Business and government

1. MANAGERIAL ECONOMICS BUSINESS AND GOVERNMENT

2. ROLE OF GOVT IN BUSINESS Individual freedom for production, process and consumption Co-existence of public and private sector Planning Social welfare like development of backward regions, increasing employment and infrastructure development

3. WAYS IN WHICH GOVT MAY INFLUENCE BUSINESS OPERATIONS Public Enterprises Price fixation (MRP) Subsidies Direct and indirect intervention through taxation and quota system

4. PUBLIC PRIVATE PARTICIPATION (PPP) PPP is co-operative institutional arrangements between public and private enterprises. PPPs are co-operation of some sort of durable activity between public and private sectors in which they jointly develop products and services and share risks, costs and resources which are connected with these products Contd …

5. PUBLIC PRIVATE PARTICIPATION (PPP) Contd … Has gained wide interest around the world New way to handle infrastructure projects Can benefit both public and private sectors Reduces pressure on government budgets

6. CHARACTERISTIC FEATURES OF PPPs Co-operative and contractual relationship Shared responsibilities A method of procurement of capital, assets or infrastructure Risk transfer Flexible ownership

7. PPP APPRAISAL COMMITTEE Consists of Secretary of Planning Commission Department of expenditure Dept. of legal affairs and Dept sponsoring the project Chairmanship of Secretary of department of economic affairs

8. ACTIVITIES UNDERTAKEN MINISTRY OF FINANCE – NODAL CENTRE Examines, scrutinizes and makes concession agreements PLANNING COMMISSION Sets up a PPP appraisal unit to prepare a report for improving the concessional terms DEPT OF LEGAL AFFAIRS Scrutinizes the legal perspective PLANNING COMMISSION AND FINANCE MINISTRY Engages experts to undertake due diligence COMPETENT AUTHORITY Accords final approval

9. BENEFITS OF PPP To the Public Sector: Helps govt in raising capital, expertise and infrastructure to render better service in an effective manner to the general public To the Private Sector: Gets long term business opportunities

10. DISADVANTAGES OF PPP Public Sector may lose its control and efficiency May become time consuming and expensive instead of being cost effective Some times, private sector may not be flexible in agreements

11. MAJOR REASONS FOR FAILURE OF SOME PPP PROJECTS Insufficient resources Poor drafting Lack of experience Inadequate monitoring

12. INDIAN EXPERIENCE Over 70% of the projects were on strengthening roadways and railways and building ports 11 PPP projects dealt with urban infrastructure (8 solid waste management, 2 water and sanitation and 1 bus terminal project) Total cost awarded $ 339 billion (55% for ports, 36% for roadways and (5% on airport development) CII has organized many training programs at Central and State level

13. INDUSTRIAL FINANCE AND FOREIGN DIRECT INVESTMENTS INDUSTRIAL FINANCE Life blood of business Modern business requires huge capital Long term and short terms funds requirement Needed for purchase of fixed assets like land, building, machinery, etc. Capital required to purchase fixed assets is called as fixed capital

14. PURPOSE OF INDUSTRIAL FINANCE To finance fixed assets To finance permanent part of working capital To finance growth and expansion of business

15. DETERMINANTS OF INDUSTRIAL FINANCE Nature of business Nature of goods produced Technology adopted

16. MAJOR SOURCES OF INDUSTRIAL FINANCE Shares Debentures Public Deposits Retained earnings Terms loans from banks Loans from financial institutions FDI

17. FOREIGN DIRECT INVESTMENT FDI refers to the net inflows of investments to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy FDI can be classified as inward FDI and outward FDI. FDI Can be a loan, collaboration or borrowing. The Major investors in FDI are individuals, grou7ps, private and public entity

18. NEED FOR FDI IN INDIA Sustaining high level of investment Technological gap Exploitation of natural resources Facing the initial risk Development of basic infrastructure Improvement in balance of payments position Facing completion

19. DETERMINANTS OF FDI Stable policies Economic factors: Interest on loans, tax breaks, grants, subsidies and removal of restrictions Cheap and skilled labour Basic infrastructure Unexplored market Availability of natural resources

20. ADVANTAGES OF FDI TO HOST COUNTRY Availability of scare factors of production Improves balance of payments Building economic and social infrastructure Fostering economic linkage Strengthening govt budget

21. DISADVANTAGE TO HOST COUNTRY Employment of expatriates Unhealthy competition Cultural and political issues

22. ADVANTAGES OF FDI TO HOME COUNTRY Improves availability of raw material Improves balance of payments of the country Creates more employment Creates more revenue Builds political relations Gets better investment opportunity

23. DISADVNTGES TO HOME COUNTRY Too much exploitation of factors of production Conflict with govt of host country

24. TOP 5 COUNTRIES DIRECTING THEIR FDI TO INDIA Country Mauritius Singapore USA UK Netherlands % of total inflows 42 9 7 5 4

25. SECTOR-WISE FDI Sectors % Services sector 21 Computer software and hardware 8 Telecommunication 8 Housing and real estate 7 Construction 7 Auto 5 Power 5

26. FLOW OF FDI AND FII IN US $ IN MILLIONS Year Total FDI flow FIIs 2000 4029 1847 2001 6130 1505 2002 5035 377 2003 4322 10918 2004 6051 8686 2005 8961 9926 2006 22826 3225 2007 34835 20328 2008 37838 (15017) 2009 37763 29048 2010 27024 29422

27. Thank you!!!