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2.
3.
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Thus, knowledge of global events and assessment of their impact on our business
can alert us to be able to take advantage of the opportunities or take corrective
action about impending threats.
Or
g
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among the youth. This would result in increase in crime as people would adopt
any means to earn a living. Thus, in medium term, Mr Bushs dislike of Saddams
face can lead to increase in crimes in our country.
Thus, for success in business, it is important for todays managers and
entrepreneurs to keep abreast with day to day developments in business
environment not only in the immediate neighbourhood but in the whole globe.
Various elements of the business environment are as follows: (a)
Internal Environment
(b)
(c)
Sectoral Environment
(d)
(e)
International Environment
Page 3 of 55 - Business Environment
(f)
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Zamindari System was order of the day in those days. Zamindari was
a system whereby the king used to hand over the lordship of an area (a
few villages) to an influential person on a fixed yearly rent. There after,
how that person collected the money (Lagaan) from the villagers under
his command was no concern of the king. This became a big source of
exploitation of the poor indian villagers. The British too had adopted
this system from the erstwhile kings and it continued for some time
even after independence.
(b)
India, in those times, had very few industries. Indian Business Class was in deed
a trading class. Most of the industrialists were first a trader and then an
industrialist. The cotton textile mill owners use to earn more money by trading in
cotton than converting cotton into fabric. They use to finance the farmers for
cotton crop and buy back entire crop in lieu at dirt cheap rates. There after, they
use to hoard the cotton and sell it at a premium later in the year to the handloom
owners.
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Bengal Presidency was the area of todays West Bengal, Bangladesh, Bihar,
Jharkhand and Orrisa. In the post independence era, land reforms were
instituted. CPM Government in West Bengal carried out the reforms admirably
well and as a result Bengal is the most egalitarian society today. This land reform
has also been the source of support for the party till date. In addition, brutal
force used by Mr Siddartha Shankar Rays congress govt in order to suppress the
Naxalite Movement in Bengals colleges, caused severe alienation of people from
the party.
In contrast to successful land reforms of Bengal, land reforms in Bihar and
Orrisa were not executed with same zeal and sincerity and therefore did not
succeed. As a result, populace in both the states are even today of highly feudal
mindset. The feudal powers in Bihar kept changing hands from one caste group
to other. It was Bramhins during independence, Thakurs some time later, and
now it is Yadavs. However, common mans exploitation never stopped irrespective
of who the feudal lord was.
In Maharashtra, land reforms were well executed in the Konkan (Western
Maharashtra) region due to efficient performance of Peasants and Workers Party.
However, it was poorly done in Central and Eastern Maharashtra. It is now
reflected in economic disparity in the two regions.
Central Govt abolished the bonded labour system after the Independence.
However, it was also not well implemented and it continues in some pockets of the
country even today.
Indian Economy was poor since there was lot of Disguised Unemployment.
Disguised Unemployment means employing 25 people to do a job which can be as
efficiently done by 10 people. The marginal productivity of these 15 extra people
is NIL. However, on face of it, they are employed doing some job. This is precisely
what was happening in Indian Farm Sector. A land which could be cultivated as
efficiently by one brother, had 2 or 3 brothers and more employed. Prime cause of
this disguised unemployment was non availability of avenues for employment.
Family sizes were multiplying, mechanised farm equipment were reducing
manpower requirements but land holdings of families were static or shrinking.
There were not many avenues of employment available in villages.
An economy grows when the productivity of its people grows.
Prime Minister Nehru was quick to realize this Disguised Unemployment and felt
that Industrialization was the key to eradicate it and improve productivity.
While most of his contemporary leaders agreed with him, Mahatma Gandhi was
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2.
Pt Nehru married the politics of England with the economics of Russia and
created the Mixed Economy. While the state took up huge on Basic & Heavy
industries and infrastructure, consumer goods industries were left to the private
sector. He sought help of prominent industrialists like JRD Tata to help establish
light and consumer goods industries.
Also, in line with Russian model, he set up a Planning Commission in 1952 for
drawing Five Year Plans. First Five year Plan period is considered to be from
1947 to 1952 which basically consisted of completing the ongoing projects started
in the pre-independence era. 2 nd Five Year Plan 1952 57, was truly a well
conceived Five Year Plan. Even though the people who planned as well as those
who executed it did not have much formal training either in planning or
management, it is the best planned as well as executed Plan of the 10 Five Year
Plans till date. Their lack of knowledge and skills were compensated more than
adequately by the hard work, commitment and sincerity. 10 th Five Year Plan is
currently in progress from 2002 -07.
While deciding on the economic model to be adopted for the country, Pt Nehru
sought help of Professor PC Mahalonobis, who was Director, Industrial Statistical
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(b)
(c)
Above model became the basis for the Industrial Policy Resolution of 1956.
During the implementation of the model, various hurdles were faced by the Govt.
(a)
(b)
Now we will see how country went through the learning experience and had to
constantly alter its investment and development priorities.
Years 1962 to 1972 were calamitous for our country. We fought 3 wars, in 1962
against China, and in 1965 and 1972 against Pakistan. Chinese War was a total
surprise to India as the country enjoyed very warm relations with China and
Chinese Premier Mr Chou En Lie had visited India just a few years back. Hindi
Chini Bhai Bhai slogans used to fill the air. China had by then annexed Tibet and
was laying claim for Arunachal Pradesh. There were also problem of delineation of
McMohan Line. But despite above simmering problems with China, country had
not given adequate priority to defence of the country in its quest for quick
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economic development. The soldiers did not have even proper footwear for
mountain and high altitude (snow clad region) warfare and were sent to those
heights in Nov/Dec months in summer uniforms. Secondly, all the Indian forces
were concentrated on Western Front along Pakistan border. India did not have
enough air crafts to be able to quickly transport soldiers and armament to
Eastern Sector. America then helped India with C-140 transport aircrafts and
pilots for transportation of troops. But this help came as a result of their
paranoid fears of expansionist communism expanding its cover than any love for
India.
But we lost the war badly. Chinese had come up to Tejpur but declared unilateral
ceasefire on 20 Dec 1962 and withdrew.
War in 1962 taught us that Economic Development without National Security is
meaningless since decades of economic development can be lost in a single war.
India had perforce to divert those scarce economic resources from Industrial
Development to National Security. There were tremendous psychological and
emotional cost too. Nehru did not survive his monumental diplomatic blunder
and passed away on 27 May 1964.
India won both the wars in 1965 and 1972 convincingly.
But wars, whether won or lost, always carry gargantuan economic and human
costs and therefore plunge the economy in throws of recession in the post war
period. There is, if at all, only a marginal difference in cost incurred between the
winner and the loser.
Nations tryst with calamities did not end here.
Loss of 1962 war was followed by 3 successive years of draught and there was
fear of famine looming large on the horizon. Once again Americans came to the
rescue of India with supply of American wheat called PL 480. India learnt once
again that International Aid does not come without the riders. While no riders
were imposed in the beginning, American Consulate General began to seek
regular appointments with Prime Minister to convey his governments missives for
American expectations of Indias voting in various International Forums like
United Nations, or else food aid would be frozen. India then was leader and
founder member of the Non Aligned Movement along with Mr Nasser of Egypt and
Marshall Tito of Yugoslavia. For the leaders, who were bred on staple diet of
opposing Imperialism, it was hard to accept American dictates but had to swallow
their pride and accept them since allowing millions of countrymen to starve to
death for ideological leanings of its leaders would have been a horrendous crime
against humanity.
