile & woollen
industry, cement, paper, salt, machine tools, fertiliser, rubber, air and sea
transport, motor, tractor, electricity etc.
These industries continue to remain under private sector however, the
central government, in consultation with the state government, had general
control over them.
Other Industries (Private and Cooperative Sector): All other industries
which were not included in the above mentioned three categories were left
open for the private sector.
The Industries (Development and Regulation) Act was passed in 1951 to
implement the Industrial Policy Resolution, 1948.
2. Industrial Policy Resolution of 1956 :
 Government revised its first Industrial Policy (i.e.the policy of 1948)
through the Industrial Policy of 1956.
 It was regarded as the “Economic Constitution of India” The Policy of
1956 led to an enormous expansion of the public sector to restrict private
monopolies. Three schedules were laid out for the classification of
industries –
 IPR, 1956 classified industries into three categories
I. Schedule A consisting of 17 industries was the exclusive
responsibility of the State. Out of these 17 industries, four industries,
 namely arms and ammunition, atomic energy, railways and air
transport had Central Government monopolies; new units in the
remaining industries were developed by the State Governments.
II. Schedule B, consisting of 12 industries, was open to both the private
and public sectors; however, such industries were progressively
State-owned.
III. Schedule C- All the other industries not included in these two
Schedules constituted the third category which was left open to the
private sector. However, the State reserved the right to undertake
any type of industrial production.
 The IPR 1956, stressed the importance of cottage and small scale
industries for expanding employment opportunities and for wider
decentralisation of economic power and activity
 The Resolution also called for efforts to maintain industrial peace; a
fair share of the proceeds of production was to be given to the toiling
mass in keeping with the avowed objectives of democratic socialism.
 Criticism: The IPR 1956 came in for sharp criticism from the private
sector since this Resolution reduced the scope for the expansion of the
private sector significantly.
 The sector was kept under state control through a system of licenses.
Industrial Licenses:-

a) In order to open new industry or to expand production, obtaining a license

from the government was a prerequisite.
b) Opening new industries in economically backward areas was incentivised
through easy licensing and subsidization of critical inputs like electricity
and water. This was done to counter regional disparities that existed in the
country.
c) Licenses to increase production were issued only if the government was
convinced that the economy required more of the goods.

3.Industrial Policy Resolution, 1977:-

In 23 December 1977, the Janata Government led byMorarji Desai announced its
New Industrial Policy through a statement in the Parliament.
 The main thrust of this policy was the effective promotion of cottage
and small industries widely dispersed in rural areas and small towns.
 In this policy the small sector was classified into three groups—cottage
and household sector, tiny sector and small scale industries.
 The 1977 Industrial Policy prescribed different areas for large scale
industrial sector- Basic industries,Capital goods industries, High
technology industries and Other industries outside the list of reserved
items for the small scale sector.
 The 1977 Industrial Policy restricted the scope of large business houses so
that no unit of the same business group acquired a dominant and
monopolistic position in the market.
 It put emphasis on reducing the occurrence of labour unrest. The
Government encouraged the worker’s participation in
management from shop floor level to board level.
 Criticism: The industrial Policy 1977, was subjected to serious criticism
as there was an absence of effective measures to curb the dominant
position of large scale units and the policy did not envisage any socio-
economic transformation of the economy for curbing the role of big
business houses and multinationals.
4.Industrial Policy Resolution of 1980 sought to promote the concept of
economic federation, to raise the efficiency of the public sector and to reverse
the trend of industrial production of the past three years and reaffirmed its
faith in the Monopolies and Restrictive Trade Practices (MRTP) Act and
the Foreign Exchange Regulation Act (FERA).
5. New Industrial Policy Resolution of 1991

 New Economic Policy of India was launched in the year 1991 under the
leadership of P.V. Narasimha Rao.
 This policy opened the door of the India Economy for the global exposure
for the first time.
 In this New Economic Policy P. V. Narasimha Rao government reduced the
import duties, opened reserved sector for the private players, devalued the
Indian currency to increase the export.
 This is also known as the LPG Model of growth.
 New Economic Policy refers to economic liberalisation or relaxation in the
import tariffs, deregulation of markets or opening the markets for private
and foreign players, and reduction of taxes to expand the economic wings of
the country.

Features of New Industrial Policy

a) The new policy was implemented to revive economic growth in India, and it
was one of the most critical policy reforms for achieving macroeconomic
stability.
b) It tried to promote investment and export-led growth by reducing
government intervention in the economy, financial sector, trade, and
industry.
c) New economic policies were based on an extension of the principles of
competitive markets to broaden and deepen market relations in all spheres.
d) The main globalisation initiative initiated by the Government of India under
the NEP was the liberalisation and reduction of import controls to improve
overall external competitiveness.
e) Trade liberalisation was the main feature of the policy.
f) NEP involved several fiscal reforms, including a reduction in fiscal deficit
and broadening the tax base by expanding the instruments for revenue
generation, liberalisation of indirect taxes, rationalising subsidies, and cost-
cutting in public enterprises.
g) Investment deregulation was another important feature of NEP.
h) Fixed deposit rates were increased in line with inflation trends.
i) Newmarket rates were introduced for capital and insurance markets.
j) Public sector banks were separated from the direct control of the
government. Their main functions were restricted to commercial banking,
including payment and settlement of government accounts, rather than
financing investments.
k) The NEP also provided for an independent monetary policy.
l) It brought about a change in the foreign trade policy to promote exports and
discourage imports through exchange rate adjustments.
m) The NEP adopted a strategy to promote greater private investment initiatives
with appropriate regulations and monitoring.

OBJECTIVES OF NEW ECONOMIC POLICY

1. To achieve a higher, sustainable, and more widely shared economic growth
rate.
2. To reduce income disparities, both between and within regions.
3. To reduce regional imbalances in development.
4. To remove the backlog of public investment in infrastructure.
5. To tackle the problem of providing adequate social services to the poor and
vulnerable.
6. To promote LPG.
7. To bring down the rate of inflation.
8. To attain international competitiveness.
9. To create successful employment opportunities.
10. Promotion of exports of goods and services.
 IMPLEMENTATION OF NEW ECONOMIC POLICY
1. A reduction in the fiscal deficit to 4% of GDP by cutting subsidies and
increasing tax collection.
2. A liberalization of the trade regime through export-import policy, tariff, and
non-tariff barriers.
3. The industrial sector was opened to private investment (through public
sector disinvestment) and foreign investment.
4. Public sector enterprises were corporatized, divested, and restructured.
5. Investment in agriculture and rural development was increased.
6. The Banking sector was opened to make it more efficient and profitable.
7. Improvements in the infrastructure were planned with participatory
community-initiated planning.
8. Globalization was promoted.
9. The Reserve Bank of India was made independent through a constitutional
amendment.

Advantages of New Industrial Policy, 1991

The new industrial policy of 1991 provided to be quite advantageous for the
Indian economy and some of its major advantages are listed below.
1. Liberalization of industrial regulations helped the industry grow at a rapid
pace as there were fewer restrictions on the industrial sector.
2. The rapid industrial growth due to NIP, in 1991 increased the GDP.
3. Industrial production capacity increased significantly and the industries
became more precise and efficient than ever before.
4. With the liberalization of foreign trade and investment, retail investors got a
chance to compete in the global market.
5. The revenue of the government increased by a significant percentage.

DRAWBACKS OF NEW INDUSTRIAL POLICY, 1991

As such there are not many drawbacks of the new industrial policy (NIP), 1991
but still, some of them are discussed below.
 The new industrial policy mainly focuses on the large-scale industries with
good capital, thus exploiting the small-scale industries.
 Liberalization of foreign trade allowed many multinational companies to do
business in India which exploited the local business of India.
 The privatization of PSUs was a major feature of NIP 1991, however, it’s one
of the main options for underprivileged people to earn a job, and get good
quality services at lower prices. Thus it can exploit the poor and
underprivileged section of society.
 With the end of licensing process, many industries got developed leading to an
increased level of pollution.
 The NIP, 1991 focused on cherishing industries but it didn’t have any
provision for employment generation and fixed labour wages.

Limitations of Industrial Policies in India

 Stagnation of Manufacturing Sector: Industrial policies in India have failed

to push manufacturing sector whose contribution to GDP is stagnated at about
16% since 1991.
 Distortions in industrial pattern owing to selective inflow of
investments: In the current phase of investment following liberalisation,
while substantial investments have been flowing into a few industries, there is
concern over the slow pace of investments in many basic and strategic
industries such as engineering, power, machine tools, etc.
 Displacement of labour: Restructuring and modernisation of industries as a
sequel to the new industrial policy led to displacement of labour.
 Absence of incentives for raising efficiency: Focussing attention on internal
liberalisation without adequate emphasis on trade policy reforms resulted
in ‘consumption-led growth’ rather than ‘investment’ or ‘export-led
growth’.
 Vaguely defined industrial location policy: The New Industrial Policy,
while emphasised the detrimental effects of damage to the environment, failed
to define a proper industrial location policy, which could ensure a pollution
free development of industrial climate.
INDUSTRIAL POLICY REFORM – IN SHORT

1. Industrial Policy 1948

This was the first Policy that was implemented after gaining independence. It
ushered in a mixed economic model in the country. Existing industries in India
were categorized into the following sectors –
 Strategic industries such as rail transport, atomic energy along with arms and
ammunition
 Basic industries such as iron and steel, mineral oil, coal, etc.
 Controlled private sectors such as cement, paper, textile, etc.
 The private and cooperative sector

For the implementation of Policy resolutions, the Industries (Development and

Regulation) Act, 1951 was passed.
2. Industrial Policy 1956

The Policy of 1956 led to an enormous expansion of the public sector to restrict
private monopolies. Three schedules were laid out for the classification of
industries –
 Schedule A – Included 17 industries that were entirely under the control of
the State.
 Schedule B – Included 12 industries that had both public and private
ownership.
 Schedule C – Included all other industries which did not fall within the
ambit of the previous two categories.

3. Industrial Policy 1977

The Policy statement of 1977 had been highly criticized for having undertaken no
clear measures for socio-economic development. The Policy’s main emphasis had
been, however, the propagation of cottage and small industries.

4. Industrial Policy 1980

This Policy focused on the promotion of economic federation and restoration of the
Monopolies and Restrictive Trade Practices (MRTP) Act.

5. Industrial Policy 1991

The Industrial Policy of 1991 opened up India’s economy to the world, in the
backdrop of a severe economic crisis. It was this policy that led to an acceleration
of economic growth in our country -
 The public sector, with the exceptions of railways and atomic energy, was
opened up for the private sector.
 Industrial licensing was abolished barring hazardous chemicals industries,
defense, aerospace, industrial explosives, cigarettes, and tobacco.
 Substantial government stakes were sold off from public sector enterprises.
 Foreign Direct investment as allowed.
 Amendment of the Monopolies and Restrictive Trade Practices (MRTP) Act.

There have been certain drawbacks in the Industrial Policies as well. Some of such
criticisms include – stagnation of the manufacturing sector, labor displacement,
selective investment flow, and general lack of incentives for enhancing efficiency,
among others. As the economy of India stands today, there is a greater need for
initiatives like Startup India and Make in India.

INDUSTRIAL LICENSING POLICY

1. The licensing policy was introduced in the Industrial Policy Resolution
(IPR) of 1956 to promote regional equality.
2. An industrial license is a written permission given by the government to an
industrial undertaking for manufacturing specified articles included in the
schedule.
3. A license contains particulars of the industrial undertaking, it’s location , the
articles to be manufactured , it’s capacity on the basis of the maximum
utilization of plant and machinery ,and other appropriate conditions which
are enforceable under the act.
4. The primary objective of the licensing policy was to promote regional
equality and balanced economic development across different states and
regions of the country.
5. The central government is empowered to regulate the establishment and
certain activities of the industrial undertaking by means of licensing as per
the industries regulation act 1951.
6. The licensing policy of the government was introduced to regulate the
industrial sector and ensure fair competition among businesses. It aimed to
control the establishment, expansion, and operation of industries through a
licensing system.
7. It sought to prevent the concentration of industries in a few regions and
encourage their dispersal in less-developed areas.
8. Another objective of the licensing policy was to promote import substitution
and self-reliance in the economy.
9. It encouraged the production of goods and services within the country and
discouraged their importation from abroad.
10. Industrial licensing in India is a mandatory rule put forth by the government
of India for
11. enterprises belonging to certain industries.
12. Under this policy, private entrepreneurs were required to obtain a
government license before establishing a new industry or expanding an
existing one.
13. It also aimed to protect the interests of small-scale industries and prevent the
domination of large corporations.

OBJECTIVES OF INDUSTRIAL LICENSING POLICY

• To encourage new entrepreneurs to start new industries to broaden industrial
base.
• To prevent monopoly and prevention of concentration of wealth
• To protect and promote the small scale sector
• To direct investment in industries according to plan priorities
• To promote technology and regulate foreign capital
• To conserve foreign exchange
• To regulate the location of industrial units so as to secure balanced regional
development
• To promote industries in backward areas
Before the announcement of industrial policy 1991 a
license was required for the following purposes:

 To establish new undertaking: No individual or authority other than the

central government was permitted to establish any new industrial undertaking,
expect under and in accordance with a license issued by the central
government.
 To manufacturer a new item: License was necessary for production or
manufacturer of a new article in an industrial undertaking. New article means
any item of manufacture in scheduled industry other than those specified in the
registration certificate or license issued to the undertaking. It also involve any
article which bears a mark as defined in the Trademark Act 1940. Or which is
the subject of a patent if at the date of registration or issue of the license or
permission as the case may be the industrial undertaking was not
manufacturing or producing such article bearing that mark or which is the
subject of that patent.
 To provide extensive expansion of capacity: To have a substantial expansion
of the capacity of an industrial undertaking in an existing line of production,
license is required from the various notification issued by the central
government from time to time .it has been made clear that expansion up to
25% will be regullarized.
 To continue certain business: License is also required to carry on business by
an existing undertaking to which licensing provisions of the industries
development and regulation act did not originally apply on account of an
exemption orde issued by the government and subsequently became applicable
as a result of the cancellation of the exemption order under certain
circumstances as provided in the act.
 To Change location: No owner can change location of a registered industrial
undertaking of the whole or any part of it without obtaining a license to that
effect. However no permission is required to shift a part or whole of the
manufacturing activity of an undertaking from a forward area to backward area
with in the same state provided that the prior permission of the state
government concerd is obtained.

REVOCATION OF REGISTRATION OF LICENSE

The central government is empowered to revoke the registration when
• Registration was obtained by misrepresentation of an essential fact
 COMPULSORY LICENSING

Following industries require compulsory industrial licence under the provisions of

I(D&R) Act, 1951:-

I. Distillation and brewing of alcoholic drinks.

II. Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
III. Electronic Aerospace and defence equipment: all types;
IV. Industrial explosives, including detonating fuses, safety fuses, gun powder,
nitrocellulose and matches;
V. Hazardous chemicals;
VI. Hydrocyanic acid and its derivatives
VII. Phosgene and its derivatives
VIII. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified
(example: Methyl Isocyanate).

