IGNOU ASSIGNMENT SOLUTIONS
MASTER OF COMMERCE (MCOM - SEMESTER 1)
MCO-04 - BUSINESS ENVIRONMENT
MCO & 04 /TMA/2024
Please Note:
These assignments are valid for two admission cycles (January 2024 and July 2024). The validity is given below:
1 Those who are enrolled in January 2024, it is valid upto June 2024.
2 Those who are enrolled in July 2024, it is valid upto December 2024.
In case you are planning to appear in June Term-End Examination, you must submit the assignments to the Coordinator of your Study Centre latest by 15th March, and if you are planning to appear in December Term-End Examination, you must submit them latest by 15th September.
Question No. 1
Explain briefly the major components of business environment and their impact on business.
Answer:
Everything you need to know about the components of business environment. Business environment refers to those aspects of the surroundings of business enterprise which affect or influence its operations and determine its effectiveness.
Andrews has also rightly defined the environment of a company as the pattern of all external influences that affect its life and development. Keith Davis too has also observed that business environment is the aggregate of all conditions, events and influences that surround and affect it.
The business environment is always changing and is uncertain. It is because of this that it is said that the business environment is the sum of all the factors outside the control of management of a company—the factors which are constantly changing and they carry with them both opportunities and risks or uncertainties which can make or mar the future of business.
Some of the components of business environment are as follows:-
A. Internal Environment – 1. Financial Capability 2. Marketing Capability 3. Operations Capability 4. Personnel Capability 5. General Management Capability
B. External Environment – 1. Micro Environment 2. Macro Environment.
Additionally, also learn about the other components of business environment:-
1. Economic Environment 2. Technological Environment 3. Social Environment 4. Demographic Environment 5. Political and Legal Environment 6. Global Environment.
Components of Business Environment: Internal and External Environment
Components of Business Environment –
2 Major Components: Internal Environment and External Environment
Component # 1. Internal Environment:
It refers to all the factors within an organization which affect its functioning. These factors are generally regarded as controllable i.e. the organization can alter or modify such factors.
Some of the important internal factors are:
i. Financial Capability:
Financial capability factors relate to the availability, usage and management of funds and all allied aspects that have a bearing on an organization’s capacity and its ability to implement its strategies.
Some of the important factors which influence the financial capability of any organization are as follows:
(a) Factors related to the sources of funds like capital structure, procurement of capital, financing pattern, working capital availability, borrowings, capital and credit availability, reserves and surplus and relationship with banks and financial institutions.
(b) Factors related to uses of funds such as capital investment, fixed assets acquisition, current assets, loans and advances, dividend distribution and relationship with shareholders.
(c) Factors related to management of funds like financial accounting and budgeting, management control system, state of financial health, cash, inflation, credit, return and risk management, cost reduction and control and tax planning and control.
ii. Marketing Capability:
Marketing capability factors relate to the pricing, promotion and distribution of products or services and all the allied aspects that have a bearing on an organization’s capacity and ability to implement its strategies.
Some of these important factors which influence this marketing capability of an organization are as follows:
(a) Product related factors like variety, differentiation, mixed quality, positioning packaging, etc.
(b) Price related factors like pricing objectives, policies, changes, protection advantages, etc.
(c) Promotion related factors like promotional tools, sales promotion, advertising, public relations etc.
(d) integrative and systematic factors like marketing mix, distribution system, market standing, company image, marketing organization, marketing system, marketing management, information system, etc.
iii. Operations Capability:
Operations capability factors relate to the production of the products or services, use of material resources and all allied aspects that have a bearing on organization’s capacity and ability to implement its strategies.
Some of the important factors which influence operations capability of an organization are as follows:
(a) Factors related to the production system like capacity, location, layout, service, design, work system, degree of automation, extent of vertical integration, etc.
(b) Factors related to the operation and control system like aggregate production planning, material supply, inventory, cost and quality control, maintenance system and procedure, etc.
(c) Factors related to the R & D system like personnel facilities, product development, patent right, level of technology used, technical collaboration and support etc.
iv. Personnel Capability:
Personnel capability factors relate to the existence and use of human resources and skills and all allied aspects that have a bearing of an organization’s capability and capacity to implement its strategies.
Some of the important factors which influence the personnel capability of an organization are as follows:
(a) Factors related to the personnel system like system for manpower planning selection, development, compensation, communication and appraisal, position of the personnel department within the organization, procedures and standards etc.
(b) Factors related to organization and employee characteristics like corporate image, quality of managers, staff and workers, perception about the image of the organization as an employer, availability of developmental opportunities for employees, working conditions, etc.