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This episode taught the leaders another lesson that food security is paramount
for a nation. So, while more money was allocated to Defence from 3 rd Five Year
Plan, Agriculture began to get enhanced share from 4th Five Year Plan.
Indias agriculture in those days was primarily rain fed. There used to be a single
crop per field in most the country in absence of irrigation facilities in post
monsoon period. India wanted to transcend to 2 and 3 crop a year agriculture
model. But it meant construction of dams and canals for storage and taking
water to the fields. Further, ground water was to be used for which electrical
power was required in the rural India. Per capita cost of electrical distribution
network in rural area is prohibitively high as density of consumers is very thin.
Indias power generation capacity was barely 3,400 MW in 1947. (Today it is
approximately 1,20,000 MW) So, massive investments were required in the
sectors of power generation and distribution. Poor farmers did not have
wherewithal to buy the pump sets and pay the electricity charges. So, to help the
farmers, Govt initially provided highly subsidized pump sets and free power.
When God closes one door, he leaves at least a window open. India had the
fortune of having the troika of Mr C Subramanyam, Union Agriculture Minister,
Mr MR Sivaraman, Secretary Agriculture, and Mr Swaminathan, Director
Agriculture Research. In their quest to increase the production of food grains,
they hit upon a Mexican variety of wheat which had yield as high as 3-4 times the
Indian variety yield. This variety was recommended by Mr Norman Borlough who
later won Nobel Prize.
However, this new high yield variety was highly prone to pest attack and needed
water and fertilizers. This led to upping the investment in pesticides and
fertilizers industry.
Alongside above, two agriculture universities, one each at Ludhiana and Pant
Nagar were set up on Land Grant Basis for further research and development in
the field of agriculture. (Land Grant Basis is a method where in a trust is allotted
large tract of land to regenerate revenue from it and finance it operations).
Green Revolution was a great success. But, together with successes a thitherto
unthought-of effect came to be noticed. The Green Revolution had made the rich
richer while poor remained where they were.
Technology is scale neutral (It can be applied on 1 acre land or 1 million acres of
land with same effect) but it is not resource neutral (Proportional resources are
required for size of land). Money was required to buy new seeds, fertilizers and
other requirements which was not available with poor and marginal farmers.
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Thus, while rich farmers benefited by using new technology and reinvested extra
profits to earn even more profits, poor could not afford the cost of new technology
and continued to remain where they were. Thus, it caused huge income
differentials in the villages. The inequity caused also led to social tensions. (Those
were the days when approx 40% population lived below poverty line.)
Such inequitable distribution of gains of new technology prompted the Govt to
concentrate on poverty alleviation program.
Mr VS Page, a contemporary of Mr VB Chawan, CM of Maharashtra, launched
Page Yojna to help the poor and marginal farmers in Western Maharashtra and it
was a great success. These small initiatives became Central Theme of 5 th Five
Year Plan.
Mrs Gandhi led a peaceful coup within Indian National Congress in 1969 to
overthrow the old guard of Mr Morarji Desai, BD Jatti, etc and became the Prime
Minister. In order to consolidate her position, she took some populist measures
like: (a)
(b)
(c)
Banks nationalisation
Abolition of Privi Purses
Launching Poverty Alleviation Programmes.
Dr Man Mohan Singh was the architect of Direct Attack on Poverty programme.
It led to micro credits by Nationalised banks to the marginal section of the society
to facilitate small businesses to improve their income. In order to broad base the
programme, reach of the banks had to be increased and therefore new branches
were opened in small towns and rural areas. Many of these branches
subsequently became unviable as they provided Directed Lending at sub optimal
rates.
India was following a modified Russian model of industrial development. In the
Russian Model, complete industrial sector was in public sector whereas in Indian
Model, consumer goods production was handed over to the private entrepreneurs.
But realising the handicaps of shortage of capital and trained man power, Govt
had followed the Nascent Industry Argument (providing protection to the new
industry through competition restrictive policies of regulating production licences
and creating tariff walls to protect against cheap imports). Due to historical
reasons, Indian leadership was suffering from deep suspicion of the West. Self
Reliance was the mantra every politician worth his salt, right from Mahatma
Gandhi downwards, was chanting. India, therefore, followed the policy of Export
pessimism and Import substitution. While import of equipment/goods and CKD
kits (Completely Knocked Down Kits) had to be allowed in many sectors initially,
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(b)
(c)
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(b)
(c)
Gulf War.
First Gulf War started because of which large
number of Indians Expatriates working in those countries were
repatriated. The remittances made by them as invisibles in BOP
dried up substantially. In addition, there was hike in price of crude
oil causing hike in Oil import bill.
(d)
(e)
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All foreign funding agencies immediately shut the lending tap. Visits by some of
the articulate ministers to various world capitals did not yield any fruits. India
was in the throws of declaring a Financial Emergency. Dr Manmohan Singhs
advice was sought who also expressed helplessness in the prevailing situation.
Some time was needed to restore the order and 14 days was far too short. India
then bought some time by pawning away 60 tonnes of gold to England which was
physically airlifted and deposited in the vaults of Bank of England. Elections were
announced in the meanwhile and Mr ManMohan Singh became the new Finance
Minister in the new government headed by Mr PV Narsimha Rao.
Dr Man Mohan Singh adopted a two step approach. First being to stabilise the
economy and then attempt the structural adjustment. Stabilising the economy
involved stabilising the micro economic indicators like inflation. All investments
were stopped.
His prescription for Structural Adjustment was: (a)
(b)
Nascent Industry Argument had long outlived its utility and it was
stunting the growth of economy by promoting inefficiency and
curtailment of production. Many of the industries were deliberately
under producing to keep the prices artificially high and earn profits.
Economy needed to be opened up not only to internal competition
but to external competition as well to bring in new technologies, new
work culture and FE.
(c)
(d)
Trade Policy
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French philosopher Jean J Rousseau had written the book The Social
Contract. The books contributed immensely to French Revolution. Marx was also
influenced by Hegal of Germany who is credited with the word Dialectics.
Dialectics are procesess which cause conflicts that cannot be resolved.
Max had written a theory through which history could be predicted. As per this
theory, he had predicted doom of capitalism. He also gave a road map as to how
this eventual doom can be expedited. This road map was what we called
Communism.
In order to overcome the spell cast by the Marxian thought, two books by Karl
Popper:
(a)
(b)
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after Indian Independence. However, they started changing track from late 60s
when socialism was deepening its roots in India under the regime of Mrs Gandhi.
They changed from export pessimism to export led growth. South East Asian
countries had momentous shift in their economic growth in just 10-12 years.
In the post 1969 era of socialistic leanings, Banks SLR rate was 38% and CRR
rate was 12%. Which means 50% of the inventible funds of banks were Directed
Credit at sub optimal rates with poor rate of recovery. Financial Institutions were
doomed.
As discussed earlier, debt trap began in external sector in 1990. It triggered the
need for economic reforms in the country.
The collapse of the economic order of the country was not sudden. It gripped the
country gradually over almost 2 decades. But the common public was mostly not
aware and a few those were aware did not care. We, as countrymen, do not
participate in the government. We generally accept government actions without
questions. This also has a historical reason. We may have democracy in the
country for over half a century, but we are still feudal in our mindset. We accept
authority. Royals of the yesteryears, royal families of Jaipur, Gwalior, Mysore and
many others still enjoy unqualified respect of the masses in their old kingdom.