MRTP ACT, 1969

I. After India attained independence in 1947, many new and big firms entered
the Indian market. At that time these companies had very little competition
and they tried to monopolize the market. The Government of India
understood what was happening in the business scenario and to safeguard
the rights of consumers the government passed the MRTP bill in 1969.
II. MRTP full form is Monopolistic and Restrictive Trade Practices and it is an
important yet extremely controversial piece of economic legislation. The
MRTP bill was passed in 1969 and the MRTP act India came into full force
from 1st June 1970. This act has seen many amendments in the subsequent
years (1974, 1980, 1982, and 1991). This act is applicable to all the states in
India except Jammu and Kashmir.
III. The MRTP act is no longer active in India as it has been replaced by the
Competition Act which came into effect on September 1st, 2009 by the
Competition Commission of India.
What is the MRTP Act?

I. Monopolistic trade practices mean dominant trade practices where a firm or

an oligopolistic firm consisting of a set of 3 companies reach a dominant
position in the market. They are then able to control the market by
eliminating competition or regulating prices and the output of products.
II. Restrictive trade practices occur by joint action of a group of two or more
organizations to avoid market competition, irrespective of market share.
Such practices are seen as prejudicial to public interests.
 III. The MRTP act was the first substantial legislation with the goal of
regulating free and unfettered trade. This act was geared towards ensuring
distinction between restrictive and monopolistic trade practices.
IV. From 1977 the Sachar committee was appointed by the government to
ensure mandatory review of the MRTP act. The committee also made sure
there were mandatory recommendations for streamlining its activities.
V. The Act shall not apply to the following
 Any venture that the government firm owns or controls
 Any government-owned or controlled enterprise
 Any undertaking owned or managed by a corporation (not one formed by
or under any federal, provincial, or state law)
 Any trade union or other group of workers or employees created to ensure
their reasonable protection as workers or employees
 Any industry-related activity whose administration has been taken over by
a person or group of people with powers granted by the central
government
 Any business owned by a cooperative society created and registered by
federal, provincial, or state law

OBJECTIVES OF MRTP ACT, 1969

 To ensure that the economic system does not result in the concentration of
economic power in the hands of a few wealthy individuals
 To ensure that monopolies are controlled, and
 To make it illegal to engage in monopolistic and restrictive commercial practices

There was an amendment in 1984 that introduced the 4th objective of the act:

 Regulation of unfair trade practices.

After the final amendment in 1991, the objectives of the MRTP act stood as
described below:
 MTP - Prohibition of Monopolistic Trade Practices
 RTP - Prohibition of Restrictive trade practices
 UTP - Prohibition of Unfair Trade Practices

ELABORATION ON THE TRADE PRACTICES THAT THE MRTP ACT

REGULATED
There are three types of trade practices regulated by the MRTP act:
 1. Monopolistic Trade Practices - This refers to the misuse of one’s hold in
the market to abuse the market with respect to the production and sale of
commodities and services. As part of this practice companies:
a. eliminated or prevented competition
b. Took advantage of their monopoly by charging consumers with
unreasonably high prices.
c. Deteriorated the quality of products
d. Limited technical development
e. Adopted unfair trade practices
2. Restrictive Trade Practices - A restrictive trade practice is generally one
which has the effect of preventing, distorting or restricting competition. In
particular, a practice which tends to obstruct the flow of capital or resources
into the stream of production is an RTP. Likewise, manipulation of prices,
conditions of delivery or flow of supply in the market which may have the
effect of imposing on the consumer unjustified costs or restrictions are
regarded as restrictive trade practices. But competition is not always a
necessary touchstone on which a trade practice is judged if it is a RTP..
Certain common types of restrictive trade practices enumerated in the Act
which do not have an element of competition are:
 refusal to deal;
 tie-up sales;
 full line forcing;
 exclusive dealings;
 concert or collusion-cartel;
 price discrimination;
 re-sale price maintenance;
 area restriction;
 predatory pricing.

3. Unfair Trade Practices - Unfair trade practices are comprised of:

  Misleading advertisement and False Representation
 Falsely representing that goods and services are of a particular standard,
quality, grade, composition or style.
 Falsely representing any second hand renovated or old goods as new
 Representing that goods or services, seller or supplier have a sponsorship,
approval or affiliation which they do not have.
 Making a false or misleading representation concerning need for, or
usefulness of goods or services.
 Giving to public any warranty, guarantee of performance that is not based
on an adequate test or making to public a representation which purports to
be such a guarantee or warranty.
 False and misleading claims with respect to the price of goods or services.
 Giving false or misleading facts disparaging the goods, services or trade of
another person or concern.

MRT COMMISSION
To carry out this act, the government established the following:
 A commission consisting of a minimum of two and a maximum of eight
members.
 The chairman of this commission had to be qualified to be a supreme court
or high court judge (for a state).
 Members of this commission possessed adequate knowledge and experience
or have shown capabilities in handling issues related to law, economics,
commerce, industry, accounting, or public affairs.
 The office period of members of the commission could not exceed 5 years.
 During the inquiry before the commission, the DG (Director General of
Investigation and Registration) assisted the commission in carrying out the
investigation, maintaining a register of agreements, and undertaking carriage
of proceedings.

ECONOMIC PLANNING

1. Economic Planning is defined as “the making of major economic decisions-

what and how much is to be produced, how, when and where it is to be
produced and to whom it is to be allocated by the conscious decision of a
determinate authority on the basis of a comprehensive survey of the
economic system as a whole”.
 2. Economic planning refers to the process of controlling and managing the
overall economy of a country or region. It involves making decisions about
the allocation of resources and setting targets for economic growth.
3. Economic planning is referred to as the way of planning and utilising the
economic resources available in the country to a maximum extent with an
aim to achieve well-defined socioeconomic goals.
4. Hermann Levy, a German economist defines economic planning as “a
means to secure a better balance between demand and supply by conscious
and thoughtful control over, either of production or distribution”.
5. The term economic planning is used to describe the long-term plans of the
government of India to develop and coordinate the economy with efficient
utilization of resources. Economic planning in India started after
independence in the year 1950 when it was deemed necessary for the
economic growth and development of the nation.
6. India adopted economic planning in 1951 when it launched its First Five
Year Plan for the period 1951 to 1956. Since then it has completed twelth
Five- Year Plans besides a few years of break in the form of Annual Plans.
7. An economic development plan is a comprehensive strategy used to foster
economic growth and improvement in a region, county, or community. The
goal of the economic development plan is to enhance the standard of living,
create jobs, and promote the economic well-being of the community.

AIM & OBJECTIVES OF ECONOMIC PLANNING IN INDIA

The following were the original objectives of economic planning in India:

1. Economic Development: This is the main objective of planning in India.

Economic Development of India is measured by the increase in Gross
Domestic Product (GDP) and Per Capita Income
2. Increased Levels of Employment: An important aim of economic planning
in India is to better utilise the available human resources of the country by
increasing the employment levels.
3. Self Sufficiency: India aims to be self-sufficient in major commodities and
also increase exports through economic planning. The Indian economy had
reached the take-off stage of development during the third five-year plan in
1961-66.
4. Economic Stability: Economic planning in India also aims at stable market
conditions in addition to the economic growth of India. This means keeping
inflation low while also making sure that deflation in prices does not happen.
 If the wholesale price index rises very high or very low, structural defects in
the economy are created and economic planning aims to avoid this.
5. Social Welfare and Provision of Efficient Social Services: The objectives
of all the five year plans as well as plans suggested by the NITI Aayog aim
to increase labour welfare, social welfare for all sections of the society.
Development of social services in India, such as education, healthcare and
emergency services have been part of planning in India.
6. Regional Development: Economic planning in India aims to reduce
regional disparities in development. For example, some states like Punjab,
Haryana, Gujarat, Maharashtra and Tamil Nadu are relatively well
developed economically while states like Uttar Pradesh, Bihar, Orissa,
Assam and Nagaland are economically backward. Others like Karnataka and
Andhra Pradesh have uneven development with world class economic
centres in cities and a relatively less developed hinterland. Planning in India
aims to study these disparities and suggest strategies to reduce them.
7. Comprehensive and Sustainable Development: Development of all
economic sectors such as agriculture, industry, and services is one of the
major objectives of economic planning.
8. Reduction in Economic Inequality: Measures to reduce inequality through
progressive taxation, employment generation and reservation of jobs has
been a central objective of Indian economic planning since independence.
9. Social Justice: This objective of planning is related to all the other
objectives and has been a central focus of planning in India. It aims to
reduce the population of people living below the poverty line and provide
them access to employment and social services.
10. Increased Standard of Living: Increasing the standard of living by
increasing the per capita income and equal distribution of income is one of
the main aims of India’s economic planning.

SUMMARY OF FIVE YEAR PLANS / FRAMEWORK OF

DEVELOPMENT PLANNING IN INDIA
PLAN DETAIL OF PLANS
It was based on Harrod-Domar Model.
Community Development Program launched in 1952
Focus on agriculture, price stability, power and transport
First Plan
(1951 - 56)
Target growth:
2.1% It was a successful plan primarily because of good
Achieved growth: harvests in
 3.6%
the last two years of the plan

Also called Mahalanobis Plan named after the well

known
Economist
Second Plan
(1956 - 61) Focus - rapid industrialization
Target Growth:
4.5%
Advocated huge imports through foreign loans.
Actual Growth:
4.27%
Shifted basic emphasis from agriculture to industry far too
soon.
During this plan, prices increased by 30%, against a
decline of
13% during the First Plan
At its conception, it was felt that Indian economy has
entered a
take-off stage. Therefore, its aim was to make India a
'self-
Third Plan reliant' and 'self-generating' economy.
(1961 - 66) Based on the experience of first two plans, agriculture was
given
Target Growth: top priority to support the exports and industry.
5.6%
Actual Growth:
2.84% Complete failure in reaching the targets due to
unforeseen
events - Chinese aggression (1962), Indo-Pak war
(1965),
severe drought 1965-66
Prevailing crisis in agriculture and
serious food shortage
necessitated the emphasis on agriculture during the Annual
Plans
During these plans a whole new agricultural strategy
Three Annual was
Plans implemented. It involving wide-spread distribution of
(1966-69)Plan high-
holiday for 3years. yielding varieties of seeds, extensive use of fertilizers,
exploitation of irrigation potential and soil conservation.
During the Annual Plans, the economy absorbed the
shocks
generated during the Third Plan
It paved the path for the planned growth ahead.
Slogan of “Garibi Hatao” was given in 1971
Emphasis was on growth rate of agriculture to enable
Fourth Plan other sectors to move forward.
(1969 - 74) First two years of the plan saw record production. The last
Target Growth: three
5.7% years did not measure up due to poor monsoon.
Actual Growth: Influx of Bangladeshi refugees before and after 1971 Indo-
3.30% Pak war was an important issue
The fifth plan was prepared and launched by D.D. Dhar.
It proposed to achieve two main objectives: 'removal of
poverty'
Fifth Plan (Garibi Hatao) and 'attainment of self reliance'
(1974-79)
Promotion of high rate of growth, better distribution of
Target Growth:
income and significant growth in the domestic rate of
4.4%
savings were seen
Actual Growth: 3.8
as key instruments.
The plan was terminated in 1978 (instead of 1979) when
Janta
Party Govt. rose to power.
There were 2 Sixth Plans. Janta Govt. put forward a plan for
Rolling Plan 1978-1983. However, the government lasted for only 2
(1978 - 80) years. Congress Govt. returned to power in 1980 and
launched a
different plan.
Sixth Plan Focus - Increase in national income, modernization of
(1980 - 85) technology, ensuring continuous decrease in poverty and
Target Growth: unemployment, population control through family planning,
5.2% etc.
Actual Growth:
5.66%
Focus - rapid growth in food-grains production, increased
Seventh Plan employment opportunities and productivity within the
(1985 - 90) framework of basic tenants of planning.
Target Growth: First time private sector got the priority over public sector
5.0% The plan was very successful, the economy recorded 6%
Actual Growth: growth
 6.01% rate against the targeted 5%.
Focus on “Human Resource Development”
The eighth plan was postponed by two years because of
political
uncertainty at the Centre .
Worsening Balance of Payment position and inflation
Eighth Plan
during
(1992 - 97)
1990-91 were the key issues during the launch of the plan.
Target
The plan undertook drastic policy measures to combat the
growth:5.6%
bad economic situation and to undertake an annual average
Actual
growth
growth:6.8%.
of 5.6%.
Some of the main economic outcomes during eighth plan
period were rapid economic growth, high growth of
agriculture and allied sector, and manufacturing sector,
growth in exports and
imports, improvement in trade and current account deficit.
Ninth Plan Aim was “Growth with Social Justice”
(1997- 2002) It was developed in the context of four important
Target Growth: dimensions:
6.5% Quality of life, generation of productive employment,
Actual Growth: regional balance and self-reliance.
5.35%
Plan aim at ”Double the Per Capita Income” in the next 10
years
To achieve 8.1% GDP growth rate
Reduction of poverty ratio by 5 percentage points by 2007.
Providing gainful high quality employment to the addition
to the
labour force over the tenth plan period.
Tenth Plan
Reduction in gender gaps in literacy and wage rates by
(2002 - 2007)
Target growth: atleast 50% by 2007.
8.1% Growth Increase in literacy rate to 72% within the plan period and to
achieved:7.7% 80% by 2012.
Reduction of Infant Mortality Rate (IMR) to 45 per 1000
live
births by 2007 and to 28 by 2012.
Increase in forest and tree cover to 25% by 2007 and 33%
by
2012.
Cleaning of all major polluted rivers by 2007 and other
notified
 stretches by 2012.
Twelfth Plan focuses “Faster and more Inclusive Growth”.
Prepared by C Rangarajan to:
Eleventh Plan Accelerate GDP growth from 8% to 10%. Increase
(2007 - 2012) agricultural
Target growth: GDP growth rate to 4% per year.
8.1% Growth Create 70 million new work opportunities and reduce
achieved:7.9% educated unemployment to below 5%.
Raise the sex ratio for age group 0-6 to 935 by 2011-12 and
to
950 by 2016-17
Ensure direct and indirect beneficiaries of all government
schemes are women and girl children

Connect every village by telephone and provide broadband

connectivity to all villages
Attain WHO standards of air quality in all major cities by
2011-
12.

Increase energy efficiency by 20 percentage points by 2016-

17.
Twelfth Plan focuses “Faster and more Inclusive and
Sustainable Growth”.
Twelfth Plan Poverty rate to be reduced by 10% than the rate at the end of
(2012 - 2017) 11th plan.
Target Growth End gender gap and social gap in school enrollment.
:8%
Reduce under nutrition of children in age group 0-3 to half
of NFHS-3 levels.
Increase green cover by 1 million hectare every year.
Increase renewable energy during Five Year Period.