(c) Factors related to industrial relations like union – management relationship, collective bargaining, safety, welfare and security, employee satisfaction and morale, etc.
v. General Management Capability:
General management capability relates to the integration, coordination and direction of the functional capabilities towards common goals and all allied aspects that have a bearing on an organization’s ability to implement its strategies.
Some of the important factors which influence the general management capability of an organization are as follows:
(a) Factors related to the general management system like strategic management system, process related to mission, purpose and objective setting, strategy formulation and implementation machinery, strategy evaluation system, management information system, corporate planning system, rewards and incentives system for top managers, etc.
(b) Factors related to general managers like orientations, risk — propensity, values, norms, personal goals, competence, capacity for work, track record, balance of functional experience, etc.
Component # 2. External Environment:
The external environment consists of all the factors which provide opportunities or pose threats to an organization. In a wider sense, the external environment encompasses a variety of factors like international, national and local economy. Social changes, demographic variables, political system, technology, attitude towards business, energy sources, raw materials and other resources and many other macro level factors make up the external environment.
We could designate such wide perception of the environment as a general environment. All organizations, in some way or the other, are concerned about the general environment but the immediate concerns of any organization are confined just to a part of the general environment which could be termed as a highly relevant environment and enables the organization to focus its attention on those factors which are intimately related to its mission, purpose, objects and strategies.
Depending on its perception of the relevant environment, an organization takes into account those influences in its surroundings which have an immediate impact on its strategic management process.
i. Micro Environment:
Micro external factors have an important effect on business operations of a firm. However, all micro factors may not have the same effect on all firms in the industry. For example, suppliers, an important element of micro level environment, are often willing to provide the materials at relatively lower prices to big business firms. They do not have the same attitude towards relatively small business firms.
Some important micro elements of the business environment are described here:
a) Customer:
The prime task for any business is to attract and retain customers. This is to ensure its own long-term profitability and existence in the market. It therefore follows that the need and the desire of the customer should be monitored minutely to ensure customer delight, which will lead to the firm having an increasing number of loyal customers.
Changing tastes and preferences of the customer should not only be observed as they happen, but forecasted before, and necessary corrections should be made in the product/service profile by the company. Customers are the backbone of a company and the very reason for the company’s existence.
b) Products:
Product factors such as the demand, image, features, utility, function, design, life cycle, price, promotion, distribution, differentiation and availability of substitutes of products or services also form an intimate part of the business environment. The product/service features are the key to attract/retain customers.
c) Marketing Intermediary:
This includes all those who facilitate distribution of goods from the centres of production to the various centres of consumption. These are the middlemen who form part of the distribution channel and those who help reach the product/service to the ultimate consumer. They can be few or many in number, depending on the length of the distribution chain and type of distribution system that the company adopts. If this chain is hassle free and functions without many hurdles, it eventually helps the organisation.
d) Competitors:
The world has become a global market. There exists tremendous competition in each and every area. There are other business entities that manufacture similar products and compete with a company for market share and turnover. These have to be managed well and market intelligence is required to find out about their future plans. These can play a major role in making or marring the fortunes of any company.
e) Suppliers:
An important factor in the micro environment is the supplier, i.e., those who supply raw materials and components and machines to the company. The suppliers should be reliable and act as business partners, working in coordination to fulfil the ultimate consumer expectations. If the suppliers are reliable, there is no need to keep heavy inventory stocks that increases the risk of obsolescence and damage and also blocks to working capital of the company.
ii. Macro Environment:
The macro environment is the larger, uncontrollable environment consisting of societal forces that affect all other environments. They offer tremendous opportunities for any business and also present threats that can harm a business in a major way. This environment becomes crucially important to understand and study for the purpose of strategic planning and decision-making.
It has broader dimensions than the micro environment. It consists of individuals, groups, agencies, events, conditions and forces with which the organisation comes into frequent contact in the course of its functioning. The macro environment is actually the real environmental factor that influences the growth and structure of any business to the greatest degree.
It is made up of following components:
a) Socio-Cultural Environment:
This consists of the society and culture of a place where the organisation is doing its business. It is a general entity and influences almost all firms in a similar manner. Some of the important factors and influences operating in the social environment are the buying and consumption habits of people, their languages, beliefs and values, customs and tradition, tastes and preferences, education and ail factors that affect the business.
These factors are listed below:
I. Demographic characteristics such as population, its density and distribution, etc.
II. Social concerns such as the role of business in society, etc.
III. Social attitudes and values such as the expectations of the society from business.
IV. Family structures
V. Educational levels
VI. Awareness and work ethics
VII. Beliefs and value systems
VIII. Local festivals
b) Political Environment:
The political environment consists of factors related to the management of public affairs and their impact on the business of an organization. Political environment has a close relationship with the economic system and economic policies. For Example, communist countries have a centrally planned economic system. In most countries apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standard of product, packaging, promotion, etc.