So, we have a democratic system superimposed on our feudal outlook.
In England, family values are same as social values. But in India, the two are
radically different. We are highly feudal in our family matters, Father or grand
fathers word is final in all family matters. Mother-in-law will rule the house.
Political partiess premiership is more of hereditary than merit based. Party
leaders word is rarely questioned. Rebels rarely get much support. There have
been very few instances of splinter groups from political parties surviving. So, we
had a Pilot, Mr Rajeev Gandhi, as Prime Minister after assassination of Mrs
Gandhi and a house wife, Mr Rabri Devi, as Chief Minister of Bihar when Mr Lalu
Prasad Yadav had to vacate his seat due to legal troubles. In both the cases the
party members were more than eager to accept them as their leaders. The story
repeats in every state of the country. Mr OP Chautala in Haryana, Mr Navin
Patnaik in Orrisa, Abdullas in Kashmir and so on.
So, questionable fiscal decisions of the govt went unchallenged.
Original economic road map, formulated by Nehru, went through changes and
modifications in every successive Five Year Plan based on learning experience of
the leaders. But they had been in the form of incremental adjustments. Priority
to Defence spending post 1962 or investments in Green Revolution post arm
twisting by Americans during drought years in 1963 65, or poverty alleviation
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programmes, were all add-ons to original policy roadmap. But the Economic
Reforms of 1991 were paradigm shift. It was a total break from the past model
and some policies were rather antithesis of original policies. The corner stone of
original policy i.e. protection against competition to the local industry had
become anathema in the new economic policy. The entire prescription for remedy
of economy rested on introducing the competition rather than protecting them
from it.
Structural adjustments introduced by Mr Man Mohan Singh included multiplicity
of players in every field so that only the most efficient few survive. But to ensure
against any malpractices, regulators were planned for each of the sectors being
opened up for competition.
Telecom sector was the first one to be opened up. Results are there for every one
to see. It has been an unbridled story of success. Easy availability, rock bottom
tariffs, improved quality, value added services, etc are result of opening up the
sector for competition.
Airlines are next success story. Despite extremely slow opening up of this sector,
it has shown great success. Those regular strikes by pilots, cabin crew, engineers,
baggage handlers and so on are rare occurrences now. There are more routes
covered, fares are falling, punctuality improved and services have also improved.
The first baby steps towards liberalisation were taken by Mr Rajeev Gandhi
government when he introduced Broadbanding of Licenses which allowed a firm
to manufacture any item in a particular sector rather than extremely narrow
definitions of product manufacturing licences. A jeep licence which did not allow
manufacturing of a car in the earlier definition became a licence for manufacture
of any vehicle on 4 wheels under broadbanding of licences.
3rd success story has been electronic media. Proliferation of TV channels and FM
radio has been at unprecedented pace.
However, Power sector has been a big failure so far. Power sector can be broadly
divided into three segments:
Production
Transmission
Distribution
Power sector reforms were started with opening of production to private sector.
Enron was one of the first private equity into power sector. However, Enron story
got into a muddle from which nation and Maharashtra are still grappling to get
out from.
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India was quick to realise that actual problem lies in distribution sector which
need reforms on urgent basis. And the first step in that direction is to trifurcate
the three segments clearly in every state electricity board. Due to vested interests,
there has been lot of opposition at all levels for this proposal. However, some
states have succeeded in separating out the segments. Delhi has handed over the
distribution part to Reliance.
BSE reforms were heading in no direction despite all the pleas by FM. So, NSE
was created. Post creation of NSE, BSE reformed itself within 2 years. But by
then it had already lost its Prima Donna status to NSE.
Similarly, there were severe opposition to Banking sector reforms from within and
outside due to vested interests. However, carrot and stick approach worked. Once
Private and Foreign banks started functioning, old banks started to reform. VRS
was introduced to get rid of excess staff as also to create new vacancies for
infusion of new blood conversant with computerised functioning rather than old
ledgers.
Capital Market reforms got stalled. Controller of Capital Issues office was closed
and SEBI was introduced instead. However, even before SEBI could settle down in
its job, infamous Harshad Mehta securities scam took place shaking the very
roots of small investors confidence in the stock market. Small investors are
necessary for the health of the stock market. Current stock market boom is on
support of FIIs which can wreck havoc in the market at any time.
While there is a broad consensus on economic reforms among cross section of
the political parties (any opposition is only for opposition sake like Left opposing
the central govt policies while following the same policies in Bengal and Kerala),
there are real and serious differences regarding speed and sequencing of reforms.
Many leaders are of the opinion that the market should first be opened to
domestic competition and then gradually to foreign investors. There are also
differences regarding which sectors to be opened up for reforms first and which
ones later.
India has opened to international competition in most of the sectors. Custom
duty has been reduced from 350% peak rate to about 30% now. There is further
commitment by the govt to reduce it further to 7% level, same as South East
Asian countries. Leaving aside a small negative list, almost any item can be
imported by any one any time.
Off late, there is a debate, like the one after green revolution, as to who have been
the real beneficiaries of these economic reforms of 15 years. Have the masses in
Rural India reaped any benefits? Apparently, very little has reached the villages
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Reforms are still taking place but through deception and camouflage. But pace of
reforms is slow.
LEGAL ENVIRONMENT
Indian Constitution was adopted by the Parliament in 1949 and was brought into
force on 26 Jan 1950.
Indian constitution was formulated on the premise that
Power corrupts and absolute power corrupts absolutely.
This hypothesis has been proved umpteen numbers of times in the history. Right
from Magna Carta Revolution in 1300 AD to Chinese revolution against Chiang
Kai Shek in 1949, and in between revolutions like American war of independence
in 1776, French revolution in 1789, German revolution in 1848, Bolshevik
revolution in 1917, have all proved only this theory.
Therefore, Indian constitution was drafted on following principles
(a)
(b)
(c)
The constitution provides for re-election of every elected body every 5 years to
ensure that power does not become permanent in hands of any person or group.
We have seen peaceful change of power at Centre and States so very often. The
constitution divided the power horizontally and vertically. In the horizontal
division, three power centres were created namely, Parliament, Executive and
Judiciary. Executive, i.e. the Prime Minister and his ministers who run the affairs
of the govt on day to day basis are answerable to the Parliament for every act and
decision of theirs. Also every decision is subject to judicial review. Any act of the
govt that does not find favour with the Parliament or is not in accordance with
the constitutional provisions, would have to be withdrawn. Similarly, any act of
Parliament that is not in consonance with the constitution of country can be
declared null and void by the Judiciary. Judges, if found not worthy of the high
chair they occupy, can be impeached by the parliament with 2/3 majority voting
for it. Impeachment proceedings had once been initiated against Justice
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Ramaswamy of Supreme Court. However, same were dropped a day before voting
when the judge resigned on his own. Each the three pillars of the democracy act
as the watchdog for the other two pillars. And then we have the fourth pillar, the
media, which acts as watch dog for all the three pillars.