LEGAL ENVIRONMENT OF BUSINESS

1. The word legal has a great impact on every aspect of lives as well as
businesses. The meaning of legal is anything that is permitted by law.
Though the source of law in different areas of the earth differs, there are
different types of law-making bodies; for example, in India, which is a
democracy, and where the law is made by a parliamentary form of
government, and the parliament of India as well as the State Legislature are
 the law-making bodies. So, whatever laws are made by these bodies are
legal.
2. The Legal Environment of Business is one of the essential components of
the business. The Legal Environment of Business deals with the legal
mechanism which governs every stakeholder of the business, including
owners, laborers (organized and unorganized), consumers, etc.
3. The Legal Environment of Business provides the mechanism under which
the business activities of any country can flourish and run the business as
per the laws of the nation. The Legal Environment of Business refers to
the strategies, laws, and schemes adopted by the government to manage
and help the business ecosystem of the country.
4. The Legal Environment of Business includes various legislations, laws,
schemes, administrative orders by governmental authorities, judicial
precedents, decisions by various commissions and agencies of the
governments, etc.
5. The Legal Environment of business not only provides smooth governance of
business but also includes a safe pathway for the businesses to achieve their
target which is profit making. Modern-day, there has been an enormous
growth in the legal environment structure on the international level, which
has created strong compliance in the legal environment of business.
6. Not obeying the rules can result in legal trouble for the business. In India,
business firms are required to have complete knowledge of acts like
Companies Act 1956, Consumer Protection Act 1986, Industrial Disputes Act
1947, and Competition Act 2002 and so on. For example, it is mandatory for
tobacco companies to print ‘smoking is harmful’ on its products.

CHARACTERISTICS OF A LEGAL ENVIRONMENT OF BUSINESS

Several fundamental features define the legal environment of business, shaping the
framework in which businesses conduct their operations and make decisions.
These characteristics include:

 Fairness: The legal environment must uphold fairness for all businesses,
irrespective of their size or influence, promoting confidence in the courts’ ability
to enforce contracts and protect property rights.
 Consumer Protection: The legal environment commonly incorporates
regulations designed to protect consumers against unfair business practices.
These may consist of standards for product safety, rules governing advertising,
and mechanisms to address consumer complaints.

 Certainty: Businesses need to be able to predict the outcome of legal disputes in

order to make informed business decisions. A legal environment that is uncertain
can lead to businesses being reluctant to invest and grow.

 Efficiency: An effective legal system is crucial for timely dispute resolution, as

businesses cannot bear the burden of lengthy and expensive legal processes.

 Regulatory Agencies: Government agencies oversee and regulate specific

industries, forming part of the legal environment. Regulatory bodies within this
framework monitor compliance and enforce industry-specific laws.

DIFFERENT TYPES OF THE LEGAL ENVIRONMENT

The legal environment of business consists of various types, each playing a crucial
role in developing how business companies operate. Below, we discuss some
significant categories of legal environments that impact the company.

 Domestic Legal Environment

I. The domestic legal environment encompasses the laws and regulations

governing business activities within a specific country.

II. It comprises legislation passed by the government, court decisions,

administrative orders, and policies issued by government authorities.

III. This legal system significantly influences businesses, shaping aspects

ranging from company formation to the sale of goods and services.
IV. Examples of laws and regulations in the domestic legal environment include
labor laws, environmental regulations, tax codes, intellectual property laws,
antitrust regulations, and consumer protection laws.

 Social Legal Environment

I. The social legal environment involves the regulatory framework and legal
structures governing societal interactions and behaviors.

II. It comprises a diverse set of laws grounded in cultural, ethical, and social
values, reflecting the prevailing norms of a given community or nation.

III. This legal environment extends to personal rights, civil liberties,

discrimination, family matters, and various other social issues.

IV. Its role is crucial in maintaining order, justice, and fairness within society,
influencing individual behavior, and shaping institutional practices.

 Economic Legal Environment

I. The economic legal environment constitutes the system of laws and

regulations governing economic activities.

II. It includes laws related to business formation, operation, contract, property,

and employment.

III. Sector-specific regulations within industries such as finance, energy, and

healthcare are incorporated into the regulatory structure.

IV. This legal environment plays a vital role in shaping the economy and
promoting economic growth.
  Technological Legal Environment

I. The technological legal environment constitutes the body of laws and

regulations governing the development, use, and commercialization of new
technologies.

II. It includes laws about intellectual property, data privacy, and security, as
well as regulations specific to technologies like artificial intelligence,
autonomous vehicles, and drones.

 Political Legal Environment

I. The political-legal environment involves the interaction between the

political and legal systems in a particular society or country, significantly
impacting business operations.

II. It comprises government structures, policies, regulations, and the broader

legal framework set by the governing body with respect to the country’s
benefit.

III. Changes in government, shifts in policies, and alterations in legal regulations

can profoundly affect businesses, shaping their strategies, decision-making
processes, and overall viability.

IV. A thorough understanding and assessment of the political-legal environment

are crucial for businesses to anticipate and adapt to challenges and
opportunities within a specific jurisdiction.

IMPACT OF THE LEGAL ENVIRONMENT ON BUSINESS

A successful business depends heavily on a stable legal environment, which is a

key factor that determines the rules and regulations that govern its operations. The
 legal environment includes laws, rules, and regulations established by the
government, which have a significant impact on various aspects of business.

Below are some the impact of the legal environment on business:

 Taxation plays a critical role in impacting business growth. Higher tax rates can
limit profitability, while lower rates create better conditions for increased
earnings.

 A favorable legal environment is crucial for economic growth. Government-

imposed taxation and regulations can foster development while safeguarding
consumer rights.

 Businesses prioritize consumer rights within this legal framework to prevent

exploitation, unfair practices, and fraud.

 The legal environment also encompasses regulatory activities such as controlling

environmental pollution, enforcing employment and minimum wage laws, and
ensuring food and drug safety.

 Also, a strong legal framework contributes to sustained business prosperity and

benefits both consumers and entrepreneurs.
MONETARY POLICY

According to A. J. Shapiro, “Monetary Policy is the exercise of the central bank’s

control over the money supply as an instrument for achieving the objectives of
economic policy.”

Or

Monetary policy is an economic policy that manages the size and growth rate of
the money supply in an economy.

Or

Monetary policy is the policy adopted by the monetary authority of a country that
controls the money supply.

OBJECTIVES OF MONETARY POLICY

  To Regulate Money Supply in the Economy;

 To Attain Price Stability;

 To promote Economic Growth;

 To Promote saving and Investment;

 To Control Business Cycles;

 To Promote Exports and reduce Imports;

 To Manage Aggregate Demand;

 To Promote Employment;

 To Regulate and Expand Banking;

 To promote flexibility

PRINCIPAL INSTRUMENTS OF MONETARY POLICY

A. Quantitative instruments

 Quantitative Instruments are also known as the General Tools of monetary

policy. These tools are related to the Quantity or Volume of the money.

 They are designed to regulate or control the total volume of bank credit in
the economy. These tools are indirect in nature and are employed for
influencing the quantity of credit in the country. These instruments are as
under:-

1. BANK RATE

I. The bank rate is the rate at which the central bank gives credit to the
commercial banks.

II. The increase or decrease in bank rate is often followed by increase or

decrease in market rate of interest.

III. In order to increase the money supply, the bank decreases bank rate & vice
versa.

Current Bank Rate:- 6.75%

2. OPEN MARKET OPERATIONS

 I. Open market operations refer to the sale & purchase of securities in the open
market by the central bank. This is very effective and popular instrument of
the monetary policy.

II. If the RBI sells securities in an open market, commercial banks and private
individuals buy it. This reduces the existing money supply as money gets
transferred from commercial banks to the RBI.

III. Contrary to this when the RBI buys the securities from commercial banks in
the open market, commercial banks sell it and get back the money they had
invested in them.

3. CASH RESERVE RATIO (CRR)

I. CRR refers to the minimum percentage of a bank’s total deposits required to

be kept with the central bank.

II. Each & every commercial bank has to kept a certain percentage of there
deposits with the central bank as a mandatory requirement.

III. For eg:- If CRR is 10% & total deposits of a bank are Rs. 100 crore, then
they have to keep Rs. 10 crore with the central bank.

IV. Current CRR is 4 %

4.STATUTORY LIQUIDITY RATIO (SLR)

I. Every bank is required to maintain a fixed percentage of its assets in the

form of cash or other liquid assets, called SLR.

II. For reducing the flow of credit, the central bank increases this liquidity ratio.
For increasing the flow of credit, the liquidity ratio is reduced.

III. Current SLR is 20.75%.

5. REPORATE

I. Repo rate is the rate at which the central bank of a country (Reserve Bank
of India in case of India) lends money to commercial banks in the event of
any shortfall of funds.

II. Current Repo rate is 6.50%

6. REVERSE REPORATE
 I. Reverse repo rate is the rate at which the central bank of a country
(Reserve Bank of India in case of India) borrows money from commercial
banks within the country.

Current Reverse Repo rate is 3.35%

B. Qualitative instruments

 The Qualitative Instruments are also known as the Selective Tools of

monetary policy.

 These are those instruments of monetary policy which focus on the

alternative uses of credit in the economy.

 It involves:-

1. MARGIN REQUIREMENT

I. The margin requirement of loan refers to the difference between the current
value of the security offered for loans & the value of loans granted.

II. Suppose, a person mortgages an article worth Rs. 100 with the bank & the
bank gives him loan of Rs. 80.The margin requirement in this case is Rs. 20.

III. In order to increase money supply, margin requirement has to be reduced &
vice versa.

2. RATIONING OF CREDIT

I. It refers to fixation of credit quotas for different business activities.

II. The central bank fixes credit quota limits for different business activities.

III. The commercial bank can’t exceed the quota limits while granting loans.

3. DIRECT ACTION

I. The central bank may initiate direct action against the member banks in case
they do not comply with its directives.

II. RBI may refuse credit supply to those banks whose borrowings are in excess
to their capital.

4. MORAL SUASION
 I. Under moral suasion central banks can issue directives, guidelines and
suggestions for commercial banks regarding reducing credit supply for
speculative purposes.

II. Each & every commercial bank has to follow all verbal guidelines given to
them by central bank.

FISCAL POLICY

Fiscal policy refers to the revenue & expenditure policy of the government.

Or

Fiscal policy refers to the budgetary policy of the government to combat the
situations of excess & deficient demand in the country.

Or

Fiscal policy is the use of government spending and taxation to influence the
economy.

Or

Fiscal policy is the means by which a government adjusts its spending levels
and tax rates to monitor and influence a nation's economy.

OBJECTIVES OF FISCAL POLICY

 Boosting employment levels;

 Maintain or stabilize the economy’s growth rate

 Maintain or stabilize the price levels

 Encourage economic development

 Raising the standard of living

 Maintaining equilibrium in Balance of Payments.

 Promote Optimum utilization of resources

 Equal distribution of income & wealth.

 To Promote Exports and reduce Imports;

COMPONENTS OF FISCAL POLICY

1. GOVERNMENT EXPENDITURE

It is the principal component of fiscal policy.The government of a country incurs

various types of expenditure, mainly:-

 Expenditure on public works programmes such as the construction of dams,

bridges, roads, etc.

 Expenditure on education & public welfare programmes.

 Expenditure on the defence of the country and the maintenance of law &
order.

 Expenditure on various types of subsidies to the producers with a view to

encouraging production.

When there is excess demand, government expenditure is reduced & when there is
a deficient demand, government expenditure is increased.

2. TAXES

 Taxes are a compulsory payment made to government by the household and

the producing sectors.

 In order to combat deficient demand (or when AD needs to be increased),

tax burden on the households and the producers is reduced.

 In order to combat excess demand (or when AD needs to be decreased), tax

burden on the households and the producers is increased.

3. PUBLIC BORROWING / PUBLIC DEBT

 Public debt is the total amount, including total liabilities, borrowed by the
government to meet its development budget.

 In order to combat deficient demand (or when AD needs to be increased),

the government reduces its borrowing from the public.

 In order to combat excess demand (or when AD needs to be decreased), the

government increases its borrowing from the public.

4. DEFICIT FINANCING

 Deficit financing is the budgetary situation where expenditure is higher than

the revenue.
 It is a practice adopted for financing the excess expenditure with outside
resources.

 Deficit financing means borrowing by the government from the RBI. The
RBI lends money to the government by issuing more currency. Additional
currency causes additional purchasing power in the economy.

 It rises AD, as desired to combat deficient demand & vice versa.

 MODULE 3
PUBLIC SECTOR AND ECONOMIC ORGANIZATIONS

PUBLIC SECTOR

 The Public Sector consists of businesses that are owned and controlled by
the government of a country.
Or
It refers to the part of the Country's overall economy which is controlled by
the Government or various Government bodies.
 It consists of entities that offer public goods and services, including national
defense, law enforcement, public education, health care, social welfare, and
infrastructure development.
 Its purpose is to provide essential goods and services to the general public
and ensure the well-being of the society as a whole.
 Typically, these organizations are nonprofit and tax-funded, which means
that they are financed by taxes paid by residents rather than through selling
products and services. However, it is also the purpose and responsibility of
the public sector to redistribute resources through progressive taxes and
social programs to minimize economic disparity and assist those in need.
 The public sector, sometimes known as the government sector, refers to
government-owned and -operated enterprises, institutions, and agencies.
 Examples of public sector institutions include schools, hospitals, police
agencies, and public transportation networks. The provision of these services
is regarded as the government's responsibility.

 It is responsible for providing services and managing resources to citizens,

businesses, and other organizations. These activities are funded by taxes,
grants, borrowing money, and other government-controlled sources.
 Examples of public sector institutions include the police force, fire
department, and public schools. These types of institutions are often funded
by local or state taxes and provide services to citizens in the community.
Other examples include national parks, public libraries, and public
transportation.
 The role of the public sector is to provide essential public services that
would be too expensive or demanding for private individuals or businesses
to carry out on their own.
 It also works to redistribute income, provide social security and welfare
benefits to vulnerable individuals, and promote economic growth. Some
portions of the public sector are responsible for managing national defense,
maintaining civil order, and negotiating international treaties.
  The public sector plays an important role in the economy by providing
stability and direction. It can help to create jobs through spending on
infrastructure projects or by providing incentives to businesses. It can also
influence the business cycle by adjusting taxes or interest rates.
CHARACTERISTICS OF PUBLIC SECTOR

1. Business enterprise of government:- Public enterprises are business enterprises

established by government. They are engaged in manufacturing, marketing , public
utilities and services. Government makes budget allocations to public enterprises.
They are financed by state.

2. Government ownership, management and control:- Public enterprises are

owned, managed & controlled by government. The top level management of public
enterprises is appointed by government. This consists of board of directors and
chief executive officer.

3. Autonomy:- Public enterprises enjoy autonomy or semi-autonomy in

operations. They function as companies and corporations. The government does
not interfere in their day to day functioning. So, autonomy is a notable
characteristic of public enterprises.

4. Separate legal status:- Public enterprises have separate legal status. They are
established by a special act of Parliament, or Company Act or other acts. Public
enterprises can enter into contract in their own name. They can sue and can be sued
in courts of law.

5.Public accountability:- Public enterprises have public accountability. They are

accountable to the parliament for their performance. The auditor general reports to
the parliament about the performance of public enterprises. They are also
accountable to general public through government.

