Subject: - Business Environment

Unit 4

By: -K.R.Ansari

Economic policy: -The new economic policy involves three aspects like liberalization, Privatization, and Globalization. Globalization means having minimum possible restrictions in economic relations with other countries. This includes the free movement of labor, capital, goods, ideas, technology, etc. The foreign direct investments as invested by Pepsi, Coca Cola, banking companies, and foreign institutional investments through stock exchanges are some examples for investments. One of the primary objectives of the government is to reduce the proportion of population depending on primary activities like agriculture, forestry, poultry, etc and to increase its dependence on secondary and tertiary activities. The secondary activities are related to manufacturing industrial sector. The tertiary economic activities are the services sector. The new economic policy is responsible for increase in the GDP growth rate as well as its contribution to the world GDP. India's contribution to the world's GDP has risen to 2% in 2007 when compared to 0. 9% in 1980. This increase is mainly contributed by services sector as the industrial growth rate in India has been declining in the recent years. The macroeconomic indicators are: 1. Economic growth rate: 8%, 2. Full employment, the present unemployment rate in India is around 7. 1% 3. Balance of payments, as on 5th December 08 the foreign exchange resources stood at $245. 857 billion, 4. Price stability, the present inflation rate in India is about 6. 3%. In India nearly 65% of population still depends on agriculture and allied activities like poultry, dairying, etc for their livelihood. The government should make more and better efforts to improve the employment avenues for the unemployed during the agricultural lean season. The rural uneducated and unskilled seem to be enjoying only the wide satellite television channel network, cheap cell phones, and other goods in this globalized era. But the urban rich seem to be highly profited by the new economic policy. Infrastructure facilities like electricity, transportation, communication, credit, marketing, irrigation, education, and health facilities are yet to reach the poorest of the poor. Approximately 30% of 115 crore Indians is still living below the poverty line. This proportion of the population can neither afford costly infrastructure nor is happy with the available social infrastructural facilities in their villages and some urban areas. The Globalization policy has been successful so far in the economic development of the nation but the regional imbalances, inter personal variations in development, and other gaps have to be taken care of further to achieve the constitutional goal of transforming Indian society into an egalitarian society.

Subject: - Business Environment

Unit 4

By: -K.R.Ansari

LIBERALISATION Liberalization In economics, liberalization applies to any act of freeing up regulations in order to promote world trade. In general, liberalization refers to a relaxation on government restrictions, usually in areas of social or economic policy. It refers to the process of eliminating unnecessary controls and restrictions on the smooth functioning of business enterprises. It includes: (i) Abolishing industrial licensing requirement in most of the industries; (ii) Freedom in deciding the scale of business activities;. (iii) Freedom in fixing prices of goods and services; (iv) Simplifying the procedure for imports and exports; (v) Reduction in tax rates; and (vi) Simplified policies to attract foreign capital and technology to India. Impact of Liberalization Through this liberalization process, Indian Economy has opened up and started interacting with the world in a big way. This has resulted in easy entry of foreign business organizations in India. This has further resulted in stiff competition and efficiency. Ultimately, liberalization has helped us in achieving a high growth rate, easy availability of goods at competitive rates, a healthy and flourishing stock market, high foreign exchange reserve, low inflation rate, strong rupee, good industrial relations, etc. PRIVATISATION Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector (the state or government) to the private sector (businesses that operate for a private profit) or to private non-profit organizations. In a broader sense, privatization refers to transfer of any government function to the private sector - including governmental functions like revenue collection and law enforcement. Privatization refers to reducing the role of public sector by involving the private sectors in most activities. Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a halt and the private sector registered fast growth in the postliberalized period. The issues of privatization include: (i) Reduction in the number of industries reserved for the public sector from 17 to 8 (reduced further to 3 later on) and the introduction of selective competition in the reserved area; (ii) Disinvestment of shares of selected public sector industrial enterprises in order to raise resources and to encourage wider participation of general public and workers in the ownership in business;

Subject: - Business Environment

(iii)

Unit 4

By: -K.R.Ansari

Improvement in performance through an MOU system by which managements are to be granted greater autonomy but held accountable for specified results.

