Q. What is business environment? What are its various components ?

Ans. Meaning of Business Environment :–Business environment refers to those

aspects of the surroundings of business enterprise which have influence on the
functioning of business. An organisation can survive and grow only when it
continuously and quickly adopts to changing environment.
Acc. to Wheeler, “Business Environment is the total of all things external to
business firms and industries which affect their organisation and operations.”
Acc. to Keith Davis, “Business Environment is the aggregate of all conditions,
events and influence that surround and affect the business.”
Components of Business Environment :–Business Environment has two
components :-
a) Internal Environment b) External Environment

a) Internal Environment :– Internal Environment refers to environment

within the organisation. It includes internal factors of the business which
can be controlled by business. It includes objectives of business,
managerial policies, management and employees of the organistion,
labour management relationship, brand image and corporate image,
working conditions in the organistion, technological and research and
development capabilities etc. Internal environment includes 5 M's i.e.
men, material, money, machinery, management available with business.
These components are usually within the control of business.

b) External Environment :– External Environment refers to external

aspects of the surroundings of business enterprise which have influence
on the functioning of business. These factors beyond the control of
business. External environment includes factors outside the firm which
can provide opportunities or pose threats to the firm.
External environment has two types :-
i) Micro Environment ii)Macro Environment

Micro Environment :– The micro environment of a company consists of

elements that directly affect the company. It includes suppliers, customers,
market intermediaries, competitors and public etc., which is explained as
below :-
i) Suppliers :–Suppliers are those who supply raw materials and
components of the company. Every business requires the suppliers. If
our supplier is reliable, our business will run smoothly. If our supplier is
not reliable, we have to maintain high inventories.
ii) Customer :– Customer is the central point of the business. The success of
a business organisation depends upon the customers, their needs, tastes
etc. Now a days the competition is growing so it is very essential to satisfy
the customer. For attracting new customers companies conduct
consumer research, provide after sale services etc.
iii) Market Intermediaries :–Market Intermediaries which include agents
and brokers who help the company to find customers. It is a link between
company and consumer. Market intermediaries help the company to
promote sell and distribute its goods to final buyers. Market
intermediaries include middlemen, marketing agencies, financial
intermediaries, physical intermediaries etc.
iv) Competitors :–Competitors means other business units which are
producing similar products or a very close substitute of our product. Now
a days competition has increased. No business units enjoys monopoly in
the market. So the business has to satisfy the customer for the success in
the market.
v) Public :–Public is group that has actual or potential interest in the
business. So public also affect the business.
vi) Media :– Media also affect the business. It includes al newspaper,
magazines, journals etc. Media also affects the reputation of the company.

Macro Environment :– Macro Environment means general environment of

business. These factor are uncontrollable. These factors create opportunities
and pose threats to the business. It includes economic, demographic, natural,
technological, political and cultural environments.

i) Economic Environment :– Economic Environment refers to those

economic factors which have impact on the working of business.
Economic environment is very complex in nature. It is very dynamic. It has
three elements :-
a) Economic Conditions :–Economic conditions of the economy the
business. Economic conditions includes income level, distribution of
income, demand and supply trends etc. If the economy is in boom
conditions, it positively affect demand and market share. On the
other hand if the economy is in depression, it will have negative effect
on the business.
b) Economic Policies :–Economic policies are framed by government.
These policies establish h relationship between business and
government. The effect of these policies may be favourable or
unfavourable.
c) Economic System :–Different economic system prevail in different
countries. These system affect the business. The economic system
includes capitalism, socialism and mixed economy.

ii) Political Environment :– Political Environment affect the different

business units. A stable and dynamic political environment is very
necessary for business growth. Political environment includes political
stability in the country, relation of the government with other countries,
welfare activities of government, centre state relationship, thinking of
opposition parties towards business. If the political system is stable and
efficient then the business grows. In the lack of political stability long
terms plans cannot be formulated. Thus business is adversely affected if
the government is not stable. Similarly relations of government with other
countries also affect business. If a country enjoys friendly relations with
other nations, then it has favorable effect on foreign trade.

iii) Socio Cultural Environment :– Socio- Cultural Environment refers to

social and cultural factors which are beyond the control of business unit.
Such factors includes attitude of people of work, family system, caste
system, education, habits, language, religion etc. Socio-cultural
environment is one of the important non-economic external components
of business environment. Religion has considerable effect on business.
Some religions restrict their followers from doing a particular type of
business, e.g. Jain religion does not allow its followers to engage in leather
industry, wine making etc. Similarly difference in language is another
problem area in national level and international level business. The
businessman must be familiar with the local language of the place where
business is to be operated.
iv) Technological Environment :–Technological environment is most
important factor which affect the business enterprise. The faster changes
in technology create problems for business enterprise. Product have
shorter life span than the past because of rapid technological
development. Technology provides a various advantage. Success in
many industries depends on a innovation and research. For promote
innovation and research some companies establish research and
development department in their enterprise. For example Japanese
industries have achieved a great success because of innovation and rapid
technological up gradation.
v) Natural Environment :– Natural Environment refers to geographical and
ecological factors which are beyond the control of the enterprise. It
includes natural resources, weather and climatic conditions, landforms
rainfall, environmental pollution etc. Climate and weather conditions
affect the location certain industries like textile industry. Similarly
environment pollution in the form of air pollution, water pollution and
noise pollution have caused disturbances in ecological balance.
Government has framed various Acts for the control of environmental
pollution. The business enterprise must keep in mind these factors.
vi) Demographical Environment :– Demographical environment affect the
business externally. Demographic environment differs from country to
country and from place to place within the same country. Demographic
factors includes size of population and population growth, family size, age
composition, sex composition, urban-rural population education level
etc. Huge population size indicate cheap labour and more demand in the
economy. If population size is large then there will be more demand for
goods and services. It will have favourable effect on business. Similarly,
Education level is also important demographic factor affecting business.
If public is highly educated, supply of unskilled labour will decrease. On
the other hand if education level is low then supply of unskilled labour will
increase.
vii) International Environment :– International Environment is the
important component of the business environment. International
environment affect the business differently. International environment is
very important for certain types of business. It is particularly important
for industries directly depending on imports or exports. Recession in
foreign market may create difficulties for industries depending on exports.
Liberalisation of imports may help some industries but may adversely
affect other industries. For e.g. the entry of multinationals such as LG,
Samsung in electronics industry has adversely affected the market share
of domestic business firms.