6.Continued existence:- Continuity is another characteristic of public enterprises

because they have continued existence and stability. They are created by law and
can be dissolved only by law. Changes in shareholders, management and
employees do not affect the existence of public enterprises.

Types of Public Sector Organizations

There are several public sector organizations, each with a unique set of duties and
obligations. Some types include:

 Executive Agencies:- These organizations are directly governed by the

government and are responsible for implementing particular policies and
 initiatives. The Department of Education and the Environmental Protection
Agency are examples.
 Independent Agencies:- These organizations function independently from
the government but are nonetheless seen as part of the sector. The Federal
Reserve and the National Aeronautics and Space Administration are
examples (NASA).
 State-Owned Enterprises:- These entities are government-owned and
operate as for-profit corporations. Examples of nationalized businesses
include electric and water utilities and public transportation services.
 Public-Private Partnerships:- These organizations result from a
partnership between the corporate and public sectors. The private sector
oversees day-to-day operations, while the public sector provides money and
oversight. Examples are public-private collaborations in infrastructure
projects and public services like schools and hospitals.
 Local Governments:- They are responsible for delivering services to
inhabitants within a certain geographic region. City councils, county boards,
and municipal administrations are examples.
 Nonprofit Organizations:- Nonprofit organizations collaborate with the
government to provide public goods and services. Examples include
organizations and nonprofits that support vulnerable populations with shelter
and health care.

Example of Public Sector Organization

Government-run hospitals are an example of public sector organizations. The state

or federal government owns and operates government-run hospitals that provide
public healthcare services.

Typically, these hospitals are supported by public funds and function as nonprofit
organizations. They may also obtain support from insurance companies and self-
paying patients. Hospitals in the public sector frequently act as a safety net for low-
income and uninsured patients and offer specialized treatments that may not be
available in the private sector.

OBJECTIVES OF INDIAN PUBLIC SECTOR:

The three major objectives of the public sector in India can be divided into three
categories:
  Social Objectives: The public sector aims at providing basic goods and
services to the citizens. It also provides employment opportunities and
promotes economic development.
 Economic Objectives: The public sector plays a key role in the
development of infrastructure and encourages private investment.
 Political Objectives: The public sector protects the interests of weaker
sections of society and promotes exports.

The public sector has always been aimed at achieving certain socio-economic
objectives. However, its performance over the years has not been up to the mark.

Objectives (in short):-

I. It plays a key role in the economic development of a country

II. It helps in providing essential services to the citizens
III. It provides employment opportune ities
IV. It helps in the development of infrastructure
V. It encourages private investment
VI. It promotes exports
VII. The public sector is the backbone of the Indian economy and it plays a
pivotal role in its development.

Role/Importance/Rationale of Public Sector

Public sector plays a vital role in the development of any economy. Public sector
being the monopoly in the hands of government is considered to be very important
organization. It has following importance:-

 Economic Development: Economic development mainly depends upon

industrial development. Heavy & basic industries like iron & steel, shipping,
mining, etc. are required for supplying raw materials to small industries.
Huge capital is required for establishment of such heavy & basic industries.

 Regional Development: Private sector usually neglects backward area. But

public sector organizations set up their units in economically backward
areas.

 Employment: Various public sectors operating in India needs lot of

manpower & this provide employment to unlimited individuals according to
their education, experience & abilities.
  Service Motive: Public sector organizations are working with the only
motive of providing public utility services to society at large irrespective of
profit.

 Monopoly:- Public sector is purely government monopoly. It does not face

any type of competition from any private sector. Public sector is working on
monopoly, semi-monopoly or oligopoly basis.

 Sound Infrastructure: Rapid industrial growth in a country needs sound

infrastructure. Infrastructural industries require huge capital for construction
of Roads, Railways, Electricity & many such industries. Private sector is
unable to have such huge capital & that also without any high return but
public sector can easily afford to provide all infrastructural facilities..

 Protection to Sick Industries: Public sector, to prevent sick unit closing

down, takes over their responsibility & prevent many people from getting
unemployed not only this but it prevents unnecessary locking of capital,
land, building, machinery, etc.

 Government Control: Public sector is wholly controlled & managed by the

Board of Directors or other officers appointed by government.

Indian Government Programmes/Schemes

The Indian government has launched several programs through its ministries to
enhance the country’s social and economic conditions. Here’s a summary of key
government schemes you should be familiar with in 2024.

1. Pradhan Mantri Awas Yojana (PMAY)

Government Schemes in India: The Government of India aims to offer affordable

housing to urban residents by 2022 through this program, which was first
introduced on June 25, 2015. The Pradhan Mantri Awas Yojana offers interest
rates starting at 6.5 per cent annually for up to 20 years. His eligibility for the EWS
and LIG categories has been extended through March 31, 2022.

2. Pradhan Mantri Garib Kalyan Anna Yojna

This government scheme was introduced on March 26, 2020, this program
provides food security for the poor. Each ration card holder receives 5 kilograms of
rice or wheat and 1 kg of dal as part of the Pradhan Mantri Garib Kalyan Anna
Yojana program. This scheme initially covered 80 crore ration cards for 3 months
in 2020 and has been authorized for an additional four months in 2022.

3. Meri Policy Mere Hath

This program was introduced through the Pradhan Mantri Fasal Bima Yojana to
provide crop insurance to farmers. The policy makes certain that farming
communities are well-informed and resourced. The Pradhan Mantri Fasal Bima
Yojana provides funding to farmers who have experienced crop loss or damage
will receive financial assistance.

4. Rashtriya Uchchatar Shiksha Abhiyan

The Rashtriya Uchchatar Shiksha Abhiyan scheme provides strategic funding for
qualifying state higher education institutions to improve efficiency and access to
higher education.

5. Support for marginal individuals for livelihood and enterprise (SMILE)

This government scheme helps marginalized individuals recover and provides

them with medical facilities, counselling, skill development, and economic linkage.
It is carried out with the assistance of the State and Union Territory
administrations, community-based groups, local urban bodies, nongovernmental
organizations, institutes, and others.

6. Jal Jeevan Yojana

By 2022, the Jal Jeevan mission hopes to have connected four crore rural families
to the public water system. The Jal Jeevan Mission or Har Ghar Jal Mission
emphasizes achieving community involvement and technology service delivery by
2024 and will receive 60,000 crores of rupees from the union budget in 2022.

7. Jalshakti Abhiyan

The Jal Shakti Abhiyan campaign launched a new program called Catch the Rain
from March 29, 2022, to November 30, 2022. The program aims to improve water
conservation and management.

8. Ayushman Bharat Yojana

The Ayushman Bharat Yojana, also known as Pradhan Mantri Jan Arogya Yojana,
was launched in 2018. It aims to provide health insurance coverage of up to Rs. 5
lahks per family per year to over 10 crore families who are vulnerable and do not
have access to quality healthcare. The scheme covers both primary and secondary
healthcare services and is one of the largest healthcare schemes in the world.

9. Pradhan Mantri Kisan Samman Nidhi Yojana

The Pradhan Mantri Kisan Samman Nidhi Yojana (PM-KISAN) was launched in
2019 to provide income support to farmers. Under this scheme, eligible farmers
receive Rs. 6,000 per year in three equal instalments of Rs. 2,000 each directly into
their bank accounts. The scheme aims to ensure a minimum income for farmers
and reduce their financial distress.

10. Swachh Bharat Abhiyan

The Swachh Bharat Abhiyan was launched in 2014 to promote cleanliness and
sanitation across the country. The scheme aims to eliminate open defecation,
promote waste management, and improve overall hygiene. The scheme has been
successful in achieving its objectives, and India has made significant progress in
improving its sanitation infrastructure.

11. Digital India

The Digital India scheme was launched in 2015 to transform India into a digitally
empowered society and knowledge economy. The scheme aims to provide
broadband connectivity to all citizens, promote digital literacy, and provide digital
services to all. The scheme has been successful in promoting the use of digital
technologies in various sectors and has helped in the growth of the digital economy

12. Make in India

The Make in India scheme was launched in 2014 to promote manufacturing and
attract foreign investment to India. The scheme aims to make India a
manufacturing hub and promote the growth of the manufacturing sector. The
scheme has been successful in attracting foreign investment and creating job
opportunities in the manufacturing sector.

13. Beti Bachao, Beti Padhao

The Beti Bachao, Beti Padhao scheme was launched in 2015 to address the issue of
the declining child sex ratio and promote the education of girls. The scheme aims
to ensure the survival, protection, and education of the girl child. The scheme has
been successful in creating awareness about the importance of educating girls and
has led to an improvement in the child-sex ratio in some parts of the country.

14. Government Schemes in India: Skill India

The Skill India scheme was launched in 2015 to provide skill training to the youth
of the country and improve their employability. The scheme aims to provide
training in various skills and sectors and promote entrepreneurship. The scheme
has been successful in providing skill training to a large number of people and has
helped in the growth of the skilled workforce in the country.

15.Viksit Bharat by 2047

Objective: Transform India into a developed nation by 2047.

Purvodaya Plan:
Regions Covered: Jharkhand, Bihar, Odisha, West Bengal, and Andhra Pradesh.
Focus: Infrastructure, human resource development, and economic opportunities.
Aim: Make the eastern region a growth engine.
16. Rooftop Solarisation Scheme

Scheme Name: PM Surya Ghar Muft Bijli Yojana.

Objective: Provide 300 units of free electricity per month to 1 crore households
through rooftop solar installations.

Benefits: Annual savings of Rs.15,000 – Rs.18,000 per household, facilitates EV

charging, and creates entrepreneurial and employment opportunities in the solar
sector.

17. Atmanirbhar Oil Seeds Abhiyan

Objective: Achieve self-sufficiency in oil seeds.

Coverage: Groundnut, mustard, soybean, sesame, and sunflower.
Focus Areas: Modern farming techniques, high-yield varieties, value addition,
procurement, market linkages, and crop insurance.
18. Credit Guarantee Scheme for MSMEs in the Manufacturing Sector

A credit guarantee scheme will be introduced to facilitate term loans to MSMEs for
the purchase of machinery and equipment without any collateral or third-party
guarantee. It will operate on the pooling credit risks of such MSMEs. A separately
constituted self-financing guarantee fund will provide a guarantee cover of up to
Rs.100 crore to each applicant. The borrower will have to provide an annual
guarantee fee and an upfront guarantee fee on the reduced loan balance.

19. Credit Support to MSMEs during Stress Period

The government announced a new mechanism to facilitate the continuation of bank
credit to MSMEs during their stress period. MSMEs need credit to continue their
business and avoid getting into the NPA stage while being in the special mention
account (SMA) stage for reasons beyond their control. This credit availability will
be supported through a guarantee from a government-promoted fund.

20. Comprehensive scheme for Internship Opportunities

The government will launch a comprehensive scheme to provide internship

opportunities to 1 crore youth in 5 years in the top 500 companies. The students
will gain exposure for 12 months to a real-life business environment and varied
professions and employment opportunities. An internship allowance of Rs.5,000
per month and a one-time assistance of Rs.6,000 will be provided. Companies will
have to bear the training cost and 10% internship cost from their CSR funds.

The Indian government has launched several

government schemes in India to promote the socio-economic development of the
country. These government schemes aim to address various issues such as
healthcare, education, sanitation, and employment. This government schemes has
been successful in achieving their objectives and have contributed significantly to
the overall development of the country.

FOREIGN TRADE POLICY

1. India's foreign trade policy, or FTP, is an essential set of rules on how India
does business with the world.
2. Foreign Trade Policy is a set of guidelines and instructions established by
the DGFT in matters related to the import and export of goods in India.
3. The Directorate General of Foreign Trade (DGFT) takes charge of it. The
main goals of India's FTP are to boost exports, create favourable conditions
for trade, and support steady economic growth.

OBJECTIVES OF FOREIGN TRADE POLICY

Here are the main objectives of foreign trade policy, which aim to improve how
India trades with the world:

 Global Integration of India:- The goal of the foreign trade policy FTP is to
combine India with the world markets smoothly. It aims to showcase India
as a trustworthy trade partner globally.
 Creating a Supportive Ecosystem:- Shifting from incentives,
India's foreign trade policy strives to build an environment that supports
 businesses, in line with the principles of 'Atma Nirbhar Bharat' and 'Local
goes Global.
 Preparing for the Future:- It's about gearing India up to face future
challenges, focusing on making it one of the top exporting nations,
especially during the anticipated 'Amrit Kaal' period.
 Collaborating with State Governments:- Recognising the importance of
local efforts, the policy encourages partnerships with state governments to
promote exports at the grassroots level.
 Tripling India’s Goods and Services Exports:- The policy aims to push
India's exports up to $2 trillion by 2030. This is a huge jump from the pre-
sent $760 billion.

First Foreign Trade Policy of India

Before 1992, India had no foreign trade policy but operated under various laws and
regulations. However, the 1992 Export-Import (EXIM) Policy changed this by
introducing a comprehensive approach to trade. It reduced tariffs and restrictions,
making importing goods easier and attracting foreign investment. The policy also
aimed to boost exports by offering incentives and simplifying procedures.

SALIENT FEATURES OF THE FOREIGN TRADE POLICY (FTP) - 2023:

1. Export-Import is free unless specifically regulated by the provisions of the FTP.

2. Export and Import goods are broadly categorized as:-

a. Free (i.e. general goods freely import or export without any authorization).

b. Restricted (i.e. goods allowed to import or export only with authorization).

c. Prohibited (i.e. goods are not allowed to import or export)

3. There are restrictions on exports and imports for various strategic, health, and
other reasons.

4. Exports are promoted through various promotional schemes.

5. There should be no taxes on exports.

6. Capital goods can be imported at NIL duty for the purpose of exports under the
scheme of Export Promotion Capital Goods (EPCG) Scheme.

7. EOUÕS and SEZ units are exempted from payment of taxes.

Highlights of Foreign Trade Policy 2023

Here are the main foreign trade policy 2023 highlights, focusing on incentives for
exporters and collaborative export promotion efforts:

 Incentive to Remission:- These benefits include duty refunds, the export

growth capital equipment plan, the pre-clearance scheme, and free trade
agreements (FTAs).
 Export Promotion through Collaboration:-The policy assists in
identifying the challenges and devising strategies for increasing exports.
Also, it encourages collaboration among the exporters, districts, states and
Indian missions outside.
 Ease of Doing Business:- The policy simplifies paperwork and
documentation processes to make exporting cost-effective and simplified for
businesses.
 Emerging Areas:- The policy seeks to position India as a leading
manufacturing, pharmaceutical, and e-commerce player.

DEVELOPMENT BANKS

 Development Banks are also known as Term-Lending Institutions (TLIs)

or Development Finance Institutions (DFIs).
 They are specialized financial institutions under the Banking System in
India that provide long-term finance and support to the sectors of the
Indian economy which possess higher risks and cannot have access to
adequate loans from Commercial Banks.
 Development banks are nothing but financial institutions providing long-
term funds for capital-intensive investments for a long period of time. Their
lending yields low rates of returns, such as irrigation systems, urban
infrastructure, mining, and heavy industries, etc.
 They are also known as development finance institutions (DFI) or long-term
lending institutions.
 These banks lend at low and stable interest rates so as to promote long-term
investments along with social benefits.
 Development banks are not the same as commercial ones. Instead,
development banks mobilize short to medium-term deposits and lend for
similar periods of tenure to avoid a maturity mismatch, which causes a
bank’s solvency and liquidity.

