Solutions to Assignments
MMPC-003 - Business Environment
Question No. 5
Write short notes on the following:
a) Balance of Payments (BoP)
The balance of payments (BOP), also known as the balance of international payments, is a statement of all transactions made between entities in one country and the rest of the world over a defined period, such as a quarter or a year. It summarizes all transactions that a country's individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country.
The balance of payments (BOP) transactions consist of imports and exports of goods, services, and capital, as well as transfer payments, such as foreign aid and remittances. A country's balance of payments and its net international investment position together constitute its international accounts.
The balance of payments divides transactions into two accounts: the current account and the capital account. Sometimes the capital account is called the financial account, with a separate, usually very small, capital account listed separately. The current account includes transactions in goods, services, investment income, and current transfers.
The capital account, broadly defined, includes transactions in financial instruments and central bank reserves. Narrowly defined, it includes only transactions in financial instruments. The current account is included in calculations of national output, while the capital account is not.
If a country exports an item (a current account transaction), it effectively imports foreign capital when that item is paid for (a capital account transaction). If a country cannot fund its imports through exports of capital, it must do so by running down its reserves. This situation is often referred to as a balance of payments deficit, using the narrow definition of the capital account that excludes central bank reserves. In reality, however, the broadly defined balance of payments must add up to zero by definition.
In practice, statistical discrepancies arise due to the difficulty of accurately counting every transaction between an economy and the rest of the world, including discrepancies caused by foreign currency translations.
Balance of payments and international investment position data are critical in formulating national and international economic policy. Certain aspects of the balance of payments data, such as payment imbalances and foreign direct investment, are key issues that a nation's policymakers seek to address,
While a nation's balance of payments necessarily zeroes out the current and capital accounts, imbalances can and do appear between different countries' current accounts. The U.S. had the world's largest current account deficit in 2020, at $647 billion. China had the world's largest surplus, at $274 billion.
b) Corporate Social Responsibility (CSR)
Corporate Social Responsibility (CSR) is the idea that a company should play a positive role in the community and consider the environmental and social impact of business decisions. It is closely linked to sustainability − creating economic, social, and environmental value – and ESG, which stands for Environmental, Social, and Governance. All three focus on non-financial factors that companies, large and small, should consider when making business decisions.
In recent years, there has been a shift from CSR to social purpose. Many companies have pivoted from having a community investment strategy and a ‘nice to have’ mindset to adopting a holistic approach in which their mission is built into everything they do.
CSR can involve a broad scope of approaches and initiatives—everything from sustainable practices to community involvement. Customers increasingly expect responsible behaviour from companies they do business with.
CSR initiatives can range from philanthropy to operational changes and even transforming your entire business strategy or model.
1. Donations and sponsorships
You can donate time and/or money to causes that are meaningful for your business, employees and community.
2. Operational initiatives
Operational CSR initiatives are often oriented around improving business efficiency or performance in ways that also have positive social or environmental impacts in the wider community. Initiatives can fall into several categories, here are a few examples.
Environmental:
reduce your carbon footprint
improve energy efficiency
reduce waste, water use and emissions
Social:
deal with diverse, local and socially responsible suppliers and partners
consult community stakeholders about business decisions
support community initiatives
Workplace:
improve workplace diversity, equity and inclusion
enhance workplace health and safety
develop a code of ethics for your business and eliminate workplace harassment and discrimination
3. Strategic transformation
Some CSR initiatives can involve a wholesale transformation in a company’s business strategy or model to integrate social or environmental goals as a key priority.
Many businesses imbed impact or purpose into their business model. You may hear this referred to as social enterprises, purpose enterprises, and coops. They place social or environmental goals at the heart of their mission and business strategy. These companies are still businesses that seek a profit, but they also formally pledge to focus on a “double bottom line” or even a “triple bottom line”—tracking profits along with social and/or environmental impacts.
An example is B Corps—certified “Beneficial corporations” that follow a rigorous process to assess their environmental, social and governance performance.
Businesses have a variety of reasons for pursuing CSR. Here are some common benefits:
- improved employee productivity, engagement, talent acquisition and retention
- lower costs and reduced waste
- enhanced community support, branding and customer loyalty
c) Tax Reforms
Tax reform is generally undertaken to improve the efficiency of tax administration and to maximise the economic and social benefits that can be achieved through the tax system. A tax itself can be defined as ‘a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state, or the functional equivalent of a state’ (Granger, 2013, p. 1). Taxes can include direct taxes on income and wealth (e.g. personal and corporate income taxes, property tax), and indirect taxes on consumption (e.g. Value Added Tax (VAT), excise duties).
