ASSIGNMENT SOLUTIONS

GUIDE (2019-2020)
 ASSIGNMENT SOLUTIONS
GUIDE (2019-2020)

M.C.O.-4
Business Environment
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Attempt all the questions

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Q. 1. (a) Enumerate the important changes taking place in Indian business environment and state the

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impact of emerging rural markets on business in India?
Ans. The Indian business environment stands on the threshold of revolution. The market economy since years

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was a closed one and was opened in 1990s by the Narsimhan Government. With the opening of the Indian economy,

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the doors of growth and development were opened. However, in political terms, there is a lot of commotion and

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confusion at the central level as it is not a one or two party government, but a coalition government that keeps on
pulling and pushing for the sole fulfillment of their own selfish motives. This kind of government lacks long term

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vision and perspective. In order to maintain stability, the ruling party needs to workhard in hand with other allies

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that generally gets tough as they may not follow the same thoughts on any one issue. Such confusion was presently

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seen on the issue of N-deal where Congress wanted to show green signal to it while its allies specially Left were

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showing a thumbs down to the same project.
Globalization
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It was in July 1991 when the globalization concept was introduced in India to bring in economic reforms in

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country. There was an inflow of foreign direct investments and also the technology and trade. The Indian market

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was left open to international market that brought in a competitive attitude amongst the Indian players. Further, in

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1995, when India became a member of WTO, there was a major change in the economic scenario of the country.

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Several multinationals paved their way in India and India eventually emerged as a global player. However, at the
same time, many small companies who after failing to meet the global challenges either got closed or had to merge
with some big company. As a coin has two sides, therefore, the globalization also has two sides.
ECONOMIC LIBERALISATION
India earlier was following the policy of MRTP Act. ( Monopolies and Restrictive Trade Policies). It allowed
strict trade policies and there was a lot of regulation. However, Narasimhan government changed the ways and
brought in liberalization. MRTP Act was amended. Eventually it helped in the flow of information and technology
and knowledge among the different nations. The Indian economy received a big boost and started showing vibrant
results. There came the technological revolution where India was seen as a front runner.

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There is a whole lot of untapped market in rural India that has been attracting the big players of the FMCG
market. Most of these companies have now started penetrating the rural market as the market in the urban India is
saturated. Therefore, the companies like HLL, Colgate, P&G are now eyeing the rural market to explore more
opportunities. Thus, the hunt to explore more market opportunities is on. Further, with the reach of mass media in
the rural India, even the villagers are updated by the latest technologies and products. Besides, there has been a
substantial increase in the earning of the farmers in village that is increasing their purchasing power. Eventually,
they are also interested in buying whole lot of products that earlier were available only in urban India. Further, with
the updated cooking technology available in rural India, the women folk are now having more spare time. They are
watching TV, listening radio and reading newspapers to get themselves aware of the latest technologies.
Thus, it won’t be wrong to say that the entire rural India is witnessing a transformation where there are better
prospects of growth for the residents as well the business units.
(b) Comment on the following statements:

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(i) The environment within which a business firm operates is highly dynamic and complex.

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Ans. The environment within which a business firm operates is highly dynamic and complex: Change is

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a constant phenomenon, nothing remains forever in the world. The same rule applies in business as well. The

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factors generating growth and profit keep on changing, thereby marking a different kind of impact on business. The

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social, economic and technical advances have forced many products to change their definition owing to the changing

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dimensions. Owing to such kind of changes appearing in the business environment every now and then, the

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organisation keeps on changing its policies while keeping a track of major changes. It formulates the strategies that

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can help business face fresh challenges. Therefore, it is truly said that the environment within which a business firm

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operates is highly dynamic.

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Besides, there are multiple factors driving the growth of a business organisation. There are diverse factors,

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events, influences and conditions arising from different sources that keep on interacting with each other to create

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new business equations. Looking at these emerging changes resulting from new influences, it is rightly said that the

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environment within which the business firm operates is complex as well.