DIFFERENCE BETWEEN COMMERCIAL BANKS AND DEVELOPMENT

BANKS
Both differ in their primary focus and operations. While Commercial Banks are
primarily concerned with profit, Development Banks aim to promote economic
and social development by providing financial resources for projects that might
not otherwise secure financing from Commercial Banks due to their high risk, long
gestation periods, or because they are not immediately profitable but have
significant long-term benefits for the economy.

OBJECTIVES OF DEVELOPMENT BANKS IN INDIA

Development banks in India have been established with several key objectives as
can be seen below:

 To encourage industrial growth.

 To create employment opportunities.
 To revive sick units.
 To encourage self-employment projects.
 To remove regional imbalance.
 To develop backward areas.
 To develop the housing sector.
 To promote and provide finance to small scale industries.
 To facilitate the expansion and development of large scale industries.

ROLE/FUNCTIONS OF DEVELOPMENT BANKS IN INDIA

These banks play a multifaceted role in India’s economic landscape as can be seen
as follows:

 Infrastructure Creation: Their long-term funding enables the development

of critical infrastructure projects, laying the foundation for future economic
activity.
 Empowering Businesses: They provide loans for capital investments,
infrastructure development, and technological upgrades. This empowers
businesses to grow and modernize.
 Promotional Activities: Much more than just simple lending activities,
these banks offer advisory services, and partner with industry bodies to
develop specific sectors.
 Promotion of SMEs: Institutions like SIDBI focus specifically on the SME
sector, providing them with necessary financial services and support to help
them grow and thrive.
 Export Promotion: The EXIM Bank provides financial assistance to
exporters and importers, and helps in promoting cross-border trade.
 Social Development: By facilitating financing for rural and agricultural
projects, they contribute to inclusive growth and poverty alleviation.
 Agricultural and Rural Development: NABARD plays a crucial role in
financing agricultural and rural development, supporting a range of activities
from irrigation infrastructure to microfinance institutions that lend to small
farmers.
 Innovation and Technology Upgradation: These banks also fund research
and development activities, facilitating the adoption of new technologies and
innovations across various sectors.
 Development Banks in India are central to the nation’s economic strategy,
fostering industrial growth and socioeconomic development. By directing
resources towards underserved sectors, they not only spur industrial growth but
also contribute to regional balance and socio-economic development. As the
country targets ambitious economic goals, the role of these banks will be more
crucial than ever.

TYPES OF DEVELOPMENT BANKS IN INDIA

Based on their primary function or sector of focus, they are of different types as
described below:

Various Types of Development Banks in India

In this section, we shall learn more about the different types of development banks
in India. These include:

A. SIDBI (Small Industries Development Bank of India)

B. EXIM (Export-Import Bank of India)
C. NABARD (National Bank for Agriculture & Rural Development)
D. NHB (National Housing Bank)
E. IFCI (Industrial Finance Corporation of India)
F. IDBI (Industrial Development Bank of India)
G. IIBI (INDUSTRIAL INVESTMENT BANK OF INDIA)

Below, let us see in detail about all the above-listed banks in terms of their
functions and objectives.

A. SIDBI

I. The Small Industries Development Bank of India (SIDBI) was set up in

1990 under an Act of Parliament. It was a wholly-owned subsidiary of the
Industrial Development Bank of India. Presently, SIDBI’s ownership is held
by 33 government of India-owned/ controlled institutions. SIDBI is
headquartered in Lucknow.
II. SIDBI is the Primary Financial Institution for promoting, developing and
financing MSME (Micro, Small and Medium Enterprise) sector. Besides
focussing on the development of the Micro, Small and Medium Enterprise
sector, SIDBI also promotes cleaner production and energy efficiency.
III. SIDBI helps MSMEs in acquiring the funds they require to grow, market,
develop and commercialize their technologies and innovative products. The
bank provides several schemes and also offers financial services and
products for meeting the individual’s requirement of various businesses.

SIDBI Functions:
  To take initiatives for technical upgradation and modernization of the
existing units.
 To expand the channels for marketing the small-scale industry products in
both domestic as well as international markets.
 To promote employment-generating industries, particularly in the semi-
urban areas for creating more employment opportunities.
 To keep a check on the migration of the people to urban areas.
 It also enables the timely flow of credit for working capital as well as term
loans to Small Scale Industries in cooperation with commercial banks.
 It offers services like factoring, leasing etc. to the industrial concerns in the
small-scale sector.
 It aims at emerging as a single-window to meet the developmental and
financial needs of MSMEs in order to make them globally competitive,
strong, vibrant and to protect the institution as a customer-friendly financial
body.
 It also aims at enhancing the wealth of shareholders through the modern
technology platform.
 It is involved in the promotion and development of the MSME sector.
 It is the principal institution for the development, promotion and financing
of the MSME sector and for coordination of functions of the institutions
engaged in similar activities.
 SIDBI retained its position in the top 30 Development Banks of the World in
the ranking of The Banker, London.
 SIDBI also functions as a Nodal/Implementing Agency to various ministries
of the Government of India viz., Ministry of MSME, Ministry of Textiles,
Ministry of Commerce and Industry, Ministry of Food Processing and
Industry, etc.

B. NABARD

The National Bank for Agriculture & Rural Development (NABARD) is the prime
development bank in India. Under the special act by the parliament, the NABARD
was set up on 12th July 1982.

Its main focus is to uplift rural India by increasing the credit flow for the
promotion of the agriculture and non-farm sector. NABARD is headquartered in
Bombay (Maharashtra). It is considered as the apex bank of the country, which
takes care of the cottage industry, small and village industries, and other rural
establishments.
 Role/Functions

 To undertake to monitor and evaluating projects it has been refinancing

 Refinancing the financial institutions that finance the rural sector
 Regulating the institutions that provide financial assistance to the rural
economy
 Providing training facilities to the institutions assisting the rural development
 Regulating the cooperative banks and the Regional Rural Banks (RRBs) in
India

C. EXIM Bank

The Export-Import Bank of India (EXIM Bank) is a financial institution created by

the Export-Import Bank of India Act of 1981. It is a public sector financial
institution. The main aim of the EXIM Bank is to finance the Indian exports that
generate foreign exchange for the country. It also extends term loans for foreign
trade.

The EXIM Bank is a statutory corporation wholly owned by the government of

India. It was established on 01st January 1982 with an aim to finance, facilitate,
and promote foreign trade in India.

Functions:

 To finance imports and exports of goods and or services in India as well as

in the developing countries in the world.
 To provide a lease for exports and imports of machinery and equipment.
 To finance joint ventures in the foreign countries.
 To undertake limited merchant banking operations like the issue of shares,
bonds, stocks, debentures, etc. of the Indian companies involved in the
international trade.
 To provide technical, financial, and administrative assistance to businesses
that carry out export and import.

D. National Housing Bank

The National Housing Bank (NHB) is a state-owned bank and regulatory authority
in India established under section 6 of the National Housing Bank Act of 1987. It
was created on 08th July 1988. The NHB is headquartered in New Delhi.

The NHB is responsible for regulating and re-financing social housing activities
including research, etc. It is owned by the Reserve Bank of India and was
established to promote private real estate acquisition. The institution further aims
to promote inclusive expansion with stability in the housing finance sector.
 Functions:-

One of the major activities of the NHB includes extending financial assistance to
various eligible bodies in the housing sector through:

Refinance: The NHB extends refinancing to various primary lending firms like
scheduled banks, housing finance companies, cooperative sector bodies, etc.

Direct Finance: NHB also offers direct finance for integrated land development
and shelter projects of public agencies in respect of land development and shelter
projects, housing infrastructure projects, etc.

E. IFCI

The IFCI (Industrial Finance Corporation of India) was the first specialized
financial institution to provide term finance to large businesses in India. It was set
up under the Industrial Finance Corporation Act (1948) on 01st July 1948.

Objectives of IFCI

The primary objective of the IFCI is to provide long and medium-term financial
offerings to large-scale businesses. It especially offers its services when ordinary
bank accommodation does not suit the undertaking or the finance cannot be raised
in a profitable manner from the issue of shares.

Functions of IFCI

o Setting up a new industrial undertaking

o Expansion and/ or diversification of existing industrial business
o Renovation and modernization of existing businesses
o Meeting the working capital needs of the industries, with some exceptions

F. IDBI

 The Industrial Development Bank of India, popularly known as IDBI, came

into existence as a Development Institution under the IDBI Act of 1964. It is
headquartered in Bombay, Maharashtra.
 IDBI is a specialised financial institution in India that plays a crucial role
in promoting industrial and infrastructure development in the country.
 It was established in 1964 under an Act of Parliament as a wholly-owned
subsidiary of the Reserve Bank of India (RBI) and was later transferred to
the Government of India.
 IDBI serves as the principal financial institution for providing long-term
finance and credit to various industrial and developmental projects.
 FUNCTIONS OF IDBI
1. Project Financing: IDBI provides financial assistance to industrial and
infrastructure projects. It offers long-term loans and credit to companies and
organisations for establishing new projects, expanding existing ones, and
modernising operations. This support helps in the growth and development of
various industries in the country.
2. Developmental Banking: As a developmental bank, IDBI plays a crucial role
in fostering economic growth and development. It works towards achieving the
broader economic and social objectives of the government by providing financial
resources and expertise to key sectors of the economy.
3. Capital Market Operations: IDBI engages in capital market activities. This
includes underwriting securities, facilitating the issuance of bonds and stocks by
companies, and participating in the capital market, to raise funds for various
purposes. These activities contribute to the efficient functioning of India's capital
markets.
4. Investment Banking: IDBI provides investment banking services, which
involves advising companies on mergers and acquisitions, capital restructuring,
and other financial transactions. It acts as a financial intermediary between
businesses, helping them access capital and make strategic financial decisions.
5. Rural and Agricultural Development: IDBI extends financial support to
rural and agricultural development projects. It plays a role in funding initiatives
aimed at improving rural infrastructure, increasing agricultural productivity, and
addressing rural poverty.
6. Retail Banking (through IDBI Bank): IDBI Bank, a subsidiary of IDBI,
offers a range of retail banking services to individuals and small businesses. This
includes savings accounts, current accounts, personal loans, home loans, credit
cards, and other retail financial products and services.
7. Promotion of Priority Sectors: IDBI actively promotes and supports priority
sectors identified by the government, such as small and medium-sized enterprises
(SMEs), export-oriented industries, and sectors with significant employment
generation potential.
8. Technical Assistance and Consultancy: IDBI provides technical and
consultancy services to assist industrial and infrastructure projects in areas like
project planning, feasibility studies, and project implementation.
9. International Operations: IDBI also has a presence in international markets
and is engaged in financial activities related to international trade and investment.
The international operations of IDBI are aligned with India's broader economic
goals of increasing exports, attracting foreign investments, and expanding the
global footprint of Indian businesses. It provides export credit to facilitate the
export of goods and services from India to international markets. This helps
Indian exporters access the necessary funds for the production, marketing, and
distribution of their products abroad.
 IDBI Products
Various products are offered by IDBI, and a few are listed below.

 Saving accounts
 Debit and credit cards
 Lockers and FD
 Loans
 Agricultural loans, etc.

F.INDUSTRIAL INVESTMENT BANK OF INDIA

i. The Industrial Investment Bank of India (IIBI) was a development financial

institution in India that was established in 1948 to provide financial
assistance to small and medium enterprises (SMEs) in the country.
ii. It was set up as a subsidiary of the Industrial Development Bank of India
(IDBI), which was the premier development financial institution in India at
the time.
iii. The IIBI operated as a separate entity from the IDBI and focused on
providing financing and other support to SMEs, including working capital
finance, term loans, project finance, and advisory services.
iv. It also provided financial assistance to small industries through its network
of regional offices and branches located across the country. The IIBI was
merged with the IDBI in 2004.

What are the products of Industrial Investment Bank of India (IIBI)

As a development financial institution, the Industrial Investment Bank of India

(IIBI) provided a range of financial products and services to small and medium
enterprises (SMEs) in India. Some of the products offered by the IIBI included:

1. Working capital finance: This type of finance was provided to SMEs to

meet their short-term financial needs, such as the cost of raw materials,
wages, and other expenses.
2. Term loans: The IIBI provided term loans to SMEs to meet their long-term
financial needs, such as the cost of purchasing fixed assets or expanding
their operations.
3. Project finance: The IIBI provided project finance to SMEs to help them
fund specific projects, such as setting up a new factory or modernizing
existing facilities.
4. Advisory services: The IIBI also provided advisory services to SMEs,
including financial planning and management, marketing, and technical
support.
 FUNCTIONS OF INDUSTRIAL INVESTMENT BANK OF INDIA (IIBI)

The Industrial Investment Bank of India (IIBI) was a development financial

institution that was established in 1948 to provide financial assistance to small and
medium enterprises (SMEs) in India. Some of the key functions of the IIBI
included:

1. Providing financing: The IIBI provided a range of financial products and

services to SMEs, including working capital finance, term loans, and project
finance.
2. Promoting the growth of small industries: The IIBI played a key role in
promoting the growth and development of small industries in India by
providing financial assistance and advisory services.
3. Facilitating the development of new projects: The IIBI provided financial
assistance to SMEs to help them fund new projects, such as setting up a new
factory or modernizing existing facilities.
4. Providing advisory services: The IIBI also provided advisory services to
SMEs, including financial planning and management, marketing, and
technical support.
 MODULE 4

 India made LPG reforms in 1991. LPG reforms are also known as
liberalisation, privatisation and globalisation reforms. They have
transformed the way India as an economy works and opened the country up
to the world for trade and commerce.
 The LPG model of development introduced by Prime Minister P.
V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
 The government of India introduced the LPG model.
 After India gained independence in the year 1947 the economy was
conflicted with a large number of problems.
 The government needed to solve the issues.
 The government decided to use the LPG model in solving these problems.
 L stands for liberalization, P for privatization and G for Globalisation.
 Indian economy had experienced major policy changes in early 1990s. The
new economic reform, popularly known as, Liberalization, Privatization and
Globalization (LPG model) It was aimed at making the Indian economy as
fastest growing economy and globally competitive. The series of reforms
undertaken with respect to industrial sector, trade as well as financial sector
aimed at making the economy more efficient.
ECONOMIC LIBERALIZATION

 It means the process of opening up of the Indian economy to trade and

investment with the rest of the world. It means that opening the Door for
doing Business to all over the world.
 Till 1991 India had a import protection policy wherein trade with the rest of
the world was limited to exports.
 After the start of the economic liberalization, India started getting huge
capital inflows and it has emerged as the 2nd fastest growing country in the
world.

 Liberalization refers to a relaxation of government restrictions, usually in

such areas of social, political and economic policy.