In India, as a result of these steps, the post liberalization phase has witnessed a massive expansion of the private sector business in India. You can have an idea of their expansion from the fact that the total capital employed in top 500 private sector companies rose from Rs. 1,39,806 crores in 1992-93 to Rs. 2, 34, 751 crores in 1994-95 (an expansion of 68% in just two years). Impact of Privatization on Indian Business 1. It frees the resources for a more productive utilization. 2. Private concerns tend to be profit oriented and transparent in their functioning as private owners are always oriented towards making profits and get rid of sacred cows and hitches in conventional bureaucratic management. 3. Since the system becomes more transparent, all underlying corruptions are minimized and owners have a free reign and incentive for profit maximization so they tend to get rid of all free loaders and vices that are inherent in government functions. 4. Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources. 5. Reduce the government's financial and administrative burden. 6. Effectively minimizes corruption and optimizes output and functions. 7. Gets rid of employment inconsistencies like free loaders, or over employed departments reducing the strain on resources. 8. Private firms are less tolerant towards capitulations and appendages in government departments and hence tend to right size the human resource potential befitting the organization's needs and may cause resistance and disgruntled employees who are accustomed to the benefits as government function arise. 9. Permit the private sector to contribute to economic development. 10. Development of the general budget resources and diversifying sources of income. Globalization Globalization refers to the increasing unification of the world's economic order through reduction of such barriers to international trade as tariffs, export fees, and import quotas. The goal is to increase material wealth, goods, and services through an international division of labor by efficiencies catalyzed by international relations, specialization and competition. It describes the process by which regional economies, societies, and cultures have become integrated through communication, transportation, and trade. The term is most closely associated with the term economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, the spread of technology, and military presence.[1] However, globalization is usually recognized as being driven by a combination of economic,

Subject: - Business Environment

Unit 4

By: -K.R.Ansari

technological, socio-cultural, political, and biological factors.[2] The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. An aspect of the world which has gone through the process can be said to be globalized. Against this view, an alternative approach stresses how globalization has actually decreased inter-cultural contacts while increasing the possibility of international and intra-national conflict. Effects of Globalization on Indian Industry started when the government opened the country's markets to foreign investments in the early 1990s. Globalization of the Indian Industry took place in its various sectors such as steel, pharmaceutical, petroleum, chemical, textile, cement, retail, and BPO. The various beneficial effects of globalization in Indian Industry are that it brought in huge amounts of foreign investments into the industry especially in the BPO, pharmaceutical, petroleum, and manufacturing industries. As huge amounts of foreign direct investments were coming to the Indian Industry, they boosted the Indian economy quite significantly. The benefits of the effects of globalization in the Indian Industry are that many foreign companies set up industries in India, especially in the pharmaceutical, BPO, petroleum, manufacturing, and chemical sectors and this helped to provide employment to many people in the country. This helped reduce the level of unemployment and poverty in the country. Also the benefit of the Effects of Globalization on Indian Industry are that the foreign companies brought in highly advanced technology with them and this helped to make the Indian Industry more technologically advanced. Multi nation al Corporation A multinational corporation (or transnational corporation)( M N C / T N C ) i s a corporation or e n t e r p r i s e t h a t m a n a g e s production establishments or delivers services in at least two countries. V e r y l a r g e m u l t i n a t i o n a l s h a v e b u d g e t s t h a t exceed those of many countries. Multinational corporations can h ave a pow erful influen ce in international relations and local economies. Multinational corporations play an important role in globalization. In other words MNCs are such companies or institutions that meet out the services and the productions to many countries and there institutions. They serve the customers and the institution best and simultaneously the magnetic chemistry between the country and the foreign MNCs has shown some fruitful results too. Off late the scope of international's performance in India has widened and these influxes in the flourishing on the varied scope are due to the talent and the cost factor that brings the MNCs here. Multinational Companies in India: There are a number of reasons why the multinational companies are coming down to India. India has got a huge market. It has also got one of the fastest growing economies in the world. Besides, the policy of the government towards FDI has also played a major role in attracting the multinational companies in India. For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a result, there was lesser number of companies that showed interest in investing in

Subject: - Business Environment

Unit 4

By: -K.R.Ansari

Indian market. However, the scenario changed during the financial liberalization of the country, especially after 1991. Government, nowadays, makes continuous efforts to attract foreign investments by relaxing many of its policies. As a result, a number of multinational companies have shown interest in Indian market.The pos t financia l lib er at ion era in India has experienced h u g e influx of M u l t i n a t i o n a l C o m p a n i e s i n I n d i a a n d propelled India's economy to greater heights. Although, majority of these companies are of American origin but it did not take too long for other nations to realize the h u g e p o t e n t i a l t h a t I n d i a I n c o f f e r s . Multinational C o m p a n i e s i n I n d i a represent a diversified portfolio of c o m p a n i e s r e p r e s e n t i n g d i f f e r e n t n a t i o n s . I t i s w e l l documented that A merican co mp anies accounts for around 37% of the turnover of the top 20 firms operating in India. B u t , t h e s c e n a r i o f o r ' M N C i n I n d i a ' h a s c h a n g e d a lot in recent years, since more and more firms from European U n i o n l i k e B r i t a i n , I t a l y , F r a n c e , G e r m a n y , N e t h e r l a n d s , F inland , B elg ium etc have outs ourced their w ork to India. F innis h mobile h an d s et manufacturing giant N okia has the second largest base in India Advantages of growing MNCs in India There are certain advantages that the underdeveloped countries like and the developing countries like India derive from the foreign MNCs that establishes. They are as under: Initiating a higher level of investment. Reducing the technological gap. The natural resources are utilized in true sense. The foreign exchange gap is reduced. Boosts up the basic economic structure.