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(ii) Environment and management influence each other.

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Environment and management influence each other: It is said that the environment and management influence

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each other. In other words, it can be said that the environment and management are directly related to each other.

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As the environment keeps on changing with changing time and factors, there is a scope for the management

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to bring in new business strategies to drive their organisation towards growth. Similarly, on looking at the kind of

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policies being followed by the management, the new equations can emerge in the business environment paving

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way for new opportunities. There can also be the new threats according to which solutions could be found to face

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those challenges. The different management policies can bring a change in the micro and macro environment by
introducing new strategies that can trigger the demand of a product and services and also help in increasing its
profitability.
Q. 2. “The scope and coverage of labour legislation are very wide and overlapping”. Elucidate the statement
with a brief overview of labour legislation in India.
Ans. It is true that the scope and coverage of labour legislation are very wide and overlapping.
The first act that was the Factories Act was introduced in 1881 that dealt with the issue of employment of
children. Later on, it underwent amendment in 1891, 1911 and 1934 wit the addition of more comprehensive
clauses. Further, in 1948, some more changes were introduced. With respect to workers interest, different laws were

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introduced that included the laws relating to wages and bonus, laws related to social security and laws relating to
trade unions and industrial relations.
Laws relating to Factories and specific industries: Under the Factories Act, 1948, all the employers need to
pay their employees for their health, safety and welfare. It covers some vital issues such as the working hours, leave
with pay and also the employment of young persons. To take care of the peculiar needs, there are Mines Act, 1952.
Similarly there is a Plantation Labours Act, 1961 that promises availability of drinking water, medical facilities and
all other basic requirements in an organization or the workers. Besides there are Indian Railways Act, 1931, Indian
Merchant Shipping Act, 1973, Motor Vehicles Act, 1939, Motor Transport Workers Act, 1961 and the contract
Labor and Regulation and Abolition Act, 1970.
Legislation related to wages and bonuses: A Minimum Wages Act was introduced where the issue of fixing
the minimum wages lies with Central and State Governments. Besides, there exists a Payment of Wages Act that
promises workers welfare by ensuring timely payment. It also makes sure that there are no deductions made from

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the employee’s salary. Besides, there is a payment of Bonus Act promising payment of minimum bonus of 8.33 %

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and the maximum limit up to 20 pc of the total remuneration. The Equal Remuneration Act introduced the same

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series ensures that the workers get their equal remuneration for their equal work irrespective of any differentiation

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on the basis of caste, creed or sex.

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The social security legislation: The Workers’ Compensation Act comes as a part of the social security legislation.

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He promises the disbursement of compensation by the employer to the employee in case he gets a personal injury

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out of accidents or from occupational diseases.

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Further, there also exists the Employees State Insurance Act which takes care of the payment of compensation

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if there are conditions such as the employees’ sickness, maternity and disablement. There also exists the Employees

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Provident Fund and Miscellaneous Provisions Act that has three schemes framed by central government. They

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include the Employees’ Provident Fund scheme, Employee’s Pension scheme and Employees’ Deposit Linked

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Insurance Scheme. In all these schemes, there is a need to make a total contribution by both the employee and the
employer.
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Further, those who are the members of Provident Funds are also covered by the pension scheme and the insurance

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scheme. There also exists a Payment of the Gratuity Act that promises the gratuity payment. It comes as a significant

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retirement benefit helping the employees in their old age.

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Legislation wrt to industrial relations: These legislatures ensure that there exist some amicable relations

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between the employee and the employers. It also makes sure that there are no conflicts between the labour and the

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employer on any key issue. There also exist the trade union acts that ensure that all the trade unions are registered.

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Further, there is an industrial disputes act that defines the provisions for constituting the work committees.