India is a democratic country having a stable political system where the Government plays an active role as a planner, promoter and regulator of economic activities. Businessmen therefore are conscious of the political environment that their organization faces. Most governmental decisions related to business are based on political considerations in line with the political philosophy followed by the ruling party at the centre and the state level.
Some aspects of the political environment are as follows:
I. The general state of political development
II. The degree of politicisation of business and economic issues
III. The level of political morality
IV. The law and order situation
V. Political stability
VI. Political ideology and practices of the ruling party
c) Economic Environment:
The economic environment consists of macro level patterns related to the areas of production and distribution of wealth that have an impact on the business of an organization.
Some of the important factors and influences operating in economic environment are:
I. Economic stages existing at a given time in a country.
II. The economic structure adopted such as capitalistic, socialistic or mixed economy.
III. Economic planning, such as 5 — year plans, annual budgets, etc.
IV. Economic policies, such as industrial, monetary and fiscal policies.
V. Economic indices like national income, distribution of income, rate of growth and growth of GNP, per capita income, disposable personal income, rate of saving, investment, value of imports and exports, balance of payments etc.
VI. Infrastructural factors such as financial institutions, banks, modes of transportation, communication facility, energy sources, etc.
Some examples highlighting the role of economic environment are described below:
1) Liberalization of the economy since past twenty years has had a mixed effect on Indian industry. While most of the companies have benefited in terms of the resulting freedom to alter product mix and capacity, there have been some adverse effects too in the areas of overcapacity and increased competition.
Partial decontrol of cement in 1982 led to a rapid increase in production capacity and resultant supply, changing the market situation from that of acute scarcity to a comfortable surplus. Liberalization of imports has led to increased competition in the capital goods industries causing profits to decline as a result of which many companies have not been able to sustain their business.
2) Public saving in India have been traditionally invested in fixed assets and precious metals. The share of savings invested with the Government has been channelled through post-offices and banks. However, of late the investors have increasingly turned to other avenues like stock markets and company deposits.
Recent changes in economic and fiscal policies have led to many significant developments. Leasing and financing companies, public sector bonds, mutual funds, venture capital business, newer financial instruments, entry of banks and financial institution in stock trading are some of the developments which provide the resources for capital market and project financing.
d) Regulatory Environment:
The regulatory environment consists of factors related to the planning, promotion and regulation of economic activities by the Government that have an impact on the business of an organization.
Some of the important factors and influences operating in the regulatory environment are as follows:
I. The constitutional framework, directive principles, fundamental rights and distribution of legislative power between Central and State Government.
II. Policies related to licensing monopolies, foreign investment and finance of industries.
III. Policies related to distribution and pricing and their control.
IV. Policies related to imports and exports.
V. Other policies related to the public sector, small — scale industries, sick industries, development of backward areas, control of environment pollution and customer protection.
Business and Industry operate within a regulatory environment. The relationship between industry and the regulatory environment exists as a two – way process. The Government lays down the policies, procedures and rules according to which the industry functions.
There are a number of administrative controls over business that are exercised through the regulatory mechanism.
Some of the important areas of control are:
1) Industrial policy and licensing;
2) Monopolies and restrictive trade practices.
3) Legislation related to a company’s operation.
4) Import and export control and control over foreign exchange;
5) Control over foreign investment and collaboration;
6) Control through consumer protection; and
7) Control of environmental pollution
e) Technological Environment:
The technological environment consists of those factors related to knowledge applied and the materials and machines used in the production of goods and services that have an impact on the business of an organization. For many enterprises, technology is the most dynamic of all environmental factors. An individual firm is concerned with its product and process technology. This environment consists of those factors that involve any type of technological advancement or lack of the same.
Some of the specific factors that can be described are as follows:
I. Sources of technology like company sources, external sources and foreign sources.
II. Technological development, stages of development change and rate of change of technology and research and development.
III. Impact of technology on human beings, the man – machine system and the environmental effects of technology.
IV. Communication and infrastructural technology and technology in management.
V. Technological obsolescence.
In the Indian context, we find the state of technological development varies among different sectors of the industry. Generally it is felt that the technological aspect of competition varies with customer needs and Government policy. Technology is often used as a strategic weapon by companies operating in highly competitive environment.
f) Demographic Environment:
This environment deals with the composition and characteristics of the population of a place. All the relevant descriptions of the population of a place with respect to its demographic profile will affect business decisions drastically. It would be in the interest of any firm to consider these aspects in detail before planning the strategy.