Q. Write a short note on development of public and private corporate

sector in India
Ans:1990s public sector expenditure gave some stimulus to demand for the
production of large industry. The private corporate sector also soaked up cheap
finance from State agencies, and enjoyed partial protection from imports of
finished goods. Despite this comfortable environment, the underlying paucity
of domestic demand – reflecting the condition of the vast majority of people –
restricted the rate of industrial growth in India. And the of demand (i.e., nature
for what types of products) skewed the pattern of growth, away from items of
mass consumption such as cheap textiles, and toward elite consumption. This
skewed, import-dependent pattern of production restricted employment
creation by industry; and the sluggish growth of industrial employment in turn
restricted the market for mass consumption goods.
Thus when spells of rapid growth occurred, they were distorted and self-
limiting. The high industrial growth rates of the 1980s were unleashed by the
relaxation of controls on industry, imports, and external borrowing. Given the
Indian elite’s insatiable desire for foreign goods, and the propensity of Indian
big business to operate as merchants rather than as industrialists, this
relaxation was accompanied by a surge of foreign collaborations; this resulted
in large imports and large trade deficits; this was in turn funded by foreign debt
(not coincidentally, international banks in this period were hunting for
borrowers). This culminated in the debt crisis of 1990-91. The further
liberalisation post-1991 unleashed another bout of growth in the mid-1990s
oriented toward elite demand; this petered out by the late 1990s, and was
followed by another bout of stagnation.
It is yet to be seen how long the present bout of growth can be sustained.
The proponents of the current policies argue that it is broad-based compared to
earlier such bouts, that Government finances are in better shape, and that
long-term trends in the international economy (in particular the growth of
outsourcing) imply that growth of services exports will continue indefinitely.
Let us assume there is some merit in these arguments. Regardless of whether
or not growth continues, however, the pattern of industrial development taking
place has some striking features which we need to note. These features help us
understand whether, either now or in the future, the present trends will
translate into the betterment of the people of India.
In fact the pattern of corporate sector growth, whether in industry or
services, not only fails to pull up the rest of the economy; the present pattern of
growth is based on exclusion, the fencing-off of the ‘growth’ sectors from the
rest of the economy.

Q. What is social responsibility of Business ? Are the Indian corporate

fulfilling this responsibility ? Give example.
Or
What is social responsibility of business ? How is it being
implemented by business houses in India ?
Ans. Fifty year ago the business was considered very good for earning profit to
its owner but now a days the situation is completely changed. Today the
business’s responsibility is not limited to its owner but it has assumed large
dimension. Business has to look to the interest of other parties like
shareholders, employees, competitors, consumers, suppliers, government,
community and world etc. The responsibility of business which includes the
satisfaction of these parties along with the owner is called the social
responsibility of business.
Social Responsibility of business towards various parties of the society :–
Managers have a social responsibility towards various parties of the society. In
Indian corporates almost every firm fulfilling this responsibility towards
shareholders, competitors, employees, consumers, suppliers, government etc.
For example :– LG company fulfill their responsibility towards various parties of
the society. LG company provide different variety of product to consumer at
low cost and also provide quality product to the customer. On the other hand
the company fulfill the responsibility towards employees. It provide incentives
to the employees as well as various facilities. The company pay tax to the
government at time and follow the rules and regulations of the government. So
we can say that the Indian Corporates fulfilling the social responsibility
towards various parties of the society.
The main responsibility of various parties in the society is explained are as
follows :–
i) Towards Owners :– If the management and the owner happen to be
different the managers have the following responsibility towards the
shareholders :-
a) To ensure safety of the capital.
b) To ensure proper dividend.
c) To ensure proper utilization of invested capital.
d) To ensure timely payment of dividend.
e) To inform about the progress of the organization.
ii) Towards Employees :– Employees is very important for success of the
business. Employees is the key of success. If employees are satisfied the
enterprise can achieve their goals. The main responsibility towards
employees are explained as below :-
a) Giving the appropriate Remuneration.
b) Giving participation in Management.
c) Provide good work atmosphere.
d) Giving them a share of profit.
e) Provide education and training.
f) Provide opportunities for promotion.
g) Solve labour problem in time.
iii) Towards Consumers :– Consumers are so important for running the
business. Without consumers business is meaningless. Following are
the responsibility of business towards consumers:-
a) To provide good quality products at cheap rates.
b) To provide after sale services.
c) Polite to consumers.
d) To solve their problems politely.
e) To treate consumers like God.
f) To make available goods according to the taste of the consumer.
iv) Towards Suppliers :– A manager also has a responsibility towards the
supplier. If the supplier do not supply the raw material in time so the
production will be hindered and the reputation of the organisation will
suffer. There are many responsibility towards suppliers are explains as
follow :-
a) To make timely payments.
b) Informing about the taste of consumers.
c) Informing about future development plans.
d) Give appropriate price of the material.
v) Towards Competitors :– A managers has the following responsibility
towards the competing organisation :–
a) To encourage mutual cooperation.
b) To encourage market research.
c) To work jointly for the development of business.
vi) Towards Self :– A manager’s towards his own self may also considered.
They are the following :–
a) To earn sufficient profit.
b) To earn reputation.
c) To enter new market.
d) To take interest in research.
vii) Towards Community :–The people of society have the following
expectations from business :–
a) To provide opportunities for employment.
b) To contributing to the raising of the standard of living.
c) To avoid indecent advertisement.
d) To avoid polluting the environment.
viii) Towards World :– A manager has also responsibility towards the world.
The following responsibility is explained as follow :-
a) To do business honestly.

Q. Explain the brand features of the New Economic Policy?

Ans. Meaning of New Economic Policy :– Since July 1991, the government
has initiated a services of radical changes in its policies relating to industry,
trade, finance, foreign investment and fiscal aspects. The objective of the new
economic policy is to improve the efficiency of the business mechanism
involving multitudes of control, fragmented capacity and reduced competition
in the private sector. The thrust of new economic policy is creating a more
competitive environment in the economy as a means to improving the
productivity and efficiency of the system.
Main features of New Economic Policy :–The main features of New Economic
Policy is :–
1. Liberalization
2. Privatization
3. Globalization