Even the judicial verdicts, if not considered to be in public interest can be
remedied by passing new laws by the parliament. Supreme Court had once
declared the Bombay Rent Control Act as Ultra Virus. However, Legislature
passed new law making is lawful once again. Judiciary, in the normal course of
things, is not expected to go into virtues of the case but give judgement based on
the law passed by the parliament. Take the case of Gutka which was banned by
Govt of Maharashtra. The ban was declared null and void because despite
desirability of the ban on gutka, considering its adverse impact on health of the
people, govt of Maharashtra has no jurisdiction to ban the item since it comes
under the centres list of jurisdiction.
In the vertical division, power is divided among central govt, state govt and the
local bodies. Again among these bodies , power is divided horizontally between
state legislature, Executive (Chief Minister and his council of ministers) and the
judiciary (except of the local bodies).
In a democracy, ultimate power resides with the people. Therefore, it is called
SOVEREIGNITY.
During the French Revolution, the Monarch was beheaded and the power was
transferred to the third estate. Monarchy was completely abolished.
First House Monarch
Second House House of Lords in England (Rajya Sabha in our country).
Third House House of Commons (Lok Sabha). It is house of peoples
representative.
Lok Sabha or House of commons is more powerful. Purpose of Rajya Sabha is to
act as a brake on Lok Sabha. Rajya Sabha can not reject a bill passed by the Lok
Sabha. It can only send it back for reconsideration. However, in case it is passed
a second time by the Lok Sabha, it would have to pass it mandatorily.
In order to facilitate easy and smooth functioning of the govt, some powers and
rights of the people are handed over to the govt. Govt can take over certain rights
and privileges enjoyed by the citizens as and when required depending upon the
socio-political and economic conditions. However, there are certain rights and
powers which can not be taken over by the govt. These rights are called Bill of
Rights. These rights are listed in Part III of the constitution under Fundamental
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Rights. Art 12-34 of Constitution of India. Almost same list of rights are also
included in UN charter as Human Rights.
Legislative relationship between Parliament and Legislative councils: Seventh schedule of the constitution has 3 lists of subjects: Union List Subjects which are entirely under the jurisdiction of Central
Govt and therefore only Parliament can make laws on the subjects.
State List Subjects which are exclusively purview of the state govts and
only state legislature can make laws on them.
Concurrent List Areas which are being governed by both, centre as well
as state. So both can make laws. However, central laws overwrite the state
laws in case of any contradiction between the two, to the extent of
contradiction.
Criminal Procedure Code is on the concurrent list. Similarly, Education is
also on the concurrent list. It was earlier on the state list but was brought on
concurrent list by a constitutional amendment during the Emergency in 1977
Financial Relationship
There are different kinds of taxes that the citizens pay and collected and utilised
by different authorities.
Taxes which are wholly kept by the centre. Like custom duty
Taxes which are compulsorily shared between centre and state. Like Income Tax.
Taxes which may be shared by cenre with states. Like excise duty
Taxes which are collected and retained by the states. Like Sales Tax (now
rechristened as VAT), Motor Vehicle Tax, Toll Tax, etc
Administrative Relationship
Centre has powers to instruct states on various matters which it deems to be not
being conducted properly/
Watch Dogs
Comptroller and Auditor General of India
UPSC
Election Commission
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2.
Indian Evidence Act lays down what is admissible as evidence and what is not.
Like in civil cases, previous conduct is relevant. But it does not carry any
relevance in criminal cases.
(Indian Evidence Act is recommended for reading for developing analytical ability.)
Supreme court normally looks into matter of law and not into matters of fact. And
therefore, it normally deals with appeal cases. However, in cases where
fundamental right is violated, any citizen can directly approach the Supreme
Court under Art 32.
Similarly, under Art 226, High Court can be approached on certain matters.
Courts can issue writs issued against any one.
There are 5 kinds of writs
(a)
(b)
(c)
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(d)
(e)
Habeas Corpus is normally issued against law enforcement agencies like police
and Army. In a case in Kerala, a person Mr Rajan was arrested by police and then
disappeared. His father then wrote a post card to the Chief Justice of Supreme
Court who took the post card as an appeal and issued a Habeas corpus to Kerala
Govt. An inquiry set to investigate the case when govt failed to produce the
person led to conviction of DIG and other officers and punishment dismissal from
service and 10 years of rigorous jail term.
Mandamus a writ petition filed against Ratlam Municipal Corporation for
directions for clearing the garbage. Court issued a mandamus to Municipal
Corporation to clear the garbage. But corporation pleaded that due to non
availability of funds post payment of salaries to its staff, the job could not be
done. Court directed that either the salaries be cut or the staff be reduced else
charge additional taxes but job should be done since it is basic duty of the
Municipal Corporation.
These acts have relevance in business as they relate to equality of opportunity
and fair play. Just treatment of all contenders in the award of public contract is
one of the opportunities.
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DEVELOPMENT ENVIRONMENT
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the theories are valid only in certain time and space combination. Any further
application needs close scrutiny as to how applicable and useful it would be in
the prevailing situation.
Nehru & Mahalonobis were quick to realise this. Therefore, Nehru Mahalonobis
model first concentrated on creation of heavy industries so that capital
accumulation can take place in the country.
Labour was in abundance even in 1947 even though Indias population was only
347 million at that time. Most of this labour was either unemployed or
disguisedly unemployed.
Economic activity happens in three different sectors : Primary Sector In covers all agricultural produce including fisheries,
dairies, orchards, etc.
Secondary Sector It covers manufacturing sector, like various industries
Light, Medium, Heavy and Basic including food processing.
Tertiary Sector It covers all service industries.
ICOR Incremental Capital Output ratio, which is a measure of output earned
out of every Rs 100 invested as capital. So, if there are two projects with equal
funds requirements, the one having higher ICOR is preferable.
Dr Manmohan Singh, as Finance Minister, realised the need to convert Outlays
to Outcomes. Outlays are the funds that are invested for a specific purpose.
Results achieved are the outcomes. This is in real sense Efficiency of Investment.
Experience has taught us that Efficiency of Investment improves substantially
under pressure of competition.
In India, we have adopted Westminster System of Parliamentary Democracy. This
is the system where President is only Figure Head of the state. Actual power lies
in the hands of Prime Minister. Prime Minister is elected by the elected
representatives. In case of parliamentary majority of the ruling party falling
short, the Govt (meaning Prime Minister and his council of Ministers) have to
resign (Like Mr Atal Bihari Bajpai did when Mrs Jayalalitha had withdrawn her
support). In case of Presidential form of Govt, as followed in United States of
America, President is de-facto head of the govt and is directly elected by the
people. In Presidential form of Govt it is possible that the parliamentary majority
is with some party other than the Presidents. There the presidents continues for
full term whether or not he enjoys the support of the Parliament.
American constitution is Federal in nature. America is a Federation of States.
Individual states have formed a Union and given up some areas of governance for
Page 29 of 55 - Business Environment
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administration by the Central Govt (called Federal Govt) while retaining others
within their folds. Each individual state has joined the Federation by choice and
therefore they retain much higher autonomy than states in India. Even today,
there are there are huge differences in laws between state to state. European
Union is trying to form another Federation of States with its parliament in
Brussels.
Indian constitution is outwardly Federal in nature with provision for converting it
into Unitary form any time should the circumstances so demand. Provisions like
Imposition of Presidents Rule, Declaration of National Emergency, Direction to
the states.
Indian Constitution was debated provision by provision by the Constituent
Assembly with active participation by some luminaries before it was passed in
1949. But why did our Law Makers adopted this Flip-Flop model of constitutional
structure?