It includes factors such as:
I. Average family size
II. Size of population
III. Educational levels
IV. Economic stratification of the population
V. Job profiles and Income levels
VI. Sex ratio composition of the population
VII. Life expectancy
VIII. Religion, Caste and customs and traditions
IX. Spatial mobility of the population
Question No. 2
Enumerate the characteristics of consumerism and outline the development of consumer movement in India.
Answer:
All individuals make purchase decisions or consume goods and services produced in an economy in their daily lives. Due to increasing liberalization and globalization there is mushroomed growth in human needs and wants not of basic necessities but also for luxuries. In the present scenario of technological advancements, consumers are expecting value for money, quality goods, improved services and more convenience. The transition from a closed economy to open economy and removal of foreign trade barriers resulting into inrush of Multinational Corporation (MNCs) and foreign brands in developing countries. But still, in developing countries like India, consumers are exploited by traders/ sellers in the various forms such as defective products, misleading advertising, adulterated foods, hoarding, black marketing, profiteering and much more associated evils. Taking into account the changing business scenario, more legislation needs to design for regulating the business and trade activities so that protection to consumers can be ensured.
Meaning of Consumerism
- 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
Main 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.
Need of Consumerism in India
Consumer Sovereignty and consumer designation as king of the market are false notions especially in developing countries like India. Need of consumerism in India arises on account of following reasons:
- India is a vast country, a greater proportion of Indian consumers still are illiterate and ignorant about their rights. They don’t have adequate knowledge to understand and to use their rights as consumers.
- Great diversity can be found in India in relation to culture, religion , education and language due to this prime reason the consumers are not unified in India instead the sellers or traders are well organised which encourages them to indulge in unscrupulous trade activities.
- Most of the products in the Indian market are of poor quality due to lack of proper verification by Government agency. With increasing supply of duplicate products in the market, consumers are not able to distinguish between a genuine product and bogus product.
- Consumers are often misguided by deceptive advertisements. Traders present misleading information about quality, purity, safety and utility of advertised products.
- The legal process in India is troublesome and time-consuming that’s why the consumers do not go to consumer courts and civil courts to file genuine complaints against products and services.
Numerous legal Acts have been passed by Indian Government to satisfy the needs of consumers such as:
Drug and Cosmetics Act, 1940 Prevention of Food Adulteration Act, 1954 Essential Commodity (supply) Act, 1955 Standard of Weights and Measures Act, 1976 Consumer Protection Act, 1986 but still many consumers are fighting court cases for a common problem like poor quality of products, deceptive advertisements etc. due to lack of strict implementation of above-mentioned consumer protection laws which causes frustration among consumers.
Thus, there is dire need to emphasis on protection of consumer rights in India by the Government which is in the interest of both, business houses as well as for consumers’ satisfaction.
The basic reason for the development of consumer movement in India are different from those in the West. In western countries, consumer movement was the result of post-industrialisation affluence-for more information about the merits of competing products and to influence producers especially for new and more sophisticated products. In India, the basic reasons for the consumers movement have been:
- Shortage of consumer products; inflation of early 1970's
- Adulteration and the Black Market.
- Lack of product choices due to lack of development in technology
- Thrust of consumer movement in India has been on availability, purity and prices
The factors which stimulated the consumer movement in recent years are:
- Increasing consumer awareness
- Declining quality of goods and services
- Increasing consumer ,expectations because of consumer education
- Influence of the pioneers and leaders of the consumer movement
- Organised effort through consumer societies
Stages of Development of the Consumer Movement
The Consumer Movement today is undergoing a silent revolution. The movement is bringing qualitative and quantitative changes in the lives of people enabling them to organise themselves as an effective force to reckon with. But the path to reach this stage has not been easy. It has been a struggle against bad business which always put profit before fairness in transactions. The first stage of movement was more representational in nature, i.e., to make consumers aware of their rights through speeches and articles in newspapers and magazines and holding exhibitions. The second stage was direct action based on boycotting of goods, picketing and demonstration. However, direct action had its own limitations, that led to the third stage of professionally managed consumer organisations. From educational activities and handling complaints, it ventured into areas involving lobbying, litigation and laboratory testing. This gave good results. Thus, for instance business sector has started taking notice and co-operating with the movement. It has played a . role in hastening the process of passing the Consumer Protection Act, 1986 which has led to the fourth stage. The Act enshrines the consumer rights and provides for setting up of quasi-judicial authorities for redressal of consumer disputes. This act takes justice in the socio-economic sphere a step closer to the common man.
