Business Environment MMS_Bedekar_23-24 Term II - Copy.ppt

Business environment study

1. Suhas Vinayak Vaishampayan.
M.A (Economics), B.Ed, M.B.A, Ph.D(Management)
Year 2023-2024
[email protected]
Mob 9869198370

2. Definition of Business:
Modern business covers complex field of industry and commerce which
involve activities related to both production and distribution. These
activities on one hand satisfy society's needs and desires of the people and
on the other hand provide profit to business firm.
Activities are undertaken for profit then only it is called as
business.
Characteristic of Indian company:

3. Theminimum revenue needed to make it to this year’slistwas $7.24 billion, about
$850 million more than last year’s $6.39 billion.These10 companies topped the Fortune
500 listof 2023.
1.WalmartUSA
2.Amazon USA
3.Exxon Mobil USA
4.Apple USA
5.UnitedHealth Group USA
6.CVS Health USA
7.Berkshire Hathaway USA
8.Alphabet USA
9.McKesson USA
10.Chevron USA
Indian Companies in fortune 500 in 2023 : https://www.zeebiz.com/web-stories/trending/top-8-
indian-companies-in-fortune-500-global-list-reliance-lic-ongc-sbi-1696853965987

4. List of Global top 10 company in 2021
1: Walmart USA First for last Eight Consecutive years and 16 times since 1995
2: State Grid China
3: Amezon.com USA
4; China National Petroleum China
5: Sinopec China
6; Apple USA
7: CVS health USA
8: Unite Health Group USA
9: Toyota Motors Japan
10: Volkswagen Germany
China highest with 143 company including Taiwan Usa with 122 followed
by Japan 53

5. Rank
Company
Country Industry
Revenue in
Billion $
1Walmart United States Retail $523.96 billion
2
Sinopec Group
China Power $349 billion
3State Grid China Petroleum$383.9 billion
4China National PetroleumChina Petroleum$379.1 billion
5Royal Dutch Shell
NetherlandsUnited
Kingdom Petroleum$352.1 billion
6SaudiAramco Saudi Arabia
Petroleum
$329.7 billion
7Volkswagen Germany Automobiles$282.7 billion
8BP United Kingdom Petroleum$282.6 billion
9
Amazon
United States
Internet
Services and
Retailing$280.5 billion
10Toyota Motors Japan Automobiles$275.2 billion
Source: https://fortune.com/global500/
Characteristic of Global company : Large size. Fortune 500 as per 2020 list.

6. List of Indian companies in fortune 500 in 2021
1: Reliance Rank 155
2: SBI Rank 205
3: Indian Oil Rank 212
4: ONGC Rank 243
5: Rajesh Exporters Rank 348
6: Tata Motors 357
7: Bharat Petroleum Rank 394

7. Name of the company Rank Revenue in $ Billion
RELIANCE INDUSTRIES(RIL) 96 86
IndianOil Corp (IOC) 151 69
OIL AND NATURAL GAS
CORP(ONGC)
190 57
STATE BANK OF INDIA (SBI)221 51
BHARAT PETROLEUM 309 40.4
TATAMOTORS 337 37.2
RAJESH EXPORTS 462 27.5
Source: Source:
http://www.business
world.in/article/India
n-Companies-
Appeared-In-Fortune-
500/15-08-2020-
308941
And
https://fortune.com/g
lobal500/2020/search
/
List for 2020

8. Characteristic of Global company : Large size. Fortune 500 as per 2018 list.
Rank
Company
Country Industry
Revenue in
Billion $
1Walmart United States Retail$523 billion
2State Grid China Power $349 billion
3Sinopec Group China Petroleum$327 billion
4China National PetroleumChina Petroleum$326 billion
5Royal Dutch Shell
NetherlandsUnited
Kingdom Petroleum$312 billion
6Toyota Motor Japan
Automobil
es $265 billion
7Volkswagen Germany
Automobil
es $260 billion
8BP United KingdomPetroleum$245 billion
9Exxon Mobil United States Petroleum$244 billion
10Berkshire HathawayUnited States Products$242 billion

9. Rank Country
No of
companies
10Canada 12
9Switzerland 14
8Netherlands† 15
7South Korea 16
6United Kingdom† 21
5France 28
4Germany 32
3Japan 52
2China 120
1United States 126
As per 2018 list

10. Characteristic of Global company :
Large size. Fortune 500 as per 2016 list.
Name of the company Revenue in Million Dollars
Wall Mart ( USA ) 482130
State Grid ( China ) 329601
China National Petroleum
( China )
299271
Sinopec Gorup( China ) 294344
Royal Doutchshell
( Netherland )
272156
Exxon Mobile ( USA ) 246204
Volkswagen ( Germany ) 236600
Toyota Motors ( Japan ) 236592
Apple ( USA) 233715
B.P. ( U.K ) 225982