1. Liberalization :–The new economic policy provides freedom to the

entrepreneur to enter any industry, produce any product and each any
amount of money. The Liberalization measures are :-
a) Licensing abolished except for 13 industries.
b) Limit for foreign equity stake has been hiked to 51 percent.
c) Basic telecommunication services opened to private participation,
including foreign investments.
d) Minimum lending rates for amounts exceeding Rs. 2 Lakh abolished.
e) Reforms in custom duties.
f) Rupee made fully convertible in current account through the
introduction of the Liberalized Exchange Rate Management System.
g) Setting up of private banks allowed.
h) Private investment allowed in Power Sector.
i) Greater thrust on exports to manage balance of Payment.
j) Automatic approval for 100 percent export oriented units and units
in export processing zones.
2. Globalization :– Globalization refers to the process of integration of the
world into one huge market. In other words Globalization means
integration with the world economy. Globalization is the new
phenomenon. Now a days every company want to enter to global market.
Manifestations of Globalization :– Globalization manifests itself in many
ways. The more important of them are :-
i) Configuring Anywhere in the World :–An MNC can locate its
different operations in different countries on the basis of raw material
availability, consumer markets and low cost labour.
ii) Lowering of Trade and Tariff Barriers :– An MNC locate their
business where trade tariffs and custom barriers are getting
lowered, resulting in cheaper and abundant supply of goods.
iii) Increasing Trend Towards Privatization :– Government are
everywhere withdrawing from owning and running business
enterprises. Private entrepreneurs are given greater access and
freedom to run business units.
iv) Mobility of Skilled Resources :–Skilled labour was considered to
the decisive factor in plant location. Modern factories use highly
skilled labour which is freely mobile. Where labour is unskilled
managements are spending vast sums of money to train workers
become skilled in their jobs.
v) Entrepreneur and his Unit have a Central Economic Role :–The entrepreneur
and his unit become central figures in the process of
economic growth and development of a nation. Given the right
environment he is able to innovate, bring in new products and
contribute the nation’s wealth.

3. Privatization :–Privatization of industries means opening the gates of

public sector to private sector. Private sector comes to play significant role
in the economic development of the country. Thus transferring of public
sector industries to private sector is called privatization.
Causes of Privatization :– The main causes of privatization is explained
are as follows :-
1. Inefficient Public Sector
2. Burden on the Government
3. For promoting Industrial Growth
4. For promoting Globalization
5. To solve Financial crisis of Government
Advantages of Privatization :–
1. Increase the efficiency
2. Increase in competition
3. Increase in financial resources of Government
4. Increase in foreign investment
5. Encouragement of New inventions.
6. Reduction in Economic Burden of Government
7. Increase in Industrial Growth Rate
8. Reduction in Political interferences.

Evaluation of New Economic Policy

Merits :-
1. Increase in Rate of Growth
2. Increase in competitiveness of industrial sector
3. Reduction in Poverty and inequality
4. Fall in Fiscal deficit
5. Control on Prices
6. Development of Small Scale Industries
7. Decline in disequilibrium of balance of payment
8. Favourable to Middle Class
Demerits :-
1. Less importance to Agriculture
2. More dependence on foreign debt
3. Dependence of foreign technology
4. More importance to privatization
5. Problem of unemployment
b) To contributes towards international peace.
c) To observed rules of international market.
d) To help in the development of economically backward
countries.
ix) Towards Government :– A manager should help the govt. in the
development of the country by observing these laws. A manager has
the following responsibility towards the government.
a) To pay tax honesty.
b) To help the govt. by establishing new industries.
c) To observe rules laid down the government.

Q. Critically examine the New Industrial Policy ?

Ans. Government of India announced its new industrial policy on July 24,
1991. The main aim of the policy is to be liberalize the Indian industrial
economy from administrative and legal’s controls. Its main aim is to increase
industrial efficiency to the international level.
Main features of New Industrial Policy :–The main features of New Industrial
Policy is explained are as follows :-
1. Contraction of Public Sector :– In new industrial policy only three
industries will be reserved for public sector namely atomic mineral,
atomic energy and railways. All other areas will be thrown open to the
private sector.
2. Delicensing :–Under this policy the industrial licensing has been
abolished. Only 5 industries which are required to obtain compulsory
industrial license. These industries are alcoholic products, tobacco
products, aerospace and defense equipments, industrial explosives,
hazardous chemicals.
3. Abolition of Registration :– All existing registration schemes have been
abolished. Only entrepreneurs will have to give only a memorandum of
information about new projects and substantial expansion of existing
units.
4. Technical Experts :–There will need no permission for hiring foreign
technicians. For these payments, foreign exchange can be easily
purchased from reserve bank of India without any restrictions.