Some Important Consumer Organisations
Consumer movement in India had its beginning in the early part of this century. The first known collective body of consumers in India was set up in 1915 with the 'Passengers and Traffic Relief Association' (PATRA) in Bombay. Women Graduate Union (WGU). Bombay was another organisation started in 1915. One of the earliest consumer co-operatives was the 'Triplicane Urban Co-operative Stores' started in late 40's in Madras. It has about 150 branches all over the city. The Indian Association of Consumer (LAC) was set up in Delhi in 1956. This was an All India Association for consumer interests with the government's support. However, even IAC did not make any headway.
The first organisation to really make an impact was the Consumer Guidance Society of India (CGSI), Bombay started by nine housewives in 1966 with Mrs. Leela Jog as its founder secretary. Instead of just holding conferences and meetings and asking questions like earlier consumer associations, it started testing and reporting the quality of items of daily use of foodstuffs and handling' consumer complaints. It has 8 branches at various places carrying on publicity, exhibitions and education. It publishes a magazine called 'Keemat', in English, for consumer information. The second consumer organisation which made quite an impact in making them cause of consumers known throughout the country is theKarnataka Consumer Services Society' (KCSS) formed in 1970. The main strength of the KCSS was Mrs. Mandana who spread the word of the movement throughout the country, especially among government circles at a time when the word 'consumer' was not familiar to many. It is based in Bangalore. It organised important seminars on consumers' education in schools and is represented on prevention of Food and Drug Adulteration Committee and Karnataka Food and Civil Supplies Corporation.
Visaka Consumers Council (VCC) started in 1973 in Vishakhapatnam, Andhra Pradesh, 'is another pioneering consumer organisation which has made a significant contribution to the consumer movement. It represented the plight of the poor ration card holders and LPG gas users, who had to stand in long ques because of the irresponsible attitude of the concerned authorities. Mr. V. K. Parigi with 20 members held meetings, survey of ration card holders and succeeded in achieving necessary changes in the fair price shops and the public distribution system. Besides this about 15 more organisations came up in Andhra Pradesh taking up the task of solving problems of fair price shops and milk distribution in different parts of the state. To wage a war against exploitation by the traders, some organisations came up with the novel idea of buying quality product of everyday use at wholesale and selling these to the consumers at much lower prices than that being sold by the merchants. These are the Akhil Bhartiya Grahak Panchayat (ABGP) started in 1974 in Pune, Mumbai Grahak Panchayat (MGP) in 1979 in Mumbai and Grahak Panchayat in 1979 in Jamshedpur.
Another organisation which made a significant contribution to the cause of consumers is the Consumer Education and Research Centre (CERC) which started in Ahmedabad in 1978. It added a new dimension to the Consumer movement with Prof. Manubhai Shah, the Managing Trustee of CERC. The organisation constantly used legal machin- ery to bring about changes and protect consumer rights. Its special focus and interven- tion is against the governments and public corporations. It has a big library, computer centre and a product testing laboratory. Recently, it has also launched a project on comparative testing in Ahmedabad where comparative testing, ranking and evaluation of consumer products are being undertaken with the aim of publication of such findings for consumer education. To begin with, testing of food, pharmaceuticals and domestic appliances had started. Findings will be published and Action may be initiated against unsafe products. CERC also undertakes internship training for any consumer organisation, besides routine exhibitions, seminars and publications of the magazine 'Consumer Confrontation.'
The Eighties of the present century saw the dawn of a new era in consumer movement in India. There was mushrooming of consumer organisations, many floated by politicians to earn additional income and capture a gullible vote bank! However some associations were really committed to the cause of the consumers. One of these was 'Jagrut Grahak' in Baroda, Gujarat started in 1980 by ten retired professionals. It imparts consumer education through seminars and publication and runs a network of 45 complaint centres. 'Consumers Forum' is another important organisations started in 1980 in a small form in Udupi in South Karnataka. Under the leadership of Dr. P. Narayan Rao, it succeeded in bringing relief to many aggrieved consumers, chiefly from their problems with the state bureaucrats.
VOICE, the voluntary organisation in the interest of consumer education, was founded by energetic young students and teachers of the Delhi University in 1983 in Delhi to fight against unfair trade practices. It gives consumers information about the benefits of shortcomings of various products and brands and enables them to make informed choices. With Dr. Shri Ram Khanna as the Managing Trustee, it has launched compara- tive testing. Its first attempt was directed at comparative testing of well known brands of colour T.Vs. Consumer Unity and Trust Society (CUTS) started in Jaipur, Rajasthan, in March 1984, made its impact by effectively making use of media and publicity. For example, to tackle problems of garbage, it announced prizes for a photograph depicting the biggest heap rubbish or the biggest pothole, and this galvanised authorities into taking prompt action. Consumer Action Group (CAG) founded in 1985 in Madras concerns itself with the issues of civic amenities, health and environments. For example, shortage in Chennai and Chemical pollution in Adyar river.