OR

Liberalization refers to laws or rules being liberalized, or relaxed, by a

government.
 OR

Liberalization refers to the removal or reduction of restrictions or barriers

on the free exchange of goods between nations.

OR

Liberalization refers to the removal of or reduction in the trade practices

that thwart free flow of goods and services from one nation to another.

 The basic aim of liberalization was to put an end to those restrictions which
became hindrances in the development and growth of the nation.
 The loosening of government control in a country and when private sector
companies’ start working without or with fewer restrictions and government
allow private players to expand for the growth of the country depicts
liberalization in a country.

OBJECTIVES OF LIBERALIZATION

1. To improve the quality of good services.

2. To increase the employment-opportunities.
3. To join in the competition of the international level.
4. To develop the production-capacity and
5. To improve the process of domestic production.

ADVANTAGES OF LIBERALIZATION
1. Increased production;
2. Optimum utilization of products;
3. Provides employment opportunities;
4. Reduced restrictions on production;
5. Greater varieties of products and services.

DISADVANTAGES OF LIBERALIZATION
1. Higher competition
2. Structural unemployment;
3. Pollution;
4. Dependency (in case of foreign products requirement)
5. Loss to domestic units

ECONOMIC PRIVATIZATION
 The transfer of ownership, property or business from the government to the
private sector is termed privatization.

OR

Privatization is the process of transferring an enterprise or industry from the

public sector to the private sector.

OR

The process in which a publicly-traded company is taken over by a few

people privately is also called privatization.

 Privatisation is the reduction in the domination of the public sectors. These

economic reform policies make it easier for the private sector companies to
increase their control.
 The government-owned companies are transformed into private sector
companies through this reform. This is done by disinvesting or by
withdrawing government ownership.

OBJECTIVE OF PRIVATIZATION

1. Greater efficiency;
2. Revealing the true and full cost of the service provided;
3. Promotion of technological advancement;
4. Development of capital markets;
5. Broadening the wealth and achieving widespread private ownerships in
society;
6. Curbing inflation;
7. Raising extra-revenues for the government;
8. Eliminating hidden unemployment and reducing the power of public
employee unions.
ADVANTAGES OF PRIVATIZATION
1. Improved Efficiency.
2. Lack of Political Interference.
3. Increased Competition.
4. Government will raise revenue from the sale.
5. It helps in better management of enterprise.
6. It encourages entrepreneurship.

DISADVANTAGES OF PRIVATIZATION
1. It doesn’t take into account the views of the society;
2. Employees will be treated as machines not human beings;
3. Higher risks;
4. Creates monopoly situation in the market.

GLOBALIZATION
 Globalization is the integration of economies, Industries, markets & culture
around the world.
OR
Globalization is the process of international integration arising from the the
interchange of worls views, products, ideas and other aspects of culture.
OR
Globalization refers to all those processes by which people of the world are
incorporated into a single world society, global society.
OR
Globalization is the process of international integration arising from the
interchange of world views, products, ideas, and other aspects of culture.
 The main focus of this reform is on foreign trade.
 Various strategic policies are set up that aim to integrate the world as a
whole. This reform increases the cross-border exchange of social, cultural,
and technological knowledge.
 Globalization is attempting to create a borderless world, wherein the need of
one country can be driven from across the globe and turning into one large
economy.

OBJECTIVES OF GLOBALISATION

 Reducing import duties

 Encouraging foreign investments
 Encouragement to the agreement in foreign technology

ADVANTAGES/MERITS/PROS OF GLOBALIZATION

 Increase in employment opportunities;

 Increase in compensation;
 Higher standard of living;
 Increased Purchasing power;
 Quality Education;
 Product Quality;
 Cheaper Prices;
 Effective communication
 Higher market Share.

DISADVANTAGES/ DEMERITS/ CONS OF GLOBALIZATION

 Health issues (Countries having some health issues which are infectious
transferring goods to other countries can cause health issues to that country.
E.g. Corona Virus
 Uneven wealth distribution;
 Conflicts;
 Monopoly;
 Environment Degradation (Lesser natural resources);
 Loss of culture;
 Cut throat competition.

FOREIGN DIRECT INVESTMENT(FDI)

 An investment made by a company or entity based in one country, into a

company or entity based in another country is called foreign direct
investment (FDI) .

OR

A foreign direct investment (FDI) is a controlling ownership in a business

enterprise in one country by an entity based in another country.

OR

Foreign Direct Investment, or FDI, is a type of investment that involves the

injection of foreign funds into an enterprise that operates in a different
country of origin from the investor.

 FDI is a key element in international economic integration because it creates

stable and long-lasting links between economies.
 FDI is an important channel for the transfer of technology between
countries, promotes international trade through access to foreign markets,
and can be an important vehicle for economic development.
 In simple words, A foreign direct investment (FDI) refers to purchase of
an asset in another country, such that it gives direct control to the purchaser
over the asset (e.g. purchase of land and building).
  In other words, it is an investment in the form of a controlling ownership in
a business, in real estate or in productive assets such as factories in one
country by an entity based in another country.

OBJECTIVES OF FDI

1. To increase the employment-opportunities;

2. To join in the competition of the international level;
3. Sustaining high level of investment;
4. Helpful in globalizing the business;
5. Helpful in optimum utilization of resources;
6. Helpful in increasing the sales & profits of the business at international level.
7. Helpful in accessing new technology;
8. Helpful in improving global supply chain.
9. Helps in achieving cost efficiency
MERITS OF FDI

1. Inflow of equipment and technology;

2. Competitive advantages and innovation;
3. Finance resource for expansive;
4. Employment generation;
5. Contribution to export growth;
6. Improved consumer welfare through reduced cost, wider choice & improved
quality;
7. Provide access to global markets for Indian producer.

DEMERITS OF FDI
1. Crowing of local industry;
2. Conflict of laws;
3. Loss of control;
4. Effect on notional(imaginary) environment;
5. Effect on culture.

EXPORT PROMOTION COUNCIL & BOARDS

Export Promotion Councils are government-initiated authorities that promote and

support export firms in developing their overseas trade and presence by providing
technical and industry insights.

Additionally, EPCs also promote government schemes, act as a data store and
conduct overseas tours and studies. They also act as an intermediary between the
government and the export industry and are critical in formulating the foreign
policies of the country.
These Councils are registered as non-profit organizations under the Companies
Act/ Societies Registration Act. EPCs perform both advisory as well as executive
functions. Export Promotion Councils are responsible for country’s image abroad
as a council of reliable suppliers of high quality goods and services.

The EPCs encourage and monitor the observance of international standards and
specifications by exporters. Each product has its own Export Promotion Council,
hence the promoter should register under a certain EPC as per their line of product.

FUNCTIONS / ROLE OF EPC IN INDIA’s FOREIGN TRADE

1. Providing information: To assist exporters to understand, interpret and

implement the export policies and export assistance schemes of Government.

2. Providing assistance: To provide assistance in export promotional activities

such as external publicity, participation in fairs and exhibitions, promotion of
exclusive exhibitions and trade fairs of specific products.

3. Collecting data: To collect complete data on export growth, the problems faced
by exporters, the specific help needed by the manufacturers and present the same
to the Government in order to enable it to evolve appropriate export policies.

4. Acting as liaison: To carry on an effective liaison with industry and trade in

order to identify the problems in export activities.

5. Sending trade delegations: To make arrangements for sending trade

delegations and study teams to one or more countries for promoting the export of
specific products and to circulate the reports of specific products and diversifying
to new products.

6. Opening office abroad: To open offices abroad to help exporters in

consolidating the existing exports and diversifying to new products.

7. Registering authority: To act as registering authority under the import policy

for registered exporters and to help them in expanding overseas market for their
products.

8. Motivating exporters: To create consciousness among exporters through

seminars, discussion and to motivate them for export promotion.

9. Co-operation with EIC: To provide co-operation to the export inspection

council on quality control and reshipment inspection of export goods.
10. Disposing applications: To provide assistance to members for speedy disposal
of export assistance applications.

11. Offering guidance: To offer guidance to member on various matters like

utilization of GSP, export finance, insurance of goods and joint ventures aboard.

12. Indicating export opportunities: To collect and supply market information to

exporter and thereby to help them to take benefits to take benefits of export
opportunities available abroad.

13. Settling disputes: To help the member in settling their trade disputes through
peaceful negotiations.

14. Solving transport problems: To help members to resolve their transport

problems.

15. Concessions: To assist members in getting freight and other concessions for
shipping conferences.

16. Issuing certificate of origin: To issue certificate of origin to Indian exporters

certifying the origin of goods.

MEMBERSHIP AND WORKING OF EPC

 Any exporter of the product coming under the council can become the
member if they are desirous of claiming export incentives and assistance of
the Council. These councils receive grants from the Government under its
various heads.
 Each member pays an annual subscription fee. A working committee elected
by the members, elects its chairman and other office bearers. The working
committee discusses all the problems relating to the product coming under
the council, and necessary action is also taken. Senior officials of the
Government, are also appointed on the Working Committee to guide and
take part in the deliberations.
LIST OF EXPORT PROMOTION COUNCILS AND COMMODITY
BOARDS

1. Agricultural and Processed Food Products Export Development Authority

Agricultural Products & Processed Foods - APEDA
2. Apparel Export Promotion Council Apparel - AEPC
3. Basic Chemicals Pharmaceuticals & Cosmetic Export Promotion Council
Chemicals, Pharmaceuticals, and Cosmetics - CHEMEXCIL
4. Carpet Export Promotion Council (CEPC) Carpets - CEPC
5. Cashew Export Promotion Council of India Cashews - CEPCI
6. Chemicals and Allied Products Export Promotion Council Chemicals -
CEPEXIL
7. Coffee Board Coffee - Coffee Board
8. Coir Board Coir Products - Coir Board
9. Cotton Textiles Export Promotion Council Cotton and Cotton Goods -
TEXPROCIL
10. Council for Leather Exports Leather & Leather Goods - CLE
11. Engineering Export Promotion Council Engineering Goods - EEPC
12. Electronics and Computer Software Export Promotion Council Computer
Software - ESC
13. Export Promotion Council for Handicrafts Handicrafts/Handicraft Goods -
EPCH
14. Gem and Jewellery Export Promotion Council Gems & Jewellery - GJEPC
15. Handloom Export Promotion Council Cotton Handloom Fabrics/Home
Textiles/Garment Accessories - HEPC
16. Indian Silk Export Promotion Council Silk & Silk Goods - ISEPC
17. Jute Manufacturers Development Council Jute Goods - JMDC
18. Marine Products Export Development Authority Marine Goods - MPEDA
19. Project Exports Promotion Council of India Civil & Engineering Projects -
PEPC
20. Plastic Export Promotion Council Plastic & Plastic Goods - PLEXCONCIL
21. Powerloom Development & Export Promotion Council Powerloom Fabrics
& Made-ups - PDEXCIL
22. Pharmaceutical Export Promotion Council Pharma Products -
PHARMEXCIL
23. Rubber Board Rubber & Rubber Goods - Rubber Board
24. Service Export Promotion Council Services - SEPC
25. Shellac Export Promotion Council Veg Saps & Extracts - SHELLACEPC
26. Spices Board Spices & Condiments - Spices Board
27. Sports Goods Export Promotion Counil Sports Goods - SGEPC
28. Synthetic & Rayon Textiles Export Promotion Council Synthetic Fabric &
Madeups - SRTEPC
29. Tea Board Tea - Tea Board
30. Tobacco Export Promotion Council Tobacco and tobacco goods - Tobacco
Board
31. Wool & Woolen Exports Promotion Council Wool & Woollens - WWEPC
 IMPORT CONTROL

1. Import controls are any restrictions that a nation puts on the goods that are
brought within its borders.
2. These will include regulations governing the preferential rules of origin,
recycling of packaging materials, ingredients subject to import controls, and
prohibited substances.
3. Often, the items included on a country’s import control list are intuitive – such
as firearms and chemical weapons.
4. Dangerous goods, like these, as well as certain chemicals and other products
that can be used as an ingredient to create other dangerous goods, are usually
the first thing that traders and governments think of when they hear about
import controls.
5. However, it is not only dangerous goods that are subject to import
controls.Many food products and other agricultural goods are heavily controlled
by importing countries since they have the potential to introduce harmful
diseases and pathogens into the country.

Some of the products subject to import control include:-

Radioactive chemical elements:- Control is exercised to assist the Department of

Health (radiation control) to control and monitoring the importation of radioactive
isotapes and chemical elements for medical and industrial purposes.
New pneumatic tyres:- Control is exercised to assist the National Regulator for
Compulsory Specifications (NRCS) in ensuring that all new pneumatic tyres
comply with the safety/quality specification and that tyres have been subjected to a
process of homolation.
Chemicals listed in the 1988 Convention:- Control is exercised to assist the
SAPS in ensuring that importers/exporters of listed chemicals are recorded and the
movements of these chemicals are adequately monitored as required by the
Convention.
Fossil fuels:- Fossil fuels are controlled to assist the Department of Mineral
Resources in regulating the industry for purposes of promoting efficient
manufacturing, wholesaling and retailing of petroleum products, creating an
environment for investment, and creating small business and employment
opportunities in the industry.
Arms and ammunition:- Arms and ammunition is controlled to assist the SAPS
with maintaining safety and security.
Gambling devices:- Gambling devices are controlled for social reasons and
quality. It is also done to assist the National Gambling Board in the development of
the industry with specific reference to manufacturing and Information Technology
and to ensure compliance with NRCS specifications.
Used goods

1. Used electronic equipment:- Used electronic equipment is controlled to

assist the Department of Environmental Affairs to address the problem of
dumping electronic waste.
2. Used medical equipment:- Used medical equipment is controlled to assist
the Department of Health to address the problem of inferior quality used
medical equipment being imported, such as used x-ray machines.
3. Used aircraft:- The importation of used aircraft is controlled to assist the
Civil Aviation Authority and ensuring that the requirements of airworthiness
have been complied with.
4. Waste and scrap:- Waste and scrap is controlled as the generation of waste
and scrap exceeds recycling programmes resulting in many developed
countries paying developing countries for receiving waste and scrap for
purpose of landfill. In many instances the importation of waste and scrap is
allowed as a raw material for manufacturing purposes such as waste paper,
glass, rubber and lead. In all these instances, the provisions of the Basel
Convention must be complied with.