Indian unity lies in its diversity. India is a country of gigantic diversities. No
country in the world has kind of diversities that are faced by Indian. The
diversities range from geographical, cultural, societal and so on. Indian society is
a pluralistic society. Due to this pluralistic nature there are various fault lines
which most of the time lie dormant in sub surface but become active with little
warning causing severe disruptions in society. These fault line are
(a)
(b)
(c)
(d)
(e)
(f)
Some of these fault lines give rise to fissiparous (division, separatist) tendencies
in people which threatens the very fabric of nationhood. Some other fault lines
threaten the existing social and political order of the society. Often vote bank
considerations or outright sympathy of ruling class with the ultra sentiments can
act as impediment for local govt to effectively deal with the situation. These are
the times when unitary nature of the constitution allows the central govt to take
control of the otherwise state matters and bring situation under control.
However, these labels (fault lines) are important because they also act as fracture
binds/unifying forces in normal times. That is how we say that Indias unity lies
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(a)
(b)
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In order to ensure that resources are shares equitably, constitution provides for
Finance Commission which is constituted every 5 years. Though its
recommendations are not binding on the Govt, traditionally govt has been
accepting the recommendations in toto. Last Finance Commission was the 12
Finance Commission headed by Mr Rangarajan, Ex RBI Governor. 13 th Finance
Commission is likely to be constituted by end 2005 so that its report is ready
before commencement of 11th Five Year Plan in 2007.
Finance Commission while deciding the devotion of resources tackles the issue in
two steps. It first decided as to the ratio of taxes which are to be shared with
states by the Centre. In the second step, it lists down as what will be individual
states share out of funds being devolved to the states. The share of individual
states is based on following factors: (a)
(b)
(c)
(d)
Population
Area
Revenue raising capability
Population below poverty line
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(b)
Resources devolved as plan assistance are considerably large. However, this also
became a tool for centre to push its own agenda. Programs like Family Planning
were given as 100 grant. In some other cases, centre gave a contribution in
certain ratio of states share, like 50:50; for every Rs 100 invested by state,
central govt pooled in with another Rs 100. This was used as incentive for state
govt to invest their resources in development.
Operation Black Board is a central scheme wherein central govt is financing the
project 100%. It is providing for one class room, one teacher schools in every
village.
Family Planning, Education etc are all state subjects and should be completely
controlled by states. However, these are being controlled by central govt through
purse strings of Planning Commission. Again the devolution was not always
equitable and often marred by political considerations. State Govt leadership
which owed its existence to the leadership at central govt could not contest for its
rightful share.
There is huge differential in financial resources of various states. Just to cite a
few examples; Brihan Mumbai Municipal Corporation budget is larger than 12
states annual budget. Similarly, Atomic Energy Commission has budget
allocation which dwarfs annual budgets of 15 states.
During its dealing with state govt, central govt often went by letter of the
constitution but not the spirit. So, while it could not be faulted on the legally,
truth was apparent. Thus, resentment among states could not be avoided and it
led to new fault lines. This led to rise of regional parties in the last two decades.
There was effort to bridge this arbitrariness of central govt through appointment
of Sarkaria Commission to give its recommendation on central and state govt
relationship. However, unless rules are followed in spirit, no amount of law
making can help.
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Thus we see that a constitution which was essentially federal in character, with
provision to turn it into a Unitary constitution in the times of emergency, was
converted into a Unitary constitution by controlling the Purse Strings of the
Planning Commission. State Chief Ministers who were supposed to draw their
support from the elected representatives and be autonomous in function, be it
selection of their cabinet or decision making in policy matters, became puppet in
the hands of High Command. This is a culture which has spread and afflicted
even BJP which is the only other pan Indian party in the country. At present,
Kesu Bhai Patel is trying to dislodge Modi Govt in Gujrat not by political
machinations in Gujrat but in Delhi. Such subversion of constitution had its
delirious effect on performance of those govts. Centre State relations have been
on a boil continuously.
In 1956, reorganisation of states was done on the basis on language. Constitution
had provided for a window period of 15 yrs for English to be used as link
language while development of Hindi as link language took place. At the end of
the window, when Hindi was to replace as link language, there were violent
demonstrations in Tamilnadu in opposition to Hindi being imposed on them. Old
and rich language that it is, Tamils have always considered Tamil language to be
superior to any other language including Sanskrit. Thus another fault line was
created. Dravidian parties utilised this fault line by stoking the linguistic pride of
Tamils. Under the linguistic cover was their political agenda to create political
space for themselves which was till then ruled by Congress. Their success in the
venture ensured that no national party has come to power in Tamilnadu ever
since.
Opposition to Hindi in Tamilnadu has its own history. Political and social
empowerment of Dalits and other backward castes that is being witnessed in
Hindi heartland of Bihar and UP now had happened much earlier in Tamilnadu.
Dravidians consider themselves to be the aboriginals of Indian subcontinent.
They consider Aryans, and probably rightly so, to be the invaders from west who
defeated and pushed them to south of Vindhyas. This undercurrent of
resentment among the Tamil academicians always existed. Similarly, Brahmins
and Sanskrit were considered to be legacies of Aryan dominance over them.
Sanskrit revival took place in 9th Century AD. Sanskrit had edged out
commoners language Pali to be the language of the elite much as English is
making inroads into Hindi and other regional languages bastions in the country.
Due to hegemony of Sanskrit at that time, Dravidian languages also got
influenced by Sanskrit with induction of lot of Sanskrit words into those
languages. Some Tamil nationalist raised this issue in late 1920s which
culminated in strong anti Brahmin movement in 1930s in South India. Periyar
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was leader of this movement. The movement was so strong that there were crazy
attempts at creating a distinct history and culture for Tamils. In the process,
Ravana, much reviled demon king of Hindu epic Ramayan, was begun to be
worshipped. Worship of Hindu deities, for that matter any deities, was opposed.
Children begun to be named sans any Sanskrit or any deities names.
With this fault line pre-existing, imposing of Hindi was only the proverbial last
straw on camels back for same forces to raise their head once again. Political
parties seized the initiative for their own political agenda and only stoked the fires
further.
Growth of coalition politics is a comparatively recent phenomenon in Indian
politics. With increasing clout of regional parties in state politics, single party
rule at centre seems to be a distant phenomenon now.
Reasons for growth of coalition politics are as follows: (a)
Congress was the only party with pan Indian presence till late
1980s. There was no viable political alternative. Even today, no
other party besides BJP exists which has a presence large enough to
form the govt on its own in near future. Even BJPs pan Indian
presence in only marginal as there are many states in south as well
as east where they still draw a blank.
(b)
(c)
(d)
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Like it has been pointed out in the lecture of 17 Aug 05, one key area where
reforms have not begun in right earnest is the labour reforms. Exit policy in
labour sector is absolute must to entice more entrepreneurs to invest money in
industry. Not that reforms have not taken place at all. Despite govt could not
proceed with labour reforms due to spirited opposition of trade unions, left
parties and organised labour force, there has been substantial improvement in
labour related environment in the last 15-20 years. Trade unions have lost much
of their sheen. Labour force is much less militant. Strikes, which had become
bane for the industrialist in 1970s are rare occurrence now a days.
In general, reforms have been lacking in subjects under state list, subject like
Agriculture, irrigation, health and education. While agriculture and irrigation
have seen virtually no reforms till date, health and education have seen small
progress.