A new impetus was given to the consumer movement with the enactment of the Consumer Protection Act, 1986. It applies to the whole of India except J&K. The detailed information on this act is dealt with elsewhere in this course. Here, it is suffice to mention that this act is unique since it provides for setting up of quasi-judicial bodies vested with jurisdiction concurrently with the established courts for redressal of consumer disputes at the district, state and national levels. The basic objective is to provide inexpensive justice to consumers. For the enactment of this legislation, the late Prime Minister, Mr. Rajiv Gandhi deserves special mention from several ministries and public sector monopolies and after vested interests, he went ahead and got the act passed. The Nineties saw the fulfilment of efforts towards a unified approach. It had been always felt that there were benefits in collective and united approach. In March, 1990 the Federation of Consumer Organisations (FEDCOT) was established in Tamil Nadu to bring together as many consumer groups as possible in the state under one umbrella. In 1992, consumer groups of Guiarat ioined hands to form a federation, Guiarat State, Federation of Consumer aiisatibn (GUSFECO). Now 9 states in the country have federations. Besides Tamil Nadu and Gujarat, they are Kerala, Karnataka, Andhra Pradesh, Maharashtra, Rajasthan. Orissa, and Uttar Pradesh. Besides, at the apex level, there are Confederation of Indian Consumer Organisation (CICO), New Delhi, formed in February 1991 and Consumer Coordination Council (CCC), New Delhi, formed in April 1992. The primary reason for firming these apex bodies is networking of consumer groups coming together for a common cause.
Question No. 3
Why is Indian economy regarded an underdeveloped economy? State its basic characteristics.
Answer:
India, which for long has been defined as the underdeveloped country, now is called a developing economy. It is an economy which has shed off some of its backwardness and making perceptible progress is many socio-economic spheres. Thus a developing economy is one which has many sections that are making rapid progress, but has many activities still stepped in stagnation and backwardness. The world today present a picture of applying contract. Some of the countries though a few in number are fabulously rich. On the other hand, nearly three-forth of the world population in habiting more of the countries of Asia, Africa, Latin America, Eastern Europe can farely affored a minimum existence. India is a developing economy but it has features of an underdeveloped economy like low per capita in come, low levels of living, Rapid growth of population, unemployment, poor quality of human capital etc. The above features point out that India is an underdeveloped country. The other underdeveloped countries of the world also possesses similar features. In the year after independence the government of India has awakened to the need for economic development of the country and has made an organized efforts. As a result of there efforts the pace of development has gathered momentum.
Features of India’s underdeveloped economy:
1.Low per capita income:India’s per capita income is very low as compared to the developed countries of the world. India’s per capita income is about 70 times lower than that of Switzerland,35 times lower than the USA,30 times lower than UK and Germany.
2.Low levels of living:Low level of income in underdeveloped countries result in very much depressed levels of living of their people. Per capita daily calorie supply in India is only 2104 whereas in the USA it is 3666,In Canada It is 3447 and of Switzerland it is 3547.
3. Technological Backwardness:T he techniques of production employed in most of the sectors of the underdeveloped economics are obsolete or outdated. In India, agriculture is largely carried on with the techniques which are centuries old. Modernisation in the industrial sector is also very limited, most of the industries still employ techniques which have been long discarded in the west. The transport sector still needs improvements.
4. Low productivity:T here are wide differences in the level of productivity in different sectors between the advanced and the backward countries. The average productivity in Indian Agriculture is about one forth of the productivity level in USA and Canada. Not only agriculture but also is agriculture and terriary sectors productivity is very low.
5. Excessive dependence upon agriculture: In India over half is of the working force directly engaged in agriculture. Contribution of agriculture and allied activities to India’s GDP is now around 15% as against 55% in 1950-51. Though slave of agriculture in the last six decades, it is still very high. But now it has gone down. This shows that the production of non-agriculture in India is much smaller as compared to the advanced countries.
6. Rapid growth of population:T he rate of growth of population in underdeveloped countries is generally very high. Increasing population adds to the liability of the society as more and more provisions has to be made for food, shelter, stay, medical care, education etc. This calls for a higher rate of economic progress in order to maintain even the same levels of livings.