EXIM Policy

1. The EXIM (Export-Import) Policy contains guidelines governing the

imports and exports of products and services in and out of India.
2. EXIM Policy’s primary objective is to regulate and develop foreign trade by
facilitating imports into and exports from India.
3. The Foreign Trade Development and Regulation Act, 1992, provides for the
Indian government to announce the EXIM Policy every five years.
4. Each EXIM Policy announced by the Indian Government was valid for five
years, and they can amend, enhance or add new provisions to the policy
every year on 31 March, taking effect from 1 April.
5. The Ministry of Finance, in collaboration with the DGFT, its network of
regional offices and the Union Minister of Commerce and Industry,
announces amendments or changes to the EXIM Policy of India.
6. In 2004, the EXIM Policy was renamed the Foreign Trade Policy to provide
a comprehensive approach to foreign trade in India. The Ministry of
Commerce announced the recent FTP, which came into effect on 1 April
2023.
7. FTP 2023-2028 seeks to make India an export hub and to integrate India
further into global value chains. It creates an enabling ecosystem for
exporters, which aligns with India’s vision of becoming ‘Atmanirbhar’.
 OBJECTIVES OF EXIM POLICY

1. It aims to developing export potential, improving export performance and

encouraging foreign trade.
2. To strengthen the base for export production of the country.
3. To facilitate sustained growth in exports.
4. To facilitate technological up gradation and modernization of domestic
production.
5. To provide consumers with good quality goods and services at
internationally competitive prices.
6. To providing access to essential raw materials intermediates, components,
consumables and capital goods for sustain growth.
7. To provide employment opportunities within the country by increasing
Export.
8. To encourage internationally accepted quality and standard.
9. To simplify and streamline foreign trade procedures.

BENEFITS OF EXIM POLICY

1. Promotes international trade.

2. Facilitates technology transfer.
3. Improves balance of payments.
4. Enhances competitiveness.
5. Boosts economic development and growth.
6. Creates employment opportunities.
7. Helps in enforcing liberalisation policy.
8. Increases foreign investment value.
9. Increases healthy competition between domestic traders and the international
market.
10. Creates diversified market development for consumers and manufacturers.
11. Availability of commodities at a lower cost.

FEMA ,1999

 FEMA is the acronym for ‘Foreign Exchange Management Act’.

 It was came into effect from 29 december,1999.
 It replaced FERA,1973.
 It was enacted by Parliament of India.
 FEMA is a regulatory mechanism that enables the Reserve Bank of India
and the Central Government to pass regulations and rules relating to
foreign exchange in tune with the Foreign Trade policy of India.
  It extends to the whole of India. It applies to all branches, offices and
agencies outside India.
 It has 49 Sections.

PROVISIONS/RULES & REGULATIONS/FEATURES OF FEMA

 Dealings in Foreign Exchange:-

According to section 3 of FEMA 2000 ," only authorized person

under the govt. terms can deal in foreign exchange in India .

 Holding of foreign exchange:-

According to section 4 of FEMA 2000, "All persons which

are provided authority only can hold or purchase foreign exchange in India or
outside India."

 Permission:-

Without general or specific permission, FEMA restricts the

transactions involving foreign exchange or foreign security and payments from
outside the country to India – the transactions should be made only through an
authorised person.

 Current Account Transactions:-

According to section 5 of FEMA 2000 ," There is no

restriction regarding sale or deal foreign exchange, if it is a current account
transaction ." These pertain to activities such as trade in goods and services,
remittances, and various payments. These transactions are crucial for day-to-day
economic activities and international trade relationships.

 Capital Account Transactions:-

Under section six, ‘RBI will fix the limit of foreign exchange
transactions relating to capital account after discussion with indian govt. These
pertain to activities such as trade in goods and services, remittances, and various
payments. These transactions are crucial for day-to-day economic activities and
international trade relationships.

 Export of goods & Services:-

Exporters are needed to furnish their export details to

RBI. To ensure that the transactions are carried out properly, RBI may ask the
exporters to comply to its necessary requirements.
  Penalities:-

If it is found that there is any unfair trade of foreign exchange then

in this case penalties will be imposed.

OBJECTIVES OF FEMA

 To promote the orderly development and maintenance of foreign

exchange market:-The objective of FEMA is to performs international
transactions in such a manner so that it will promote the orderly
development and maintenance of foreign exchange market

 Facilitating External Trade and Payments: FEMA aims to simplify and

streamline foreign exchange transactions to facilitate smooth external trade
and payments. It provides a legal framework that allows individuals and
businesses to engage in cross-border transactions, including imports,
exports, and remittances.
 Promoting Foreign Investment: FEMA encourages foreign investment in
India by providing a regulatory framework for non-residents to invest in
various sectors. It defines the rules for foreign direct investment (FDI) and
foreign portfolio investment (FPI) in the country.
 Maintaining Stability of the Indian Rupee: The act seeks to maintain the
stability of the Indian rupee by regulating the flow of foreign exchange in
and out of the country. It aims to prevent excessive fluctuations in the
exchange rate, which can impact the economy’s stability.
 Monitoring and Control of Capital Movements: FEMA empowers the
Reserve Bank of India (RBI) to regulate and control capital movements,
ensuring that foreign exchange resources are used efficiently and in line with
the country’s economic goals.
 Preventing Money Laundering and Illegal Activities: One of the
important objectives of FEMA is to prevent money laundering and illegal
activities related to foreign exchange transactions. The act includes
provisions to detect and deter financial crimes and unauthorized dealings in
foreign exchange.
 Promoting Financial Stability: FEMA contributes to the overall financial
stability of the country by ensuring a well-regulated foreign exchange
market. It helps maintain confidence in the financial system and prevents
undue disruptions.
 Harmonizing with International Standards: FEMA aims to align India’s
foreign exchange management practices with global standards. This is
important for fostering international trade, investment, and cooperation.
 Facilitating Cross-Border Transactions: The act provides a legal
framework for various types of cross-border transactions, including
remittances, acquisitions of foreign assets, and borrowing from foreign
 sources. This helps individuals and businesses engage in international
financial activities.
 Promoting Economic Growth: By promoting international trade and
investment, FEMA contributes to overall economic growth and
development. It encourages businesses to expand their operations globally
and attract foreign investment into the country.
 Adapting to Economic Changes: FEMA is designed to be flexible and
adaptable to changing economic circumstances. It provides the regulatory
framework needed to respond to evolving global economic trends and
challenges.

FERA V/S FEMA

INDIAN PATENTS ACT

Indian Patent Law is defined by various provisions of the Patents Act, 1970. Under
this law, patent rights are granted for inventions covering a new and inventive
process, product or an article of manufacture that are able to satisfy the patent
eligibility requirements of having novelty, inventive steps, and are capable of
industrial application.

WHAT IS A PATENT?

1. A patent is an exclusive right granted for an invention, which is a product or

a process that provides, in general, a new way of doing something, or offers
a new technical solution to a problem. To get a patent, technical information
about the invention must be disclosed to the public in a patent application.
 2. The patent system in India is governed by the Patents Act, 1970 which was
amended in 2003 and 2005.
3. The Patent Rules are regularly amended in consonance with the
changing environment, the most recent being Patents (Amendment) Rules,
2024.
4. The object of patent law is to promote innovation and technological
advancement by providing legal protection and incentives to inventors.
5. A patent is a legal monopoly granted by the government to an inventor for a
limited period of time in exchange for the inventor disclosing the details of
their invention to the public.
SALIENT FEATURES OF INDIAN PATENTS ACT 1970

Indian patents are issued in accordance with the Indian Patent Act of 1970 if the
innovation satisfies the following requirements:

1. The invention should be novel.

2. Invention needs to be non-obvious or involve novel processes.
3. The invention should be appropriate for use in industries.
4. Inventions in which only techniques or processes of manufacturing are
patentable.
5. It shouldn’t be subject to sections 3 and 4 of the Patents Act of 1970’s
provisions.
6. Atomic energy inventions are not patentable: Atomic energy-related
inventions that fall within subsection (1) of section 20 of the Energy Act of
1962 are not eligible for patent protection.

MAIN OBJECTIVES OF PATENT LAW

1. Promoting innovation: Patent law aims to promote innovation by providing

inventors with a temporary monopoly over their invention. This encourages
inventors to invest time and resources in research and development to create
new and useful inventions.
2. Disclosure of inventions: Patent law requires inventors to disclose their
inventions to the public in exchange for the exclusive rights provided by the
patent. This disclosure promotes the spread of knowledge and encourages
further innovation by allowing others to build upon existing inventions.
3. Facilitating technology transfer: Patent law allows inventors to license or sell
their patents to others, which facilitates the transfer of technology and
encourages the commercialization of inventions.
4. Economic growth: Patent law promotes economic growth by encouraging
investment in research and development, which leads to the development of new
 and innovative products and technologies. This, in turn, creates new businesses
and jobs, which contributes to the overall growth of the economy.
5. International trade: Patent law promotes international trade by providing
inventors with protection for their inventions in foreign markets. This
encourages inventors to expand their businesses globally and facilitates the
transfer of technology across borders.
RIGHTS GRANTED BY A PATENT

1. If the patent is for a process, then the patentee has the right to prevent others
from using the process, using the product directly obtained by the process,
offering for sale, selling or importing the product in India directly obtained
by the process.
2. If the grant of the patent is for a product, then the patentee has a right to
prevent others from making, using, offering for sale, selling or importing the
patented product in India.
TERM OF PATENT
 The term of every patent in India is 20 years from the date of filing the
patent application, irrespective of whether it is filed with provisional or
complete specification.
 However, in case of applications filed under the Patent Cooperative Treaty
(PCT), the term of 20 years begins from the international filing date.

INTERNATIONAL PATENT COOPERATION

The Office of International Patent Cooperation (OIPC) was established in 2014 to
support and improve the international patent system. The office leads efforts to
assist U.S. inventors and businesses in protecting their patent rights worldwide and
supports the global innovation community.

We strive to improve the international patent system in two critical areas:

increasing certainty of intellectual property (IP) rights and reducing costs for
international stakeholders. Find out more about our initiatives and programs, which
aim to improve quality and timeliness for international patent filers.

Patent Cooperation Treaty (PCT):- An international treaty making it possible to

seek patent protection for an invention simultaneously in a large number of
countries by filing a single “international” patent application instead of filing
several separate national or regional patent applications.

AIR (PREVENTION AND CONTROL OF POLLUTION) ACT OF 1981

 1. The Air Prevention and Control of Pollution Act 1981 came into force on 29
March 1981.
2. It was also called Air Act.
3. It was passed by the Parliament of India to prevent and control the harmful
effects of air pollution in India.
4. This act is seen as the first concrete step taken by the government of India to
combat air pollution.
5. It is one of the main forms of legislation to control and prevent
air pollution in India.
6. It also mandated the state pollution control boards to prevent and control air
pollution.
7. The act comprises 54 sections in 7 chapters.

What is the Air Prevention and Control of Pollution Act 1981?

The Air Prevention and Control of Pollution Act 1981 is an Act of the Parliament
of India. It was enacted to prevent and control air pollution in the country. The Act
established the Central Pollution Control Board (CPCB) and State Pollution
Control Boards (SPCBs). The CPCB and SPCBs work to implement the provisions
of the Act. The Act also prohibits the emission of air pollutants from various
sources.

KEY FEATURES OF THE AIR (PREVENTION AND CONTROL OF

POLLUTION) ACT, 1981

The key features of the Act include:

 Advising Central Government of Air and Air Pollution related issues.

 Research about the causes and impact of Air Pollution.
 Spread awareness to stop air pollution.
 To establish central and State Boards and empower them to monitor air
quality and control pollution.
OBJECTIVES OF THE AIR PREVENTION AND CONTROL OF
POLLUTION ACT 1981

 To provide for the prevention, control, and reduction of air pollution.

 To provide for the establishment of central and State Boards to implement
the Act.
 To confer on the Boards the powers to implement the provisions of the Act
and assign to the Boards functions relating to pollution.
 PENALTIES AND PROCEDURE UNDER THE AIR ACT
The failure to comply with the Central Pollution Control Board directives would
result in imprisonment of 1 year. It can be extended to 6 years with a fine with the
additional fine of 5000Rs per day added provided the directives are still not met.

ENVIRONMENTAL GROUPS & BODIES

Environmental Organizations in India constitutes a vital component of the

country’s environmental governance framework. Aimed at protecting and
conserving the environment, these organizations play a crucial role in balancing
economic growth with environmental sustainability.

MEANING OF ENVIRONMENTAL ORGANISATIONS

 An Environmental Organization is an organization that emerges from the

conservation or environmental movements aiming to protect, monitor or
analyze the environment against misuse or degradation from human forces.
 The organisation may be a charity, a trust, a non-governmental organization,
a Governmental organization or an intergovernmental organization.
 Environmental organisations can be global, national, regional or local.
 Some environmental issues that environmental organisations focus on
include pollution, plastic pollution, waste, resource depletion, human
overpopulation and climate change.

KEY ENVIRONMENTAL ORGANISATIONS IN INDIA

 After the United Nations Conference on Human Environment in Stockholm

in 1972, a number of environmental organisations in India were established.
 These organisations play a critical role in addressing issues such as
pollution, deforestation, climate change, and wildlife conservation.
 Some of the prominent environmental organisations in India include:

 Animal Welfare Board of India (AWBI)

 Central Zoo Authority (CZA)
 National Biodiversity Authority (NBA)
 Wildlife Crime Control Bureau (WCCB)
 National Mission for Clean Ganga (NMCG)
 National Green Tribunal (NGT)
 Compensatory Afforestation Fund Management and Planning
Authority (CAMPA)
 National Afforestation and Eco-Development Board (NAEB)
 ANIMAL WELFARE BOARD OF INDIA (AWBI)

 The Animal Welfare Board of India (AWBI) is a statutory advisory body

established in 1962 in accordance with Section 4 of the Prevention of
Cruelty to Animals Act, 1960.
 A well-known humanitarian, late smt. Rukmini Devi Arundale, was
instrumental in the formation of AWBI and acted as its first Chairperson.
 The Board has been monitoring animal welfare laws of the nation, providing
grants to Animal Welfare Organizations (AWOs) and advises the
Government on animal welfare issues for the last 55 years.
 The AWBI comes under the Union Ministry of Environment, Forests and
Climate Change (MoEFCC) and is one of the most prominent environmental
organisations in India.
 The Board of AWBI consists of 28 Members.
o The term of office for members is three years.
 It is headquartered in Ballabgarh, Haryana.

CENTRAL ZOO AUTHORITY (CZA)

 The Central Zoo Authority (CZA) is a statutory autonomous body under the
administrative control of the Ministry of Environment, Forests and Climate
Change, Govt. of India.
 The CZA was established in 1992 under the provisions of the Wildlife
Protection Act, 1972.
 It has been established with the objective of enforcing minimum standards
and norms for the healthcare and upkeep of animals in Indian Zoos.
 The CZA also oversees Zoo management and provides technical and
financial support in times of need.
 Every zoo in the country must obtain recognition from the Authority for its
operation.
 The CZA evaluates the Zoo with reference to the parameters prescribed
under the Rules and grants recognition accordingly.

NATIONAL BIODIVERSITY AUTHORITY (NBA)

 The National Biodiversity Authority (NBA) is a statutory authority set up

under India’s Biological Diversity Act (2002).
 It came into existence in 2003, with its headquarters in Chennai.
 The NBA provides facilitative, regulatory, and advisory functions to the
Government of India on issues of conservation, sustainable use, and fair &
equitable sharing of benefits arising from the country’s biological resources.
 Under the Biodiversity Act, 2002 and Biodiversity Rules, 2004, the
following two other entities have been established to complement the
National Biodiversity Authority:
 o State Biodiversity Boards (SBB) at the State level, and
o Biodiversity Management Committees (BMC) at the local village
level.