5. Foreign Capital :–The limit of foreign capital investment has been raised
from 40% to 51% equity. Now a days a country encourage the foreign
capital. Now our government is welcoming foreign investment.
6. Encouragement to Industries in Backward Areas :–The government
offered special incentives to industries in backward regions, for reducing
regional disparities.
7. Freedom for Administrative Controls :- Expansion programs of new
units will be exempted from administrative control. The existing units will
be free to produce any commodity on the basics of the license already
issued.
8. Location of Industries :– In cities with populations of less than 10 lakh,
location clearance will not be required except those industries where
licensing is compulsory.
9. Public enterprise Incurring Losses :– Public enterprise incurring losses
will be investigated by the Board for Industrial and Financial.
Reconstructions (BIFR). Government will formulate different schemes for
sick public sector units. Interest of the workers affected by these schemes
will be protected.
10. Reservation for Small Scale Industries :–Under new industrial policy
production of 239 items has been reserved for Small Scale Industries.
Large industries and medium enterprises will not be allowed to go in for
their production.
11. New Definition of Micro, Small and Medium Enterprises :–In new definition
both manufacturing and service enterprise are covered in
meaning of micro, small and medium enterprise. The investment limit
have been fixed. This is explained are as follow :-
a) Manufacturing Enterprises :– Based on investment in plant and
Machinery.
i) Micro Enterprise - upto Rs. 25 Lakh
ii) Small Enterprise - above Rs. 25 Lakh and upto Rs. 5 Crore
iii) Medium Enterprise - above Rs. 5 Crore and upto Rs. 10 Crore
b) Service Enterprise :–Based on investment in equipments.
i) Micro Enterprise - upto Rs. 10 Lakh
ii) Small Enterprise - above Rs. 10 Lakh and upto Rs. 2 Crore
iii) Medium Enterprise - above Rs. 2 Crore and upto Rs. 5 Crore
c) Facilities to Labourers :– For providing social security to the
Workers National Renewal Fund is set up. This fund provide relief to
the workers affected by technological changes, closure of public
sector units and privatization of public sector units.
Evaluation of New Industrial Policy :– New Industrial Policy is a very liberal
policy. Its main objective is to liberalize industry from legal and administrative
control.
Merit of New Industrial Policy :–The main merit of new industrial policy is
explained are as follow :-
1. Increase in Production.
2. Increase in Welfare of Workers.
3. Increase in Exports
4. Increase in Competitions.
5. Balance Regional Development.
6. Increase in efficiency of public sector.
7. Provide proper significance to Small Scale Industries.
Shortcoming of New Industrial Policy :–The shortcoming of New Industrial
Policy is explained are as follow :–
1. Reduction in the Role of Public Sector.
2. Adverse affect on Small Scale Industries.
3. Increase in Unemployment.
4. Increase in Regional Imbalances.
5. Ignore Social Objectives.
6. Adverse affect on Economic Sovereignty.
Q. Define New Industrial Licensing Policy ? And critically explain
objectives and working of Industrial Licensing Policy ?
Ans. Introduction :–The Indian Government established a licensing system in
Order to maintain control over industries according to the Industries
development and Regulation Act 1951. A license is a written permission
granted to an enterprise by the government, according to which the product
mentioned therein can be manufactured by the enterprise. The license also
includes many other particulars such as :–
a) The name of the product to be produced.
b) The place where the factory is to be established.
c) Expansion of the enterprise.
d) The limit of the production capacity.
Objectives of Licensing :– The main aim of the licensing policy is to regulate
the industrial sector. The main aims of the licensing system are :-
1. Encouraging small scale industry.
2. Encouraging new entrepreneurs for setting industries.
3. Regulating location of industrial units.
4. To ensuring balanced regional development.
5. Promoting technological advancements in industries.
6. Development and control of Industrial Investment and production.
Compulsion for Licensing :– As per the licensing policy, it is necessary to
obtain license in the following circumstances :–
1. For setting up New Industrial Units :–If any industrial unit is to be set
up in the category of licensing industries it has to obtain license under
Industries Development and Regulation Act, 1951.
2. For Expansion :–Under Industrial Licensing Policy, if any industrial unit
which is covered under licensing wants to expand its production capacity
then it will have to obtain prior approval under this act.
3. Location of Industrial Units :–Any Industrial Unit wants to change it
location then it will have to take prior approval. An Industrial License is
required for projects which are to be located in large cities with a
population of more than 10 lakhs. Only after obtaining approval, the
location can be changed.
4. For producing Articles Reserved for Small Scale Industries :–
An industrial undertaking wants to manufacture an item reserved for small-
scale sector it is required to obtain industrial license. The list of items
reserved for small scale industries is reviewed from time to time. At this
time 239 items were reserved for small scale sector.
5. Registration of Existing Industrial Units :–An existing Industrial Units
which were existing before enforcement of this act and are covered under
industrial licensing will have to obtain registration under this act.
Present Position of Licensing Policy :–Present position of licensing policy
explain are as follows:-
1. Compulsory Licensing :–According to the New Industrial Policy of 1991,
it is necessary to obtain license only in case of 15 industries which are
engaged in the field of defense-equipments, luxury goods and hazardous
commodities. In the wake of liberalization this number has been reduced
to 5. The five industries for which licensing is compulsory are :-
a) Alcoholic Products d) Aerospace and defense equipments
b) Industrial Explosives e) Tobacco products
c) Hazardous Chemicals
2. Protection to Small Industries :–In order to protect the small scale
industries and save them from competition with large industries, the
production of certain products was reserved for the small industries. Only
239 items are reserved for small scale industries.
3. Industries Reserved for Public Sector :– Some industries had been
reserved for the public sector. These industries could be established in the
public sector only and the private sector was not granted licenses for the
establishment of these industries. Only 3 industries reserve for the public
sector such as atomic minerals, atomic energy and railway.
4. Definition of Large Industrial Houses :–In the new industrial policy for
1991, the limit on holding assets was completely abolished and there is no
restrictions on size of large business houses. The new policy lays greater
stress on preventing unfair trade practices rather than on the size of
business houses. In 2002 the government abolished MRTP Act.
5. Licensing for the Expansion of Production Capacity :–According to the
new policy of 1991, No license is required for the expansion of production
capacity of MRTP companies. In the present situation, there is no
restriction on expansion of production-capacity except five licensed
industries.
Criticism of Licensing Policy :–
1. Discourages the Entrepreneurs :–Under Industrial Licensing Policy,
industries have to obtain licenses for setting up new unit, change location
etc. So excessive control discourages the entrepreneurs.
2. Conflicting Objectives :– Licensing involves conflicting objectives. Like
on one hand government wants to increase industrial production in the
economy on the other hand government is restricting the activities of
industrial units like substantial expansion, production of new articles etc.
3. Lengthy Procedure :–For obtaining industrial license the entrepreneur
has to take approval from various government departments. So all this
involves lengthy procedure and many formalities.
4. Corruption while Granting Licenses :– Licenses are given to such
entrepreneurs who have either political links or who can bribe the corrupt
officials. Licenses are not granted on merit basis. Efficient entreprenurs
are ignored.
5. Poor Follow-up :– After granting license, authorities do not check whether
the business unit is following the provisions of licensing or not. So the
basic objective of licensing policy is defeated.
Q. Write short note on liberalization of private sector.
Ans. Liberalization of private sector. The new economic policy provides
freedom to the entrepreneur to enter any industry, produce any product with
each any amount of money. The Liberalization measures are :–
a) Licensing abolished except for 13 industries.
b) Limit for foreign equity stake has been hiked to 51 percent.
c) Basic telecommunication services opened to private participation,
including foreign investments.
d) Minimum lending rates for amounts exceeding Rs. 2 Lakh abolished.
e) Reforms in custom duties.
f) Rupee made fully convertible in current account through the
introduction of the Liberalized Exchange Rate Management System.
g) Setting up of private banks allowed.
h) Private investment allowed in Power Sector.
i) Greater thrust on exports to manage balance of Payment.
j) CCI abolished, FERA relined.
k) Automatic approval for 100 percent export oriented units and units
in export processing zones.
Q. Explain in brief that private sector reforms leads to privatization.
Ans. Since the early 1990s, privatisation, in its many guises, Introduction :–
has become a cornerstone of economic reform strategies across the world
Increasingly, however, serious flaws are perceived to be accompanying the
privatisation model, particularly when it comes to the delivery of services which
have traditionally been provided by the state such as water, electricity,
education and health. Social priorities have been found to conflict with those of
private enterprise. Answerable to shareholders, private firms are rarely
interested in delivery to those on low incomes who cannot afford to pay. Rather
than simply reducing the role of the ineffective state, privatisation has
increasingly placed additional and new demands on the public sector,
especially in the monitoring of, and remedying of, private-sector performance.
While empirical research often finds in favour of the private sector,
research methods are typically skewed against the public sector by, for
example, using such indicators as profit levels to show that private firms
perform better than state-run alternatives. Furthermore there are a growing
number of cases of effective state-led service providers, demonstrating that
ownership is not the defining determinant of enterprise performance.
Growth of private sector in India
The phenomenal growth of private sector of India can be attributed to
political will, financial reforms, usage of more advanced technology, young and
large English speaking working class. The 7-8 % of annual GDP growth rate
India is the one of the highest growth rate in the world. The last 15 years
witnessed a phenomenal rise of the growth of private sector in India. The
opening up of Indian economy has led to free inflow of foreign direct investment
(FDI) along with modern cutting edge technology, which propelled India’s
economic growth.
Previously, the Indian market were ruled by the government enterprises
but the scene in Indian market changed as soon as the markets were opened for
investments. This saw the rise of the Indian private companies which
prioritized customer’s need and speedy service. This further fueled competition
amongst same industry players and even in government organizations.
Further, the government of India also divested some of its enterprises to ensure
smooth operation of these companies which was otherwise were loss making. It
also went further and forged joint venture private Indian companies, especially
in sectors like, telecommunication, petroleum, housing and infrastructure.
This inculcated healthy competition and benefited the end consumers, since
the cost of service or products come down substantially.
B grade private Indian companies are also offering lucrative and
competitively priced products or service, whose quality is at par with A grade
companies. Big players of Indian markets have been forced to lower their price
bands to remain alive in the competition. Further, these big private Indian
companies are offering mouth watering benefits in the form of gifts, rebates and
even holding lucky draws to stay ahead in the race of ‘market supremacy’. Gone
are the days when ‘brand loyalty, accounted for big customer base. Today,
general Indian customers are trendy, flexible and are extremely flexible with
their choice. Steady growth of private sector has sent a sense of urgency and
insecurity amongst main market players. Defensive methods of protection of
Brands against competitors are becoming popular. Legal instruments like
patents, trademarks, industrial designs and copyrights filing has increased
many fold and so is counter claim and litigation. Further, Mergers and
Acquisitions, collaborations and licensing has become a popular amongst
private Indian companies.
The best thing that has happened to the overall Indian market with the
growth of private sector is that it has helped to shed bureaucracy and lengthy
official process and supplemented it by customer eccentric service, good work
ethics, professionalism and transparency of accounts.