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The Industrial Employment Act aims at defining the conditions of industrial workers’ employment to avoid any
unwanted dispute.
Workers participation in management: Under this process, the workers are neck-deep involved in the decision
making process of an organisation to enhance its productivity, to increase the performance of an enterprise and also
to increase the job satisfaction. He can also increase the efficiency and improve the industrial relations. There are
several schemes being floated to ensure a healthy environment. These include the formation of works committees,
the joint management councils, the workers’ representation on board of directors etc.
Q. 3. “SEBI has been entrusted with the main responsibility to adopt suitable measures for protecting the
interest of investors in securities and promoting the development and regulation of stock market” Discuss.

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Ans: SEBI has been entrusted with the main responsibility to adopt suitable measures for protecting the interest
of investors in securities and promoting the development and regulation of stock market. As per the Guidelines for
Capital Issues of June 1992, the listed and unlisted companies have to follow certain guidelines that are:
1. Eligibility norms: The companies issuing securities through an offer document should follow all the eligibility
norms. They should ensure that there is a draft prospectus filed with SEBI via a merchant banker 21 days prior to its
filing with ROCs. An application should be given for the issuing of security. However, in case of an unlisted
company, an initial public offer should be made. Several conditions have been defined under the norms for these
listed and unlisted companies. The unlisted companies are not allowed to make a public issue of equity shares.
2 Pricing of securities: The listed and the unlisted companies allowed to price their securities while making a
public issue. Further, these securities can be issued to applicants in firm allotment category.
3 Promoters Contribution/shareholding: There should be a 20 per cent contribution by promoters of the post
issue capital in a public issue which is released by an unlisted company. The promoters are asked to participate with

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proposed post-issue share holding of at least 20 per cent in case of listed company. When a promoter contributes

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more than that, it is treated as preferential allotment.

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4. Pre-issue obligations: The pre-issue obligations should always be exercised by a lead banker. He should

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submit documents such as the MoU between him and the issuer company. There can be a sharing of inter allocation

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of responsibilities and the due diligence certificate also.

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5. Post issue obligations: Several issue obligations should be submitted under Schedule XVI. There are post-

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issue activities including the allotment, refund and dispatch of funds and the releasing of post issue advertisement.

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6. Other requirements: The lead merchant banker should fulfill many other requirements as per the SEBI

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guidelines.

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Regulatory framework for controlling stock markets operations

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The SCR Act came in 1956 with an aim to regulate the stock market operations in investor’s interest. This act

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was effected in 1957. Originally, its powers existed with Central Government. However, later on, they were transferred

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to SEBI. Each company had to make an application to SEBI for grating recognition. Even each stock exchange had

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to follow rules for voting rights which should have been approved by either government or by the SEBI. Each stock

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exchange needed to have a copy of its annual report to government. Besides, the SEBI should also have been

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allotted powers to force any company for listing of its securities in public interest.

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SEBI thus acts as a regulator of capital market operations. It helps in finishing the job of registration of

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intermediaries, timely inspecting the stock exchanges and strengthens the investors’ interest by checking inside

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trading and alike activities.

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Q. 4. “Economic Planning has assumed different forms in different countries. Hence there is hardly any

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agreement among economists on the concept and nature of economic planning”. Elaborate on this statement.
Ans. “Economic planning has assumed different forms in different countries. Hence, there is hardly any agreement
among economists on the concept and nature of economic planning.”
Eventually, the economic planning goes for four different senses. The first condition clearly denies the situation
that each production unit is engaged in production as per the plan assigned to it by central authority.
However, in this case, it is the planning authority which decides that which commodity can be produced and
which inputs could be used. This kind of economy is called collective planning.
The other kind of economy has targets both in public and private sector. This is called as practical planning
which mostly remains predominant in capitalists’ economies. The third kind of economic system could be described