7. Existence of unemployment and disguised unemployment:- Unemployment in India has become more widespread in spite o the tremendous efforts that have been made to create more and more job opportunities during five year plans. In the agriculture sector of the economy is disgusised unemployment exists to a considerable degree. All these people share the nation’s income, without making any contribution in the production. This, they are a drain upon the country’s resources and a hindrance in the way of its development.
8.Poor quality of human capital:Yet another feature of the underdeveloped countries is the poor quality of human capita. Expenditure on education, medical care and social services goes a long way to improve the quality of labour. Unfortunately, in India masses still countries to be illiterate and ignorant. According to the census of 20121, the literacy rate had gone up to 74% compared to just around 32% in 1951. T hough this is big achievement. Yet still over a quarter of country’s population is illiterate, which needs education to improve their skills and efficiency.
9. Dualistic Economy: T he underdeveloped economies including the India are dualistic in nature. The modern sector of the economy and the traditional ones exists side by side, each having own its distinct identity. In India some sectors of the economy are well organized while large areas remains unorganized and backward.
The above features point out that India is an underdeveloped country. The other underdeveloped countries of the world also possesses similar features. In the year after independence the government of India has awakened to the need for economic development of the country and has made an organized efforts and initiated the process of development in the country. As a result of these efforts the pace of development has gathered momentum and the country is making a steady, though somewhat a slow process. T he role of the government in India’s economic development has thus indeed been pioneering and paternal. It has not only directly participated in the economy to ensure its faster growth, but has helped and guided the private sector to become an effective agent of development. With the recent changes in government’s economic policies which incorporates a far greater degree of liberalization, privatisation and computation. The private sector is being given a greater responsibility for country’s development, but the government would not shrink formats responsibility of helping and guiding the private sector. Even now the government has taken upon itself the vital role of providing and developing economic and social infrastructure services. The private sector will not be able to contribute its maximum potential to the development process. Hence while the private sector has now been asked to assume greater role in directly productive activities, the government would act as a guide and a facilitator of development by providing adequate essential development infrastructural services.
Question No. 4
State the salient features of 1956 Industrial Policy Resolution. How far the objectives of this policy could be achieved.
Answer:
Main Features of 1956 Policy:
The following are the features of this policy:
(i) Categories of Industries:
Large scale industries have been divided into 3 categories.
(a) Public Sector:
Under Schedule A, 17 industries were included. These industries were arms and ammunition, atomic energy, iron and steel, heavy machinery, mineral oil, coal etc.
(b) Public-cum-private sector:
Under Schedule B, 12 industries were included. Industry will be state owned but private sector can also establish industry. Industries like aluminium, machine tools, drugs, chemical fertilizer, road and sea transport, mines and minerals were included.
(c) Private sector:
Under Schedule C, all remaining industries not covered in A and B Schedule were included. These industries will be established by private sector.
(ii) Cottage and small scale industries:
Govt. will make efforts to promote cottage and small scale industries. Those industries will make use of local resources and will generate employment.
(iii) Concession to public sector:
Govt. will provide facility of power, transport and finance to Public sector units. However, Govt. will not adopt indifferent attitude towards private sector units.
(iv) Balanced regional development:
Industrially backward regions will be given priority in establishing industries. More incentives will be given to industries which will be established in these regions.
(v) Training to managers:
Private and public sector managers will be given technical and managerial training so that they can perform well. Management courses will be started in universities for these persons.
(vi) Better facilities for labour:
Under this policy, better facilities for labour will be provided. Workers will be given fair remuneration, better working conditions and opportunities to participate in management.
(vii) Management in public units:
Policy laid emphasis on the proper management of public units. Public units can be a good source of revenue if efficiently managed.
(viii) Foreign capital:
Policy laid stress that foreign capital can play important role in industrial development. Many concessions were offered to make use of foreign capital.
The Industrial Policy Resolution (IPR) of 1956 was a crucial document that aimed to provide a framework for the development of India's industrial sector. It was introduced by the Government of India to direct the country's industrial policy and set the tone for the country's economic development.
Objective of Industrial Policy Resolution 1956:
The principal objective of the IPR 1956 was to promote a mixed economy in India by encouraging both the public and private sectors to work together. The specific objectives of the IPR 1956 were:
1. Development of the industrial sector: The IPR aimed to promote the development of the industrial sector in India by creating a favorable environment for the growth of industries.
2. Promotion of public sector: The policy emphasized the importance of the public sector and aimed to encourage its growth in key areas of the economy.
3. Regulation of private sector: The policy recognized the importance of the private sector in the economy but also aimed to regulate it to ensure its responsible growth.
4. Technology transfer: The IPR aimed to promote the transfer of technology from developed countries to India by encouraging foreign investment.