Some positive effect of the growth of private sector in India are as follows :–
Ø Manufacturing registered 11.9% growth
Ø The passenger vehicles sector grew by 11.61% during April-May
2007
Ø Electricity, gas & water supply performed well and recorded an
impressive growth rate of 8.3%
Ø Construction growth rate rose to 10.7%
Ø Trade, hotels, transport and communication registered a growth rate
of 12%
Ø Financing, insurance, real estate and business services recorded an
impressive growth rate of at 11% during the 1st quarter of this fiscal
Ø Exports grew by 18.11% during the 1st quarter of 2007-2008 and the
imports shoot up by 34.30% during the same period
Ø The food sector is estimated to be of US$ 200 billion and it is expected
to grow to $310 billion by 2015
Ø Merchandise Exports recorded strong growth
Q. Short note on Industrial Sickness.
Ans. Meaning of Industrial Sickness :– Industrial Sickness is a Universal
Phenomenon. It is a major problem of all industries in the world whether it is
developed or developing countries. It is a serious matter of the countries.
A sick unit is one which is not healthy. To an industrialist, it is a unit
which is making losses. To an investor it is one which skips dividends. To a
banker, it is one which is not repaying its loan or interest.
Definition of Industrial Sickness :–
Acc. to State Bank of India, “A sick unit is that unit which fails to generate
internal surplus on a continuing basis and depends for its survival on frequent
infusion of external funds.
Acc. to Reserve Bank of India, “A sick unit is that which has incurred cash
loss for previous year and is likely to incur losses for the current year as well as
in following year and the unit has an imbalance in its financial structure such
as current ratio is even less than 1:1 and there is a worsening trend in debt
equity ratio.
Sickness are two types, namely:-
1. Born Sickness
2. Achieved Sickness
1. Born Sickness: - Industrial units born sick are those which are destined
for disaster right from their conception due to various causes.
e.g Lack of experience of promoters, Lack of funds, Lack of good
location, Wrong plant layout.

2. Achieved Sickness:- Industries which achieve sickness are those

which fail after becoming operational due to internal causes.
e.g Bad Management, Poor inventory management, Poor labour
management.
Causes of Industrial Sickness :– There are many causes for becoming sick
units. The main reasons of Industrial sickness is explained are as follows :–
i) Management Problems
ii) Financial Problems
iii) Labour Problems
iv) Technological Factors
v) Personal Wasteful Expenditure
vi) Faulty Demand Forecasting
vii) Government Policy
viii) Power Cuts
ix) Shortage of Raw Material
x) Infrastructure Problems
Steps taken by the Govt. for Sickness :–
i) Takeover by Management
ii) Setting up of Industrial Investment Bank of India
iii) Amalgamation with healthy units
iv) Diversification
v) Research and Development
vi) Soft Loans for Sick Units
vii) Periodical Review
viii) Avoid Excessive investment in Unproductive Capital Assets
ix) Strict Penalties to persons responsible for sick units