WILDLIFE CRIME CONTROL BUREAU (WCCB)

 Wildlife Crime Control Bureau is a multi-disciplinary statutory body

established by the Ministry of Environment, Forests and Climate Change to
combat organised wildlife crime in the country.
 It was established in 2007 by amending the Wildlife (Protection)
Amendment Act, 2006.
 The Bureau is Headquartered in New Delhi and has five regional offices in
Delhi, Kolkata, Mumbai, Chennai and Jabalpur.
 As one of the most prominent environmental organisations in India, the
Wildlife Crime Control Bureau (WCCB) has been playing an important role
in combating and controlling wildlife crimes in India.

NATIONAL MISSION FOR CLEAN GANGA (NMCG)

 The National Mission for Clean Ganga (NMCG) is a flagship program

initiated by the Government of India with the primary objective of
rejuvenating the Ganga River.
 The National Mission for Clean Ganga (NMCG) was registered as a society
under the Societies Registration Act, 1860, on August 12, 2011.
 The consortium serves as the operational arm of the National Ganga River
Basin Authority (NGRBA), established under the Environment Protection
Act (EPA) of 1986, to tackle pollution issues in the Ganga River.
 The objective of the National Mission for Clean Ganga is to reduce pollution
in the Ganga River and ensure its rejuvenation.
 The operational area of this project covers the Ganges Basin and all the
states through which the Ganga River flows, including Delhi.

NATIONAL GREEN TRIBUNAL (NGT)

 The National Green Tribunal (NGT) is a specialised judicial body in India

established to handle cases related to environmental protection and
conservation of forests & other natural resources.
 As one of the prominent environmental organisations in India, it has been
envisaged as a dedicated forum for the effective and expeditious resolution
of environmental disputes, thus reducing the burden on regular courts.
 Compensatory Afforestation Fund Management and Planning Authority
(CAMPA)

 The Compensatory Afforestation Fund Management & Planning Authority

(CAMPA) serves as a mechanism to manage and utilise funds generated
from compensatory afforestation, a process aimed at offsetting the
environmental impact of deforestation due to industrial and developmental
activities.
 As one of the prominent environmental organisations in India, CAMPA
plays a crucial role in ensuring that the loss of forest cover is compensated
through afforestation and other conservation efforts.

National Afforestation and Eco-Development Board (NAEB)

 National Afforestation and Eco-Development Board (NAEB) was set up in

1992 with the responsibility of promoting tree planting, afforestation,
ecological restoration and eco-development activities in the country.
 It pays special attention to the degraded forest areas, lands adjacent to the
forest areas, national parks, sanctuaries and other protected areas, and also
the ecologically fragile areas like the Western Himalayas, Aravallis, Western
Ghats, etc.

Functions of National Afforestation and Eco-Development Board (NAEB)

Some of the major functions of National Afforestation and Eco-Development
Board (NAEB) include:

 To develop mechanisms for the ecologically damaged forest areas through

systematic planning and implementation in a cost-effective manner,
 Sponsor research and development methods to restore the forest cover
through natural regeneration for ecological security and meet the fuelwood,
fodder and other needs of the rural communities.
 Monitor, coordinate, and undertake all actions related to afforestation, tree
planting, ecological restoration, and eco-development.
 To operate the National Afforestation Programme (NAP) as a Centrally
Sponsored Scheme under the MoEF&CC.

CHALLENGES FACED BY ENVIRONMENTAL ORGANISATIONS IN

INDIA
The major challenges faced by the environmental organisations in India are as
follows:

 Weak Implementation: Despite robust laws, implementation remains a

major challenge due to factors such as lack of adequate manpower,
corruption, political interference, etc.
  Weak Coordination: The overlapping responsibilities of various agencies
and lack of coordination among central and state institutions often lead to
inefficiencies in environmental management.
 Lack of Public Awareness: Limited awareness about environmental issues
hinders public participation and compliance.
 Emerging Challenges: Climate change, pollution, and waste management
pose new challenges to environmental governance.
 Data and Monitoring: Inconsistent data and inadequate monitoring
infrastructure affect the effective enforcement and implementation of
environmental policies.
 Balancing Development and Conservation: India’s rapid economic
growth poses challenges in balancing developmental needs with
environmental conservation.

SUGGESTIVES MEASURES OF ENVIRONMENTAL

ORGANIZATIONAL
In order to strengthen the environmental organisations in India, the following
suggested measures can be undertaken:

 Strengthening Institutions: Strengthening the capacity and coordination of

these environmental organisations in India at both the central and state
levels.
 Effective Implementation: Improving the enforcement of environmental
laws through better monitoring, increased penalties for non-compliance, and
greater transparency can help ensure adherence to regulations.
 Public Participation: Promoting public awareness and participation in
environmental decision-making can make these environmental organisations
in India more effective.
 Sustainable Development: Integrating environmental considerations into
development planning and adopting sustainable practices can help balance
economic growth with environmental protection.
 Green Technologies: Promoting Green Technologies such as renewable
energy sources can aid in better environmental management.

Environmental Organisations in India play a crucial role in addressing the

country’s diverse and pressing environmental challenges. Through their efforts in
awareness, advocacy, research, and on-ground conservation, these organisations
contribute significantly to the protection and preservation of India’s natural
heritage. Continued support, collaboration, and innovation for strengthening these
environmental organisations in India will be essential for advancing environmental
sustainability and ensuring a healthier future.

EURO I, II & III NORMS

 When buying a new or used car, you may have come across various technical
terms and phrases that are difficult to understand. 'Euro Emissions Standards' is
one of these. Whilst these details may seem insignificant, they can have more of an
impact on your motoring than you may initially expect.
Many automotive manufacturers are now beginning to introduce more
environmentally-friendly options such as hybrid and electric cars. And with
stricter rules and regulations being introduced, understanding the Euro Emissions
Standards is arguably more important than ever, as no one likes being hit with an
unexpected charge, fine or MOT failure due to emissions related details.
When browsing for a new car, you will notice that it has been given a Euro
Emissions Standards figure between one and six. We are going to help you
understand what this number means and how it can affect your motoring going
forward.
EURO EMISSIONS STANDARDS
Formally introduced by the European Union (EU) in 1992, the Euro Emissions
Standards are a set of regulations designed to define the acceptable amount of
exhaust emissions that vehicles sold in the EU can release. The standards have
the aim of reducing the emissions of the following harmful chemicals into the
atmosphere:

 Carbon Monoxide
 Oxides of Nitrogen
 Hydrocarbons
 Particulate matter

Approximately every five or six years, a new Euro Emissions Standard is

introduced. This explains the figure you may have seen when browsing for a new
vehicle, with group 1 being the first and group 6 being the most recent. With Euro
6 being introduced in 2015, Euro 7 is just around the corner. However, it is
expected to be implemented in 2025.
Need of Euro Emissions Standards
Simply put, we have the Euro Emission Standards in order to drive us to a greener
and better future by reducing the amount of harmful emissions over time.
You may be asking 'why not just stop manufacturing cars that are harmful for the
environment?'. Well, with thousands of new cars being put on the road each year,
that would be a near-impossible task. Furthermore, when the standards were
introduced in 1992, they did not have the low-emission technology we have today.
Instead, the Euro Emissions Standards integrate new models which are much
greener than their older counterparts, giving brands the time to research and
manufacture cleaner alternatives. This has worked to great effect, with the SMMT
(Society of Motor Manufacturers and Trading) claiming modern cars are 50 times
cleaner than older cars from the 1970s.
 What are the different Euro Emissions Standards?
As mentioned above, your vehicle will need to comply to a certain set of
restrictions dependent upon when it was manufactured. The details below show the
different Euro Standards and the date they applied to new car registrations from.

 Euro 1 - 31st December 1992

 Euro 2 - 1st January 1997
 Euro 3 - 1st January 2001
 Euro 4 - 1st January 2006
 Euro 5 - 1st January 2011
 Euro 6 - 1st January 2015

These details should be used as a guide and you should clarify the details of any
car you plan to purchase, as there can be some crossover between the groups
depending on when that exact car's production began.
Euro 7 is expected to be the final Euro Emissions Standard before all new cars
become electric. Under the new set of rules, cars' emissions could be monitored
throughout their life and new driving zones could mean hybrid vehicles have to
drive in fully-electric mode in some areas.

EURO 1 (EC93)

July 1992 (January 1993)

The introduction of the Euro 1 standard in 1992 required the switch to unleaded
petrol and the universal fitting of catalytic converters to petrol cars to reduce
carbon monoxide (CO) emissions.

Euro 1 emission limits

CO – 2.72 g/km (petrol and diesel)

HC+ NOx – 0.97 g/km (petrol and diesel)

PM – 0.14 g/km (diesel only)

EURO 2 (EC96)

January 1996 (January 1997)

The Euro 2 standard further reduced the limit for carbon monoxide emissions and
also reduced the combined limit for unburned hydrocarbons and oxides of nitrogen
for both petrol and diesel vehicles.

Euro 2 introduced different emissions limits for petrol and diesel.

Euro 2 emission limits (petrol)

 CO – 2.2 g/km
 HC+ NOx – 0.5 g/km
 PM – no limit

Euro 2 emission limits (diesel)

 CO – 1.0 g/km
 HC+ NOx – 0.7 g/km
 PM – 0.08 g/km

EURO 3 (EC2000)

January 2000 (January 2001)

Euro 3 modified the test procedure to eliminate the engine warm-up period and
further reduced permitted carbon monoxide and diesel particulate limits. Euro 3
also added a separate NOx limit for diesel engines and introduced separate HC and
NOx limits for petrol engines.

Euro 3 emission limits (petrol)

 CO – 2.3 g/km
 HC – 0.20 g/km
 NOx - 0.15
 PM – no limit

Euro 3 emission limits (diesel)

 CO – 0.64 g/km
 HC+ NOx – 0.56 g/km
 NOx – 0.50 g/km
 PM – 0.05 g/km
 INTRODUCTION TO GOODS & SERVICE TAX

1. GST is known as the Goods and Services Tax.

2. It is an indirect tax which has replaced many indirect taxes in India such as the
excise duty, VAT, services tax, etc. In Simple words, GST, or Goods and
Services Tax, is an indirect tax imposed on the supply of goods and services.
3. The Goods and Service Tax Act was passed in the Parliament on 29th March
2017 and came into effect on 1st July 2017.
4. In other words, Goods and Service Tax (GST) is levied on the supply of goods
and services. Goods and Services Tax Law in India is a comprehensive, multi-
stage, destination-based tax that is levied on every value addition.
5. After subsuming majority indirect taxes, GST is a single domestic indirect tax
law for the entire country.
FEATURES OF GST

1. Comprehensive tax: Replaces multiple indirect taxes with a single tax system.
2. Multi-stage taxation: Levied at each stage of the supply chain, from
production to final consumption.
3. Destination-based: Tax is collected at the point of consumption, not at the
origin.
4. Dual structure: Comprises CGST, SGST, and IGST, ensuring both central and
state government revenues.
5. Input tax credit: Allows businesses to claim credit for taxes paid on inputs,
reducing the overall tax burden.
6. Uniform tax rates: Ensures consistent tax rates across the country, simplifying
compliance.
7. Simplified compliance: Unified tax filing system and online portals streamline
the process.
8. GST council: A governing body that oversees GST implementation and rate
changes.
9. E-Way Bill system: Facilitates seamless movement of goods across states,
reducing logistical bottlenecks.
10. Reduced cascading effect: Eliminates the tax-on-tax scenario, lowering costs
for businesses.

OBJECTIVES OF GST
The key objectives of GST are-

1. 'One Nation, One Tax’:- GST took the place of many indirect taxes that
existed before. It was introduced with a core motive and policy called the 'One
Nation, One Tax’. It was introduced as so to provide set tax rates for a
service/product that every state would follow. It even simplified administering
taxes and compliances.
2. Bring uniformity in taxes:- One of the primary objectives of GST is to have a
uniform tax code for a product or service across the country. It also simplifies
tax administration, billing, invoicing and compliance laws.
3. Remove multiple indirect taxes:- Prior to implementing GST, Central and
state governments could levy taxes at multiple stages of production, supply and
purchase. GST combines these indirect taxes into one. This eases tax
compliance protocols for businesses who pay and file tax reports, and helps the
government simplify and streamline the tax administration process.
4. Prevent tax evasion and fraud:- GST is a digitised process and a taxpayer can
claim an input tax credit only if a supplier uploads a corresponding invoice.
This minimises the scope of false tax credit claims using fake invoices. GST
has a stringent surveillance system, allowing authorities to identify and initiate
action against defaulters and fraudsters.
5. Regulate the unorganised sector of the economy:- GST aims to bring more
businesses both from organised and unorganised sectors into the tax base. Strict
implementation of GST laws regarding compliance and input credit have been
instrumental in making businesses come forward and register their operations
with the government.
LIST OF TAXES SUBSUMED AFTER GST IMPLEMENTATION

Good service tax was introduced as a comprehensive indirect tax structure. With
this introduction, the government aimed to consolidate all indirect taxes levied
under one umbrella.

Thus, except for customs duty that is levied on the import of goods, Goods and
Services Tax replaced multiple indirect taxes. This introduction helped overcome
the limitations of its previous indirect tax structure regarding implementation and
inefficiency in the collection process.

Following is the list of indirect taxes that were subsumed by Goods and Service
Tax-

A. Indirect Taxes Imposed by the Central Government

1. Central Sales Tax

2. Service Tax
3. Central Excise Duty
4. Excise Duty (Additional)
5. Countervailing Duty or Additional Customs Duty
6. Special Additional Customs Duties
B. Indirect Taxes Imposed by the State Government

1. State VAT
2. Entry Tax and Octroi Duty
3. Luxury Tax
4. Amusement and Entertainment Tax
5. Taxes on Advertisements
6. Goods and services related to cess and surcharges
7. Purchase Tax
8. Tax on betting, lottery and gambling.

TYPES/COMPONENTS OF GST AND GST RULES

GST can be divided into four sections based on the kind of transaction it involves.
Before a business can determine its GST liability, assessing the following table
about the Components of GST is essential.

Components of Goods What does it mean?

and Services Tax

State Goods and SGST refers to the tax payable on the sale of services and
Services Tax (SGST) products within a state.
It replaces previous taxes, including Value Added Tax, Entry
Tax, State Sales Tax, Entertainment Tax, surcharges and
cesses.

Central Goods and The tax levied on the supply of intra-state products is CGST.
Services Tax (CGST) The Central Government charges this tax.
CGST replaced many taxes levied by the Centre, including
Service Tax, Central Excise Duty, CST, SAD, Customs Duty,
etc.

Union Territory Taxes applicable to the sale of products and services in Union
Goods and Services Territories, such as Andaman and Nicobar, Daman and Diu,
Tax (UTGST) Chandigarh, Dadra, etc.
Integrated Goods and The sale of inter-state products and services leads to taxation.
Services Tax (IGST) This is IGST. Basically, when businesses transfer services
and products from one state to another, they need to pay this
form of GST.

**********************END OF SYLLABUS*******************