Education system
Universalization of basic education is govt aim. Education is divided into 3 parts:
(a)
(b)
(c)
Basic Education Till the age of 14 years which is till class VIII.
High School Level
University Education
In case of basic education, both returns, Individual as well as Societal, are very
high. The student learns reading, writing, arithmetic, basic hygiene, etc which
improve his own and the societys productivity in various ways. Thus both are
equal gainer in the process.
Higher education gives more of individual return than the societal returns in
most of the cases. Leave the odd case of outstanding scientists and other
luminaries like Dr APJ Abdul Kalam, great economist Mr Mahalonobis or Dr
Manmohan Singh who touch lives of millions by their path breaking work.
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Health System
Reforms in health sector are still to take off. Except in some big cities, private
medical care is still not available. In small towns, health care is still largely
provided by Govt Civil Hospital. In villages occasional dispensary is the only
health care available.
Health care is an expensive proposition. In countries like USA, health care is
completely privatised. Health care is supported by Medical insurance else
hospitalisation expenses are beyond the reach of most people even in a rich
country like USA.
Britain had become a welfare state after WW-II. Health care in Britain is mostly
govt facility and reforms have not been there either. As a result, there is a long
waiting queue (up to 12 months) for operations like hip joint replacement, bypass
surgery, etc. Situation has become so severe that the cases are being outsourced
to hospitals in Hyderabad and Bangalore. Other than that patients are travelling
to India and other country on their country for medical help which has now been
officially named in our country as Medical Tourism. Health provisioning is a big
drain on British exchequer as increase in longevity of its subject has also
compounded health problem the England.
Economics is not value based. There is no right or wrong in economics. These is
only cause and effect on economic well being of people. Take the case of ban on
bar dancers in Mumbai. Desirability or otherwise of ban is a question that is not
in the domain of the economics. It only considers economic effect on lives of bar
girls and other peripheral people whose source of livelihood has got affected.
Value judgement/Moral issues involved in the matter are to be looked into by
politics based on public opinion. Parliament and legislature are bodies of elected
peoples representatives. They represent peoples aspirations and voice. So, their
opinion can be considered to be the collective opinion of the main stream
population.
Policy Environment is affected
environment.
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Honda Factory episode in Gurgaon has given the Trade Unions and Left Parties
are a fresh lease of life. They are trying to reorganise themselves once again after
getting marginalised in the last 10 years.
However, events there have affected the investment climate in the city and state.
Earlier, Maharashtra suffered flight of capital from the state in late 1970s when
trade unions in Mumbai turned militant under the leadership of Datta Samant. It
killed the blooming textile industry in the state which eventually shifted base to
Gujarat, Tamilnadu and Andhra Pradesh. Similarly, militancy in Punjab led to
flight of industrial investment to Noida and Gurgaon. West Bengal which was the
most industrialised state post independence lost industries in quick succession
due to extremely volatile and militant labour unions supported by successive
State Govts. Today either most of the industries have shifted base out of the state
else are sick.
Orrisa is another state which has lagged behind in industrialisation. While labour
in Orrisa in quite docile, the problem their emanates from the lackadaisical and
lazy attitude of people. The average productivity of people there is very low. So, it
is the problems of work culture.
Atomic Power Plants can not compromise on safety aspects due to immediate as
well as long term catastrophic effects on people in case of any major accident.
Chernobyl accident is a constant reminder to the world. Safety records of our
Atomic Power Plants in South India is pretty good. However, it is dismally poor in
plant at Narora in UP. This is despite AEC conducting a 6 weekly safety training
for the employee against 12 weekly schedule in other plants in the country. The
problem lies in the attitude and culture of the people. Chalta hai attitude and
willingness to take risk among people in UP. As against people in UP, Tamil
culture is highly Rule Book oriented. Rational of rules is rarely questioned which
suits the safety requirements of Atomic Power Plants. Given UPs attitude towards
risk, there is little likelihood any more nuclear power plants planned there in
future.
With different real life cases of flight of de-industrialisation of various states cited
above, it becomes amply clear that environment assessment is required not only
from economic view points like availability of raw material, labour, proximity to
markets, infrastructure, taxes, etc but also the general climate which covers
attitude and culture of people in the area. These factors are more subjective in
nature and therefore hard to quantify.
SOCIOLOGY OF INDIA
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Each social group, in which ever way it may be classified, caste basis, class basis,
religion basis or region basis, has its own peculiar characteristics and
sensitivities. If beaf is a delicacy for Muslims, it is highest form of sin for a devout
hindu. We have already seen the risk taking/rule book adherence profile of
Tamilnadu V/s UP or work ethics of Orrisa vis a vis other states.
If Bengalis wont compromise on Durga Puja festival and Vishwakarma Puja,
Maharashtrians are equally fanatic about Ganesh Chaturthi and Gokul Ashtami
and a Gujrati about Garba and Dandia Raas during Deshahra. A business
manager who is not sensitised to these passions of these social groups, may
damage labour relations by his unintentional obstinate behaviour in granting
certain concessions to particular groups during these days.
Traits of people,
certain decisions.
of Narora Atomic
attitude of Orria
making.
As a nation we, the Indians are anti govt while US citizens are highly pro govt in
international matters. We invent a hole in govt story, where proably none exist.
US media rarely flogs its govt in international policy matters. Our praise or
condemnation depends which side of the political divide we stand irrespective of
its impact on countrys reputation or finances. Political parties oppose the
international policies of the govt for the sake of earning political points. Once
they assume the power, they follow the same policies with often re-enforced
vigour which they had so vociferously opposed while in opposition. The media
and public also change their opinion overnight. We have seen it happen during
successive changes in Govts since 1991. Even diehard anti Globlisation
proponent, CPM, is following the footsteps of Man Mohan Singh in West Bengal
and Kerala while putting every possible spanners in efforts of Man Mohan Singh,
P Chidambaram and Montek Singh Ahluwalia troika of reformers.
Japanese have been found to carry a large team for every negotiation howsoever
small though only one person speaks and others are merely spectators. No one
speaks out of turn. Some of the members in the delegation may be just a couple
of months old in the organisation. They follow this apparently costly practice for
two reasons: (a)
of
business
leaders
in
business
(b)
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Sharing the information with every one. After having seen the
netotiations, all the present members have moral obligation to work
towards making the contract a success. So, 100% involvement of
every team member.
Japanese are able to adhere to this expensive investment on its young executives
because of another trait of theirs Loyalty to the company and companys
commitment to its workers welfare. Often an employee never sees another
company in his life time. Cases of lay off and retrenchment of workers by the
employers in Japan are most rare occurrence. But in India, neither the workers
are so committed to their company nor are the companies committed to welfare of
their workers. An employee trained at companys expense, is willing to leave the
company and join a rival company for just a few dollars more. Therefore, there is
a cautious approach while investing too much of resources on training and
development of workers in India.
Caste policy of the govt is a affirmative action. Caste system is too deeply
entrenched in psyche of Indian people. A manager needs to be alive to this aspect
of Indian psyche. Quite often caste bias manifests itself in Annual Assessment of
subordinates. Unless such afflictions of people are identified and corrective
actions taken to neutralise their harmful effects, we would have wrong people at
the wrong places.