Q. Describe the main features of New EXIM Policy.

Ans. The New Exim policy was announced on August 31, 2004. This policy is
names as Foreign Trade policy 2004-09. The main objective of the policy is to
double our percentage share in world trade within the next five years. This
policy is designed to use foreign trade as an instrument for promoting economic
growth. This policy has launched new export promotion scheme and has given
emphasis on exports of agricultural sector, handicrafts, gens and jewellery,
handloom service sector, leather etc. In this policy various incentives have
been announced for promotion of exports.
Main Features of New EXIM Policy :– Main features of New Exim Policy are
explained as follows :-
1. Facilities for Agricultural Sector :–Agricultural has the potential to
bring prosperity in rural areas, special package has been announced for
agricultural sector.
a) A new scheme called Vishesh Krishi Upaj and Gram Udyog Yojana
has been announced to boost exports of fruits, vegetables, flowers
etc.
b) To promote export of Medicinal plants and herbal products.
c) Import of capital goods for agricultural sector will be duty free.
d) Agri-export Zones set up in the early EXIM Policy. Various
concessions and incentives are provided to these Agri-export Zones.
These zones help to promote export of agriculture products.
2. Facilities for Handloom and Handicraft Sector :– Special benefits has
been given this sector for promotion of export.
a) Duty free import of capital goods for promoting this industry.
b) The limit of designated towns of export excellence has been reduced.
On attaining the export fo Rs. 250 crore by any town in a year it will
get the status of town of export excellence. The government will
provide special assistance in the form of better infrastructures etc.
c) Exports of village and cottage industries are covered under Vishesh
Krishi Upaj and Gram Udyog Yojana.
d) The limit of status holder exporter has been brought down from
exports of Rs. 45 crore to Rs. 15 crore in a year.
3. Facilities for Gems and Jewellery Industries :–The government
announced special package for this sector :–
a) Duty free import of commercial samples of jewellery has been
allowed.
b) Duty free import of machinery, metal scrap, jewellery for melting,
consumable metals has been allowed.
c) Import of gold has been made duty free under the condition that
export of equivalent jewellery will be made.
4. Special Schemes for Export Promotion :–some new export promotion
schemes have been introduced to promote exports :–
a) Vishesh Krishi Upaj and Gram Udyog Yojana :- A new scheme
called Vishesh Krishi Upaj and Gram udyog Yojana has been
announced to boost exports of fruits, vegetables, flowers etc. In this
scheme the exporter can import equal to 5 percent of his export and
these imports will be exempted from import duty.
b) Served from India :-To boost export of Indian services in the foreign
market, a special brand ‘Served from India’ will be promoted. The
individual service providers who earn foreign exchange reserve of at
least 5 lakhs in a year, can apply to government for using this brand
name.
c) Duty free Import Authorization Scheme :- This scheme will be
effective from 1 May 2006, under this scheme, if the export unit s t
fulfils 20% value addition norms then it will be authorised from duty
free imports of inputs and capital goods. Value addition means
difference in the value of output and input.
d) Target Plus :-This is a progressive export incentive scheme in which
the rate of incentive increase with export growth rate. So the exports
are motivated to achieve higher export growth rates.
Growth rate Duty free Credit
in Exports Entitlement (Imports)
1. 20% to 24% 5% of Exports
2. 25% to 99% 10% of Exports
3. 100% and above 15% of Exports
5. Setting up of free trade and warehousing zones :–Government has
started a new scheme named ‘free trade and warehousing zones’. This
scheme is aimed at making India a global trading centre. In this scheme
100% foreign direct investment is allowed, for setting these warehousing
zones. In these zones there is freedom to carryout import and export
transactions. Under this scheme an Indian Trader can buy and sell goods
anywhere in the world. By establishing these zones the image of India will
improve at international level. It will give a boost to India’s foreign trade.
6. More facilities to Special Economic Zones :–The special economic
zones setup to boost exports from these areas will be further strengthen.
In these zones infrastructure of international quality will be setup. Units
set up in SEZs will continue to get income tax concessions, exemption
from customs and excise duties etc. An present there are 15 functional
SEZs.
7. Special concessions for Export-Oriented Units :–Export oriented unit
are those units which produce mainly for exports. The government
provide special concession for export oriented unit which is explained as
below :-
a) Income Tax benefits to E.O.U.s
b) Duty free Imports of Capital goods.
c) Duty free import of raw material.
d) E.O.Us will be exempted from service tax in proportion of their exports
to total sales.
8. Procedural Simplification :–
a) Validity of all licenses related to foreign trade will be called for 24
months.
b) For speedy redressal of grievances, a new mechanism for grievance
redressal has been formulated.
c) All exporters with minimum turnover of Rs. 5 crore will be exempt
from furnishing bank guarantee.
d) The number of returns and forms has been recued and these forms
have been simplified.
9. Scheme of Categorization of Star Export Houses :– In this scheme one
to five stars are allowed, based on performance of total exports in current
year and in last three years. On achieving total export of 5000 crores or
more in current year and in last three years the export hose is given the
status of five-star export house. On the other hand on achieving total
export of Rs. 15 crores in current year and in last three years the export
house is given the status of one star export house.
10. Other Provisions :–
a) Pragati Maidan of Delhi will be transformed into world class
complex.
b) India has entered into a free trade agreement with Thailand. It
means foreign trade between India and Thailand will be exempt from
custom duty.
c) An exclusive service export promotion council has been proposed to
be set up to promote service exports.
d) This Exim policy has introduced various measures to promote India
as a hub of auto components.

Q. Short notes on FDI.

Ans Meaning of FDI :–FDI stands for Foreign Direct Investment. Foreign
Direct Investment is made by foreign companies. It established wholly owned
companies in another country. It manage them or to purchase shares of
companies in another country for the purpose of managing such companies.
In foreign direct investment the foreign investor who takes risk. It is solely
responsible for profit/loss of the company. The main feature of foreign direct
investment is that native companies are managed by the foreign companies. It
includes foreign collaboration. It may be of following types :–
a) Collaboration between Indian and Foreign Private companies.
b) Collaboration between Indian Government and Foreign Government.
c) Collaboration between Indian Government and Foreign Private
Companies.

Contribution of foreign capital in the Economic Development of India :–

i) Availability of Capital.
ii) Availability of Foreign Exchange.
iii) Availability of Risk Capital.
iv) Helpful in Export Promotion.
v) Increase in Employment.
vi) Reduction in Inflation.
vii) Availability of Foreign Technology.
viii) Exploitation of Natural Resources.
Limitation of Foreign Capital :–
i) Increase in Foreign Dependence.
ii) More burden of External Debt.
iii) Harmful for Domestic Produces.
iv) Uncertainty.
v) Problems of Debt Servicing.
vi) Adverse effect on the Development of Indian Technology.
vii) Unbalanced Regional Development.
viii) Insufficient Development of Internal Financial Resources
Q. Explain the impact of globalisation in India.
Ans. Globalisation is the new buzzword that has come to dominate the world
since the nineties of the last century with the end of the cold war and the break-
up of the former Soviet Union and the global trend towards the rolling ball. The
frontiers of the state with increased reliance on the market economy and
renewed faith in the private capital and resources, a process of structural
adjustment spurred by the studies and influences of the World Bank and other
International organisations have started in many of the developing countries.
Also Globalisation has brought in new opportunities to developing countries.
Greater access to developed country markets and technology transfer hold out
promise improved productivity and higher living standard. But globalisation
has also thrown up new challenges like growing inequality across and within
nations, volatility in financial market and environmental deteriorations.
Another negative aspect of globalisation is that a great majority of developing
countries remain removed from the process. Till the nineties the process of
globalisation of the Indian economy was constrained by the barriers to trade
and investment liberalisation of trade, investment and financial flows initiated
in the nineties has progressively lowered the barriers to competition and
hastened the pace of globalisation
Definition :–
Globalised World - What does it mean?
Does it mean the fast movement of people which results in greater interaction?
Does it mean that because of IT revolution people can be in touch with each
other in any part of the world?
Does it mean trade and economy of each country is open in Non-Intrusive way
so that all varieties are available to consumer of his choice?
Does it mean that mankind has achieved emancipation to a level of where we
can say it means a social, economic and political globalisation?