5. Employment generation: The policy aimed to promote employment generation in the country by creating more job opportunities through the development of the industrial sector.
Achievements of Industrial Policy Resolution 1956:
The IPR 1956 was successful in achieving some of its objectives, while some objectives were not fully met. Some of the achievements of the IPR 1956 are:
1. Growth of public sector: The policy was successful in promoting the growth of the public sector in key areas such as infrastructure, heavy industries, and defense.
2. Development of basic industries: The policy led to the development of basic industries such as steel, coal, and power, which were crucial for the growth of the economy.
3. Balanced regional development: The policy aimed to promote balanced regional development by setting up industries in backward regions. This led to the growth of industries in areas such as Jharkhand, Chhattisgarh, and Orissa.
4. Employment generation: The policy was successful in generating employment opportunities in the country. The growth of the industrial sector led to the creation of new jobs in both the public and private sectors.
However, the IPR 1956 did not fully meet all its objectives. Some of the shortcomings of the policy were:
1. Slow growth of private sector: The policy did not encourage the growth of the private sector as much as it should have. This led to a slow growth of the industrial sector, as the private sector was not able to invest as much as it should have.
2. Lack of innovation: The policy did not encourage innovation in the industrial sector, which led to the stagnation of industries and lack of competitiveness.
3. Bureaucratic hurdles: The policy led to bureaucratic hurdles, which made it difficult for private enterprises to set up and operate industries.
In conclusion, the Industrial Policy Resolution of 1956 was a crucial policy document that aimed to promote the growth of the industrial sector in India. While the policy was successful in achieving some of its objectives, it fell short in other areas. Overall, the policy played a significant role in shaping India's industrial sector and laid the foundation for future policies.
Question No. 5
Discuss the function of coverage of WTO as distinguished from GATT.
Answer:
The World Trade Organization (WTO), headquartered in Geneva, Switzerland, is an international organization that oversees and regulates global trade. Established on January 1, 1995, the WTO is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1947. The primary aim of the WTO is to facilitate trade negotiations and ensure the smooth flow of goods and services across international borders.
WTO Objectives and Functions:
The WTO serves multiple objectives aimed at fostering a transparent, fair, and predictable trading system. Its key functions include:
- Trade Negotiations: The WTO provides a platform for member countries to negotiate trade agreements, covering areas such as tariff reductions, market access, and trade in services.
- Dispute Resolution: The organization facilitates the resolution of trade disputes among its members through a structured dispute settlement mechanism. This ensures that trade conflicts are addressed impartially and efficiently.
- Monitoring and Review: The WTO regularly monitors the trade policies of its member countries to ensure compliance with agreed-upon rules. Periodic reviews help maintain transparency and identify potential issues.
- Technical Assistance and Capacity Building: The WTO provides assistance to developing countries, helping them build the capacity to participate effectively in international trade and implement WTO agreements.
- Trade Policy Review Mechanism: Member countries undergo regular reviews of their trade policies and practices, allowing for constructive dialogue and ensuring adherence to WTO principles.
It was in 1946 that a conference was organized in London where the tariff concession resulting from the tariff negotiating conference were embodied in a multilateral contract called the GATT. The contract was signed on October 30, 1947 at Geneva and became effective from January 1, 1948. GATT was essentially a trade agreement. The GATT embodies a set of rules of conduct for international trade policy that are monitored by a bureaucracy headquartered in Geneva.
Distinction between GATT and WTO
The WTO differs in a number of important respects from the GATT. The differences are as follows:
(i) The WTO is a forum for international cooperation on trade-related policiesthe creation of codes of conduct for member governments.
(ii) The WTO contains a set of specific legal obligations regulating trade policies of member states, and these are embodied in the GATT, the GATS, and the TRIPS agreement. The WTO acts as an umbrella organization that encompasses the GATT along with two new sister bodies, one services and the other on intellectual property.
(iii) The WTO’s GATS has taken the lead to extending free trade agreements to services. In the same way, the TRIPS is an attempt to narrow the gaps in the way intellectual property rights are protected around the world and to bring them under common international rules.
(iv) WTO has taken over responsibility for arbitrating trade disputes and monitoring the trade policies of member countries. Countries that have been found by the arbitration panel to violate GATT rules may appeal to a permanent appellate body, but its verdict is binding. Every stage of the procedure is subject to strict time limits. Thus, the WTO has something that the GATT never had – teeth.
(v) The clarification and strengthening of GATT rules and the creation of theWTO also hold out the promise of more effective policing and enforcement of GATT rules. The WTO is a distinctively as well as qualitatively an improvement upon the GATT.