Changes in technology have made us part of the global village. Events in distant
part of the globe, half of which would never even be known to but a few amongst
us, affect us in myriad ways. (As explained in pages 2,3. (Scenario building as to
how Bushs dislike of Saddams face could lead to increase in crimes in our
country). Therefore, understanding of global forces is also necessary for being an
effective business manager.
World Stage Since 1945, End of World War II
Last 60 years, since end of world war II, have seen tumultuous changes in
International Stage. The first development in post WW-II era was spitting of the
world into two Ideological Block, Western Block, headed by United States and
Communist Block, headed by USSR. Interestingly, both the countries were allies
during the WW-II. Two blocks, almost paranoid about each others ideology, began
a Cold War. This cold war led to massive arms race to gain superiority over each
other. Technology and weapon power became important means to keep the upper
hand. Two new weapons of war, Air Power and Nuclear Power, began to be piled
up to the levels where they could destroy entire world many times over
individually.
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Indias independence in 1947 was the clarion call for end of imperial dominance
of west over poor countries. Next 10-15 years most of the colonies of west gaining
independence. This large scale decolonisation of the world was indeed voluntary
on part of Colonial powers. But this voluntary act should not be mistaken for any
philanthropic/humanistic awakening. In the changed international political,
social, and technological environment, as well as rise of communist Russia rising
as a super power, colonial occupancy had become more of a liability than asset
that it was thus far.
Along with splitting of world along capitalist and communist block, there was the
rise of Non Aligned Movement under the leadership of Nehru, Sukarno of
Indonesia, Nasser of Egypt and Marshall Tito.
There was also this North - South divide. North was generally rich and South was
poor with some notable exceptions like Australia which was counted along with
North. Therefore, North South Council was established. Mr Willy Brant, German
Counsellor and a Humanist who was trying to build bridges between Germany
and poor East Germany had also devoted himself to the cause of poor south. He
propounded New Economic Order to bridge economic divide. It was called OST
politics (Ost in German means Looking east)
After the Bolshevik Revolution of Russia in 1917 and rise of Russia thereafter,
coupled with other forces like devastation caused by WW-II, and Keynesian
concept, Britain was forced to turned to become a welfare state. It became highly
unionised. In fact Labour Party was a federation of Labour Unions. From then to
the time during Margaret Thatcher, most of the industrial towns resembled
complete disorder.
Most of the developments till then were taking place within a paradigm. Come
1090 and Mr Gorbachev.
Mr Gorbachev introduced Perestroika and Glasnost. Russia junked communism
and embraced Capitalism. The side effect was collapse of Soviet Union. This was
a tectonic shift in the international order. Instead of one gigantic USSR, there
were 15 new states. Russias capacity to act as deterrent to USA was hugely
diluted. Crash of its economy made is dependent on western economic
assistance, which further weakened its position to intervene against USA in
international disputes. Geopolitical situation completely changed. Bipolar world
had suddenly changed into a Uni-polar world. American hegemony of the world
was complete.
Before disintegration of Soviet Union, Soviets had invaded Afghanistan. But they
pulled out of Afghanistan due to high human and financial costs. The vacuum
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created by Russian pull out was filled by Taliban which was raised, funded and
by armed by USA to fight occupation army of Russia.
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Trade Environment has its root much older than any other environment. Trade
has affected the world history more than most other things. International Trade
has been practiced in India and the world over for over a millennium. There are
records of trade taking place through the land route between various countries
in middle East, China and India even in first millennium.
In the later part of the last millennium, trade was used as a tool for imperialistic
expansion of countries in the West. India came in contact with Europe during the
regime of Akbar as traders. A few centuries later, those traders in the form of
East India Company, begun to political role and eventually became the rulers. A
little while later, India was taken over from those traders by Britain and formally
annexed as its colony.
Even before India, it was America which was annexed by Britain. America got its
independence in 1776 through American war of Independence.
Australia, Andaman & Nicobar and some other countries were used as prisoner
settlements.
Indias struggle for independence though is recorded to have begun by Mangal
Pandey in 1857 which led Sepoy Mutiny of 1857, it was demand for limited
autonomy. It was as late as 1930, when congress demanded Poorna Swaraj or full
freedom. The irony of this independence struggle for British was that almost the
entire leadership of this struggle was British educated.
Trade was free in those days. European countries did not intervene in the trade
but gave all possible support. Biggest barriers to free trade during those days
were robbers, thugs and pirates. Imperialistic powers sent their ships to far off
locations to ensure that sea routes are kept clear of pirates.
There was free flow of raw material from India to England and finished products
back to India. Some finished products were also exported from India. But on the
whole, raw materials and finished products from India were purchased at very
cheap rates but imports were at very high rates. Thus, the imperialists who came
in the garb of traders, not only became rulers but also exploited and milked the
country to enrich their own country. The most unusual part of British rule in the
country is that British could never naturalise in India unlike so many foreign
invading races to name a few, Sak, Hun, Pashan, Mughals, etc. South Africa, even
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after independence, has mixed population of whites and Blacks. But when British
left India, they left lock stock and barrel. Today we see no British in India left
behind from Raj era. And they left by choice. The people in power, disciples of
Gandhi, professing Ahimsa, would have definitely thrown out any British by force
even they had decided to stay put.
Thus, India came under British rule not by direct military defeat, but by
manipulation of traders. It is again a curious fact of History that Robert Clive,
who laid the foundation of British dominance over India, had less than 400
British people with him. Rest were hired from India only. With this background, it
was only natural for the leadership at the time of independence to eye the foreign
trade with suspicion. India wanted itself to be insulated from eddy currents of
imperialism. Self reliance emanated from this philosophy. Export pessimism and
Import substitution were natural extensions of self reliance policy.
Foreign trade can be controlled by either of the two methods: (a)
(b)
The list is not exhaustive. There are many more excuses that are
used to restrict import of goods from any country.
India, in its attempt to cocoon itself from foreign trade, chose the simplest route
of imposing high customs duties on all imports. In some cases custom duties
were as high as over 500%. In addition, there were long procedures to get
approval for import. Quota system was also used in some cases.
However much India wanted to cocoon itself, it was not possible to completely
dissociate itself from world market. There were a great deal of essential items
which had to be imported because India had not developed the infrastructure to
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produce them. In some cases like Oil, India did not have natural resources to
produce them.
GATT (General Agreement on Tariffs and Trade)
The Genesis of GATT.
In 1946, the newly-created Economic and Social
Council of the United Nations called a conference at the Brettonwoods to consider
the creation of the International Trade Organization (ITO) which was envisaged as
the final leg of a triad of post-War economic agencies (the other two were the
International Monetary Fund and the International Bank for Reconstruction and
Development - later the World Bank). A preparatory committee was established
to draft the ITO charter.
During 1946-1947, the committee worked on the draft charter. However,
independent of this official task under the UN mandate, the committee members
conducted tariff-cutting negotiations among themselves in advance of the ITO
(ITO never came into existence). These negotiations resulted in about 45,000
tariff concessions affecting some US$ 10 billion of world trade.
The committee members also agreed to protect the value of the tariff concessions
by early acceptance of some of the trade rules of the draft ITO charter. Thus,
tariff concessions and trade rules together became known as the General
Agreement on Tariffs and Trade (GATT) which was signed on 30 October 1947
by 23 countries and came into force from 01 Jan 1948.
GATT was an agreement which was based on the principle of non-discrimination
in trade relations on a multilateral basis. Through this principle the same rights
of market access were extended to all 23 of the original signing nations, developed
and developing alike. Today, the World Trade Organization, the offspring of the
GATT, has 132 members, all of which have adopted the principle of nondiscrimination.