Though the precise definition of globalisation is still unavailable a few

definitions worth viewing, Stephen Gill :defines globalisation as the reduction
of transaction cost of trans-border movements of capital and goods thus of
factors of production and goods. Guy Brainbant :says that the process of
globalisation not only includes opening up of world trade, development of
advanced means of communication, internationalisation of financial markets,
growing importance of MNC’s, population migrations and more generally
increased mobility of persons, goods, capital, data and ideas but also
infections, diseases and pollution
Impact on India :–
India opened up the economy in the early nineties following a major crisis
that led by a foreign exchange crunch that dragged the economy close to
defaulting on loans. The response was a slew of Domestic and external sector
policy measures partly prompted by the immediate needs and partly by the
demand of the multilateral organisations. The new policy regime radically
pushed forward in favour of a more open and market oriented economy.
Major measures initiated as a part of the liberalisation and globalisation
strategy in the early nineties included scrapping of the industrial licensing
regime, reduction in the number of areas reserved for the public sector,
amendment of the monopolies and the restrictive trade practices act, start of
the privatisation programme, reduction in tariff rates and change over to
market determined exchange rates.
Over the years there has been a steady liberalisation of the current
account transactions, more and more sectors opened up for foreign direct
investments and portfolio investments facilitating entry of foreign investors in
telecom, roads, ports, airports, insurance and other major sectors.
The Indian tariff rates reduced sharply over the decade from a weighted average
of 72.5% in 1991-92 to 24.6 in 1996-97.Though tariff rates went up slowly in
the late nineties it touched 35.1% in 2001-02. India is committed to reduced
tariff rates. Peak tariff rates are to be reduced to be reduced to the minimum
with a peak rate of 20%, in another 2 years most non-tariff barriers have been
dismantled by march 2002, including almost all quantitative restrictions.
India is Global :–
The liberalisation of the domestic economy and the increasing integration
of India with the global economy have helped step up GDP growth rates, which
picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth
rates have slowed down since the country has still bee able to achieve 5-6%
growth rate in three of the last six years. Though growth rates has slumped to
the lowest level 4.3% in 2002-03 mainly because of the worst droughts in two
decades the growth rates are expected to go up close to 70% in 2003-04. A
Global comparison shows that India is now the fastest growing just after China.

This is major improvement given that India is growth rate in the 1970’s
was very low at 3% and GDP growth in countries like Brazil, Indonesia, Korea,
and Mexico was more than twice that of India. Though India’s average annual
growth rate almost doubled in the eighties to 5.9% it was still lower than the
growth rate in China, Korea and Indonesia. The pick up in GDP growth has
helped improve India’s global position. Consequently India’s position in the
global economy has improved from the 8 position in 1991 to 4 place in 2001.
th th

When GDP is calculated on a purchasing power parity basis.