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as the system where some macro economic targets are set and the allocation of resources is done on its basis. India
also follows this kind of approach.
In the fourth kind of system, there is a government which lays down certain targets for private enterprises. It
also develops a comprehensive system of physical and financial controls for making them realize the set targets.
It is mandatory to give priority to the economic growth in Indian planning. If one targets for economic growth, it would also
bring other positive factors such as to alleviate poverty and reduce income disparities. It is valid as well as the economic growth
could help in turning India into a vibrant economy and help in the realization of long term goal.
Q. 5. Do you think that India’s FDI policy has been encouraging for foreign investors? Give your arguments
and briefly discuss the policy.
Ans. The FDI policy is definitely wooing the foreign investors as they draw maximum mileage in terms of
market and business in these countries. The different features of FDI are help in attracting investors to India. First
and the foremost feature is the permission of 100 pc FDI is granted. This is permission for a cent per cent FDI in all

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sectors under automatic route. The FDI is allowed in activities that require industrial license, in proposals where

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foreign collaboration has existing venture, in proposals for acquisition of shares and in all the proposals falling

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outside notified sector policy. Thereafter, there is a review of the policy done on the basis of measure for its

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liberalization. Further, there are well-defined procedures for FDI under automatic route. Under this case, the FDI up

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to 100 pc is also permitted under automatic route for NRI investors mostly in services sector. There is a government

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approval route also comes to be mandatory for activities uncovered under automatic route.
Further, there are different procedures for obtaining government approval where the foreign investment promotion

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board takes care of all the proposals for foreign investment that requires government approval. Besides, the FDI

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from NRI and 100 pc EOU are also permitted. It consists for the applications for FDI from NRIs with subjects of

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investments that are submitted to Public Relation and Complaint section (PR&C) of Secretariat of Industrial Assistance
(SIA). Thereafter, there is Prohibition of FDI under which FDI is not permitted in gambling, lottery, lottery business,

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business of chit fund, housing and real estate business and in other such businesses. A general permission also exists

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of RBI under FEMA. A permission of Investment is also granted by existing companies. Besides, there is participation

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of International Financial Institutions such as ADB, IFC etc. There also exists the American Depository receipts

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under which the Indian company is permitted to raise foreign currency via ADR or GDR in abroad. There is also

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issuance of Foreign Currency Convertible Bonds (FCCB) through depository receipt mechanism as per the scheme.

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Further, there are Preference shares where the foreign direct investment is done through them when the proposals

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are implemented either via automatic route or FIPB.

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FDI in SEZs/ EOUs/Industrial park/EHTP/STP

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FDIs in different proportions are allowed in SEZs/EOUs/ Industrial Park/EHTP/STP. The description as follows:

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Special Economic Zone: As per the sectoral norms, the special economic zones are formed to provide liberal
economic norms to the companies. A permission for 100 pc FDI under automatic route is also granted to set the
SEZs. However, the proposals that are not covered under the automatic route could be approved by FIPB.
100 pc Export Oriented Units: There is an allowance of 100 per cent FDI to the sectoral norms in case of
export oriented units also. Similar to the case of SEZ, the proposals not covered under the automatic routes can be
easily approved by FIPB.
Industrial Park: A huge flexibility is allowed to set-up an industrial park in India. A 100 pc FDI is permitted to
set up industrial park under the industrial park.

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Electronic Hardware Technology Park (EHTP) Units: The setting up of EHTP units ensures that all proposals
for FDI/NRI are allowed under the automatic route.
Software Technology Park (STP) Units: There are different provisions to set-up the STP units. All proposals
for FDI/NRI investment in STP units are declared eligible.
Capitalization of import payables: According to the capitalization of import payables, the FDI inflows are
required by inward remittances via normal banking channels. They are also done by debit to specific person’s
account in authorized bank.
FDI in SSI units: The small scale, as per the existing norms, can never have over 24 pc equity in its paid up
capital from any of the industrial undertaking be it either foreign or the domestic companies.
American Depository Receipts (ADR)/Global Depository Receipts (GDR): Under this provision, the Indian
company is permitted to raise foreign currency via ADR or GDR in foreign nations. There are foreign currency
convertible bonds also known as FCCB that are issued though depository receipt mechanism as per the scheme.

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