Preamble: - Recognizing that their relations in the field of trade and economic
endeavour should be conducted with a view to raising standards of living, ensuring
full employment and a large and steadily growing volume of real income and
effective demand, developing the full use of the resources of the world and
expanding the production and exchange of goods,
Being desirous of contributing to these objectives by entering into reciprocal and
mutually advantageous arrangements directed to the substantial reduction of
tariffs and other barriers to trade and to the elimination of discriminatory treatment
in international commerce,
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Commonwealth of Australia,
The Kingdom of Belgium,
3.
4.
Burma,
5.
Canada,
6.
Ceylon,
7.
8.
9.
10.
11.
12.
India,
13.
Lebanon,
14.
15.
16.
New Zealand,
17.
18.
Pakistan,
19.
Southern Rhodesia,
20.
Syria,
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21.
22.
23.
and
2.
MFN. Most Favoured Nation concept, which meant that the tariffs
charged to imports from the most favourable nation among the GATT
members should be charged to all the members. In simple terms it
meant NO DISCRIMINATION in tariffs.
Principle of Providing Equal Market Access Opportunity to all
Signatories.
3.
4.
2.
3.
4.
5.
6.
7.
8.
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India participated in all the 8 rounds and gained admission into WTO as the
founder member by virtue of being member of GATT. China which was the
founder member of GATT but had later withdrawn from it, is yet to get the
membership of WTO. It has currently been accorded an observers status. To
become the full member, it requires the vote of 2/3 members of WTO.
GATT had succeeded to a reasonable extent in removing tariffs but was only
partly successful in removing the non-tariff barriers.
Dunkel Draft.
Dunkel Draft had generated lot of heat after the
Uruguay round. Dunkel Draft was named after Arthur Dunkel, then President of
GATT. Dunkel Draft brought in non-trade issues like patents and other
intellectual property rights and foreign investments into the fold. (Originally only
trade and tariff was the subject matter of GATT). These were the issues which
were prime concern of Western Countries due to rampant piracy of drug patents,
films and books in the third world countries. Thus, the draft was heavily tilted in
favour of West. By forcing third world countries to Dunkel Draft, Western
Countries stood to gain the most. This was the prime reason for its resentment
outside the West.
IMF The purpose of IMF is to help the countries with short term Balance of
Payment problems.
World Bank World Bank takes care of long term funding requirements of the
countries.
These two institutions are similar to Money Market and Capital Markets who have
similar roles in the economy of a country.
The trio of Mr Willy Brandt, the German Chancellor and Nobel Peace Prize
winner, Mr Robert McNamara, US Secretary of Defense and the World Bank
President from 1968 to 1981, and Norwegian President (some lady) proposed New
International Economic Order through North South Commission in 1977. Mr
Man Mohan Singh was a member of this commission. However, this initiative did
not work out and died a quiet death over time. But these were extremely well
meaning people who proposed integration of poor South with rich North.
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artificially. RBI still intervenes to maintain the exchange rates at desired rates but
it does so by market operation (selling and buying the dollars from market).
India has huge trade development potential in Pakistan, Afghanistan and beyond.
However, Kashmir disputes has shut the door for trade with Pakistan. Route to
Afghanistan passes through Pakistan. Other route is too circuitous to be cost
effective. Similarly, central Asian Republics markets are difficult to access due to
Pakistan factor. Solution to Kashmir problem will not only huge Pakistani
Markets but also other markets.
Economic Integration between different states is achieved through a five step
process:
1.
2.
3.
Common Market
4.
Economic Union
5.
Federation
1.
2.
Customs Union Free trade among members. But custom rates with
non member countries would be higher.
3.
4.
5.
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trade. Free trade between a few states is always at the cost of free trade with rest
of the nations.
Trade is a major fault line among nations. Trade leads to money. And MONEY,
WOMAN and LAND are the three major contributors to the reasons for war
besides RELIGION. In the past, quite a few wars have been fought on trade
disputes.
Resources are the second fault line among nations. Oil resources led to Iraq
annexing Kuwait and consequential intervention by USA alarmed by its energy
security getting compromised. The second war on Iraq by USA on the pretext of
weapons of mass destruction was also fought to garner 11% of the world proven
oil resources.
The third fault line is the civilization or religion. Islam V/s Christianity.
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Since 1991, India has gradually removed most of the import restrictions. Now
there is a small negative list called SCOMET List. This is the list of items which
have dual use. On one hand they can be used in various industries for beneficial
purposes, on the other hand they could also be used for creating dangers to
public, health and safety. SCOMET stands for Special Chemicals, Organisms,
Materials, Equipment and Technology. Chemicals like Phosgene gas, Methyl
Isocyanides, nerve gas, or materials like radio active sources, or organisms like
small pox can cause havoc if they fall into terrorist hands. Cobalt 60 which is
held by almost 40-50 hospitals in Mumbai alone for dealing with any nuclear fallout can be used to make dirty bomb.
EUROPE and WTO
European Union has a Common Agricultural Policy which is the biggest
stumbling block in WTO.
Importance of Food-Security was realised by European countries early on due to
regular wars amongst them. As a result, they promoted their agriculture through
massive subsidies. This subsidy is continuing even today and any attempt to
reduce the same is met with violent protests. France followed by Germany are two
leaders in subsidy in Europe.
Similarly, in America, there are grain mountains kept as security against any
draught which are dumped into the sea after regular intervals. India itself has
Food Security policy which caters for sustenance for two years in case of
continuous draught in whole country. Various food for work and mid day meals
are sustained from this stock.
Effective rate of protection in Europe for agricultural products is almost 250
times compared to India.
Developing countries have been continuously demanding phasing out of the
agricultural subsidy by rich countries but have not succeeded so far. Agriculture
will therefore remain a difficult item for negotiation in WTO.
During Singapore Ministerial Conference, West is keen on including Profession
sector (Like permission for lawyers from other countries to practice in India) in
WTO.
________________
Anti Dumping Any product by country A can not be sold in country B at
prices less than domestic prices in country A. If a case of below par selling is
reported and proved, importing country is at liberty to levy anti dumping duties
Page 54 of 55 - Business Environment
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on such products. Wooden furniture was being imported from China at almost
1/3 of local rates. Complaint was made to DGFT. On investigation, it was found
that the rates of import are marginally higher than domestic prices and therefore
complaint was dismissed.
GATT has an exclusion clause also. This special clause is to exclude the items
that are critical to the economy of the country. India has refused to allow export
of Iron ore with high iron content.
In case of protectionism, while producers gain due to monopolistic pricing in
absence of adequate competition, consumers lose. Losses to individuals are
substantially higher than gain to the producers and thus country loses too.
WTO is the beginning of end of concept of Nation States. In order to allow WTO to
function smoothly, some economic sovereignty is required to be surrendered by
each member country. As the WTO becomes strong and markets open up, more
and more sovereignty would need to be surrendered making the borders less and
less relevant. Thus the concept of Nation States gets diluted. In case of America
and Canada or among the EU states, there is free flow of man and material. Bus
from Srinagar to Muzzafarabad in POK will weaken the stranglehold of political
parties on people on both sides of the border and promote harmony thus
weakening separate state philosophy.
European Union is currently an economic union but it may aspire to become a
political union in future.