Globalisation and Poverty :–
Globalisation in the form of increased integration though trade and
investment is an important reason why much progress has been made in
reducing poverty and global inequality over recent decades. But it is not the
only reason for this often unrecognized progress, good national polices , sound
institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious
international challenges we face up to 1.2 billion of the developing world 4.8
billion people still live in extreme poverty.
But the proportion of the world population living in poverty has been
steadily declining and since 1980 the absolute number of poor people has
stopped rising and appears to have fallen in recent years despite strong
population growth in poor countries. If the proportion living in poverty had not
fallen since 1987 alone a further 215million people would be living in extreme
poverty today.
India has to concentrate on five important areas or things to follow to
achieve this goal. The areas like technological entrepreneurship, new business
openings for small and medium enterprises, importance of quality
management, new prospects in rural areas and privatisation of financial
institutions. The manufacturing of technology and management of technology
are two different significant areas in the country.
There will be new prospects in rural India. The growth of Indian economy
very much depends upon rural participation in the global race. After
implementing the new economic policy the role of villages got its own
significance because of its unique outlook and branding methods. For example
food processing and packaging are the one of the area where new
entrepreneurs can enter into a big way. It may be organised in a collective way
with the help of co-operatives to meet the global demand.
Understanding the current status of globalisation is necessary for setting
course for future. For all nations to reap the full benefits of globalisation it is
essential to create a level playing field. President Bush’s recent proposal to
eliminate all tariffs on all manufactured goods by 2015 will do it. In fact it may
exacerbate the prevalent inequalities. According to this proposal, tariffs of 5%
or less on all manufactured goods will be eliminated by 2005 and higher than
5% will be lowered to 8%. Starting 2010 the 8% tariffs will be lowered each year
until they are eliminated by 2015.
GDP Growth rate :–
The Indian economy is passing through a difficult phase caused by several
unfavourable domestic and external developments; Domestic output and
Demand conditions were adversely affected by poor performance in agriculture
in the past two years. The global economy experienced an overall deceleration
and recorded an output growth of 2.4% during the past year growth in real GDP
in 2001-02 was 5.4% as per the Economic Survey in 2000-01. The performance
in the first quarter of the financial year is5.8% and second quarter is 6.1%.
Export and Import :–
India’s Export and Import in the year 2001-02 was to the extent of 32,572
and 38,362 million respectively. Many Indian companies have started
becoming respectable players in the International scene. Agriculture exports
account for about 13 to 18% of total annual of annual export of the country. In
2000-01 Agricultural products valued at more than US $ 6million were
exported from the country 23% of which was contributed by the marine
products alone. Marine products in recent years have emerged as the single
largest contributor to the total agricultural export from the country accounting
for over one fifth of the total agricultural exports. Cereals (mostly basmati rice
and non-basmati rice), oil seeds, tea and coffee are the other prominent
products each of which accounts fro nearly 5 to 10% of the countries total
agricultural exports.
Where does Indian stand in terms of Global Integration?
India clearly lags in globalisation. Number of countries have a clear lead
among them China, large part of east and far east Asia and eastern Europe.
Lets look at a few indicators how much we lag.
Ø Over the past decade FDI flows into India have averaged around 0.5% of
GDP against 5% for China 5.5% for Brazil. Whereas FDI inflows into China
now exceeds US $ 50 billion annually. It is only US $ 4billion in the case of
India
Ø Consider global trade - India’s share of world merchandise exports
increased from .05% to .07% over the part 20 years. Over the same period
China’s share has tripled to almost 4%.
Ø India’s share of global trade is similar to that of the Philippines an
economy 6 times smaller according to IMF estimates. India under trades
by 70-80% given its size, proximity to markets and labour cost
advantages.
Ø It is interesting to note the remark made last year by Mr. Bimal Jalan,
Governor of RBI. Despite all the talk, we are now where ever close being
globalised in terms of any commonly used indicator of globalisation. In
fact we are one of the least globalised among the major countries - however
we look at it.
Ø As Amartya Sen and many other have pointed out that India, as a
geographical, politico-cultural entity has been interacting with the
outside world throughout history and still continues to do so. It has to
adapt, assimilate and contribute. This goes without saying even as we
move into what is called a globalised world which is distinguished from
previous eras from by faster travel and communication, greater trade
linkages, denting of political and economic sovereignty and greater
acceptance of democracy as a way of life.
Consequences :–
The implications of globalisation for a national economy are many.
Globalisation has intensified interdependence and competition between
economies in the world market. This is reflected in Interdependence in regard
to trading in goods and services and in movement of capital. As a result
domestic economic developments are not determined entirely by domestic
policies and market conditions. Rather, they are influenced by both domestic
and international policies and economic conditions. It is thus clear that a
globalising economy, while formulating and evaluating its domestic policy
cannot afford to ignore the possible actions and reactions of policies and
developments in the rest of the world. This constrained the policy option
available to the government which implies loss of policy autonomy to some
extent, in decision-making at the national level.
Q. “Indian Small Scale Sector can not survive the competition from
Large Scale Sector MNCs. Comment in the light of evidences
available in this content.
Ans. “Indian small scale sector can not survive the competition from large scale
sector MNCs.” This statement is correct. Because the small scale sector does
not have sufficient resource to survive the competition from large scale sector
MNCs. Before explaining the statement we discuss the meaning of small scale
enterprise and multinational company.
Small Scale Industry :– Small scale industry has been defined as a unit
having investment upto Rs. 5 crore in plant and machinery. The government
made special provisions for promotion of small scale industries. Production of
239 items has been reserved for small scale industries. Large industries and
medium enterprises will not be allowed to go in for their production.
Multinational Corporations :– Multinational corporation is that
corporation whose sphere of activity is spread over more than one country.
These corporations are known as several names e.g. Transnational
Corporation, International Corporation or Global Corporation. In other words
Multinational Corporation is a big firm, whose headquarter is located in one
country but whose trading and manufacturing activities are spread over many
other countries.
Multinational corporations have unique capacity to increase production
and large scale distribution. Wherever they go they make radical changes in the
existing production system of that country. Their superior technology,
professional managerial competences and quality are important to the host
country. These MNC provide various product at low prices then the small scale
industry can not survive the competition with the MNCs. The small scale
industry do not have sufficient resources then it do not provide various
products.
Reasons for Growth of Multinational Corporations :– MNCs are
diversifying the market of their products in various countries. They can sell
easily whatever products they manufacture. People of underdeveloped
countries have craze for the products of MNCs. This help the MNCs to expand
the market of their products in developing countries. Main reasons for the
growth of MNCs are as follows :–
1. International Image :– Due to International Image, the MNCs sell their
products easily. These MNCs have sufficient resources, they want to start
their operation wherever. Because of the international image these
corporations are welcomed in all parts of the world.
2. Technological Superiority :–Technology of MNCs is better than the
technology of domestic entrepreneurs. MNCs can start any high
technology industry. Because of the technological superiority MNCs are
welcomed all over the world. MNCs provide good quality products. It
utilize the unutilized resources in developing countries is possible with
the help of technological superiority of MNCs.
3. Financial Superiority :–The size of MNCs is very big and it hold a large
amount of financial resources. MNCs have capacity to start any type of
business which require a large amount of capital. Domestic
entrepreneurs cannot start such ventures because of lack of capital. Due
to international image the MNCs raise financial resources from domestic
and foreign capital markets.
4. Marketing Superiority :–Marketing Superiority is strength of the MNCs.
MNCs enjoy better marketing superiority because of many reasons such
as international image, well reputed brands, good quality products,
effective sales promotion programmes, reliable market information
system etc.
5. Research and Development Capabilities :– MNCs have set up the
Research and Development Department for improving the existing
products and development of new products. Research and Development
facility helps the MNCs to timely upgrade the technology and invent the
new method of products through which cost per unit can be reduced and
quality of product can be improved.
For the above reasons the Indian Small Scale Sector can not survive the
competition from Large Scale Sector MNCs. The MNCs have various
advantages and disadvantages for the country which is explained as below :-
Advantages of MNCs :–
1. Availability of Capital.
2. Availability of Latest Technology.
3. Increase the Exports.
4. Increase the Knowledge.
5. Availability of Marketing Services.
6. Increase the Competition.
7. Increase in Employment.
8. Availability of Foreign Exchange.
Disadvantages of the MNCs :–
1. Competition with Small Scale Industries.
2. Less use of Modern Technology.
3. Producing Prohibited Goods.
4. Political Interference.
5. Unbalanced Regional Development.
6. Harmful for Consumers.
7. Outflow of funds from Host Country.
8. Provide non-essential products.
9. Purchase of Raw Material from Foreign Subsidiaries.
10. Lack of Morality and Ethics.
Q. Write short note on World Trade Organisation (WTO).
Ans. World Trade Organisation was established on 1st January, 1995. It took
over GATT. World Trade Oganisation was formed to promote free trade among its
member nations. The main objective is to promote trade among many nations in
goods and services by removing tariff and non tariff barriers. Tariff barriers
means import duties and non tariff barriers means import quotas, import
licensing etc. WTO is an International Trade Organisation which have set of
rules and principles. It includes trade in goods, trade of services, protection of
intellectual property rights, foreign investment etc.
Features of WTO :– The main features of the WTO is explained as follows :–
1. It is an international organisation to promote trade among many
nations.
2. It promotes free trade by remove tariff and non-tariff barriers in
international trade.
3. It took over GATT.
4. It has fined set of Rules and Regulations.
5. WTO has a large secretariat and huge organisational set up.
6. WTO members have equal voting rights.
7. Unlike IMF and World Bank, WTO is not an agent of United Nations.
8. It includes trade in goods, trade of services, protection of intellectual
property rights, foreign investment etc.
Arguments in favour of WTO :–
1. Increase in foreign trade.
2. Increase in inflow of foreign investment.
3. Improvement in services.
4. Increase in agricultural exports.
5. Inflow of better technology
6. Benefits of multilateral trade system.
7. Better Quality products.
8. Restricts Dumping.
9. Promotion to Research.
10. Benefits for clothing and textile industry.
Arguments against WTO :–
1. Loss to Domestic Industries.
2. Disadvantages to Service Sector.
3. Increase in Unemployment.
4. Disadvantage to Agricultural Sector.
5. Effects on Prices.
6. Loss to Regional Groupings.