There has been increasing global and donor interest in developing country domestic revenue mobilisation, and in particular taxation (Mascagni et al., 2014; Fjeldstad, 2014). There is growing recognition of the role of taxation in state-building, in terms of enhancing state capacity and state-society relations (see Statebuilding). The 2008 financial crisis brought about a temporary fall in aid levels, and a renewed focus by donors on aid effectiveness and ensuring that donors support rather than discourage developing countries’ own revenue-raising efforts. Some activists (e.g. Byanima, 2014) also argue that the current international tax regime is dysfunctional, creating a race to the bottom to offer favourable, but infeasible, tax conditions to attract investment which further exacerbate inequality.
Tax reform can reduce tax evasion and avoidance, and allow for more efficient and fair tax collection that can finance public goods and services. It can make revenue levels more sustainable, and promote future independence from foreign aid and natural resource revenues (see Sustainable revenue and reducing aid and natural resource dependence). It can improve economic growth (see Economic growth) and address issues of inequality through redistribution and behaviour change (see Inequality and redistribution).
Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.
Numerous organizations have been set up to reform tax systems worldwide, often with the intent to reform income taxes or value added taxes into something considered more economically liberal. Other reforms propose tax systems that attempt to deal with externalities. Such reforms are sometimes proposed to be revenue-neutral, for example in revenue neutrality of the FairTax, meaning they ought not result in more tax or less being collected. Georgism claims that various forms of land tax can both deal with externalities and improve productivity.
d) Farm Reforms 2020
In 2020, thousands of farmers and their families camped on the three borders of the country’s capital city for months. They were protesting the government’s three agricultural reform bills that were passed hurriedly through Parliament, without following due process.
In short, the bills:
a) allow farmers to sell directly to private buyers, rather than at the notified government markets, or mandis;
b) provide a legal framework for farmers to enter into contracts with companies and produce for them;
c) allow businesses to store essential commodities, cereals, pulses, etc. without any limits on how much they can store.
These laws were mostly seen as designed to suit the interests of large corporates, and would leave farmers exposed to private buyers with far more money and influence to manage prices.
When the protests broke out, the farmers said they were not consulted before these reforms were made. The government stated that there had been many consultations over the last twenty years, and that the protestors did not represent all farmers. The government also suggested that the protesting farmers had political motivations. Along with the reforms themselves, people were also unhappy with the undemocratic manner in which they were implemented.
Below is an excerpt from an episode on IDR’s podcast, On the Contrary, where host Arun Maira speaks with Kavitha Kuruganti and Siraj Hussain about the agricultural reforms, and the space that was (or was not) created for democratic processes to take shape. Kavitha is a social activist known for her work on sustainable farm livelihoods and farmers’ rights. Siraj is a former secretary of the Department of Agriculture and the Department of Food Processing.
In 2020, thousands of farmers and their families camped on the three borders of the country’s capital city for months. They were protesting the government’s three agricultural reform bills that were passed hurriedly through Parliament, without following due process.
In short, the bills:
a) allow farmers to sell directly to private buyers, rather than at the notified government markets, or mandis;
b) provide a legal framework for farmers to enter into contracts with companies and produce for them;
c) allow businesses to store essential commodities, cereals, pulses, etc. without any limits on how much they can store.
These laws were mostly seen as designed to suit the interests of large corporates, and would leave farmers exposed to private buyers with far more money and influence to manage prices.
When the protests broke out, the farmers said they were not consulted before these reforms were made. The government stated that there had been many consultations over the last twenty years, and that the protestors did not represent all farmers. The government also suggested that the protesting farmers had political motivations. Along with the reforms themselves, people were also unhappy with the undemocratic manner in which they were implemented.
Below is an excerpt from an episode on IDR’s podcast, On the Contrary, where host Arun Maira speaks with Kavitha Kuruganti and Siraj Hussain about the agricultural reforms, and the space that was (or was not) created for democratic processes to take shape. Kavitha is a social activist known for her work on sustainable farm livelihoods and farmers’ rights. Siraj is a former secretary of the Department of Agriculture and the Department of Food Processing.
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