11. IndianOil Corp
(IOC
Rank-
137 $65.9 billion,
RELIANCE INDUSTRIES(RIL) RANK-148 $62.3 billion
OIL AND NATURAL GAS
CORP(ONGC) RANK-197 $51.2 billion
STATE BANK OF INDIA (SBI)RANK-216 $47.5 billion
TATAMOTORS RANK-332 $45.8 billion
BHARAT PETROLEUM RANK-314 $45.8 billion
RAJESH EXPORTS RANK-405 $29.1 billion
Indian Companies in fortune 500 in the year 2018

12. There are 139 American companies followed by Japan 71 and China 46
As per 2010 list
There are 133 American companies followed by Japan 68 and China 61
As per 2011 list
Indian Company in Fortune 500 list as per 2016:
Indian Oil Corporation (161st)
Reliance Industries (215th)
Tata Motors (226th)
State Bank of India (232nd)
Bharat Petroleum (358th)
Hindustan Petroleum (367th)
Rajesh Exports (423rd)

13. Position as per 2014 list
Reliance Industries Position no 114
Tata Steel Position no 486
Indian Oil Corporation Position no 96
BPCL Position no 242
HPCL Position no 284
ONGC Position no 424
Tata Motors Position no 287
State Bank of India Position no 303

14. Oligopolistic Nature of Business:
Firms are few in number and selling homogeneous or
differentiated products. Action taken by one firm in respect of price,
product, advertisement is likely to evoke retaliation from other
firm in the same line of business. If one firm reduce price other
firms follow the same path, it leads to price war and hence
everybody is losing.
Most of the firm likely to observe non price competition

15. Diversification :
Modern business in its attempt to grow overtime has taken
recourse to diversification.
However diversification may not always contribute to growth of a
business enterprise. In recessionary phase it is quite risky to
aspire for growth by going for unplanned diversification.

16. Technology oriented :
In the competitive environment without technological
advancement companies cannot produce a quality product
at a competitive rate.
Companies are spending more on R&D. More research is
made is the country from where company originates from.

17. Government control:
Government creates an environment which will promote
business. As market economy faces the problem of business
cycles may at times government intervention is required.
In the present recession government of every country gave
bailout package to Industry.

18. India's sprawling $150(2023) billion diversified Tata conglomerate was searching for a
successor to chairman and chief executive Ratan Tata. Appointed Cyrus P.Mistry
as deputy chairman of Tata sons on 23
rd
Nov 2011, became Chairman in 2012
and Natarajan Chandrasekaran in 2017 .
The history of seven chairmen in the group of 156 years.
1868-1904 –Jamseth Nusserwanji Tata Laid the foundation of what would grow
To become Tata group. He trained in England and establish a trading company
And textile mill in India. He set up Indian Hotel company and build Taj Mahal Palace
And tower, India's first luxury hotel which open in 1903. He also established the J N Tata
Endowment to encourage Scholars to take up higher studies. It was the first of many
Philanthropic trust by the Tata group which today controls 65.8% of the share of Tata sons,
the group holding Company.

19. Sir Dorab Tata –1904-32.
Established Tata Iron and Steel company now Tata steel in 1907. He set up
its first office overseas, Tata Ltd. In London. He built the Tata oil mills to
make soap, detergents, and cooking oil which was sold in 1984 to
Company now called Hindustan Unilever

20. Sir Nowroji Saklatwala 1932-38 –Jamsetji's sister son. Died of
heart attack after a brief stint (NOT DONE MUCH FOR TATA
GROUP) at the top.
1931-91 –Jehangir Ratanji Dadabhoy Tata –Known as JRD.
He was the longest outstanding chairman of Tata group. He
diversified group. In 1932 he founded Tata aviation service
(now state owned air India). Also founded Tata chemicals
(1939), Tata Motors and Tata Industries both 1945, Voltaz
(1954), Tata Tea presently called Tata Global Beverages (1962),
Tata consultancy services (1968) and Titan Industries (1984).

21. RatanTata 1991 till Dec 2012
He founded Tata Teleservices and also designed and launch Indica, India's first
indigenously developed car.
Under his reign the group acquired VSNL India's top international telecom
Service provider. He took Tata consultancy services public in 2004 and designed
and launched the Nano, the world cheapest car in 2008. He led the acquisition of
Anglo Duchstelmaker Corus, British luxury auto brand Jaguar and Land rover and a
British tea firm Tetley. Also form a joint venture between the Tata group and
American international group.
Tata has grown mainly through acquisition, from $ 5 Billion group to 100 Billion
giants during RatanTata's time in charge.
.

22. Cyrus Pallonji MistryMid 2012 to Oct 2016:
(born 4 July 1968) is an Irish businessman of Indian origin. He was the chairman ofTata
Group, an Indian business conglomerate, from 2012 to 2016.He was the sixth chairman of
the group, and only the second (afterNowroji Sakadwala) to not bear the surnameTata.In
mid-2012, he was chosen by a selection panel to head the Tata Group and took charge in
December the same year. In October 2016, the board of Tata Group's holding company,Tata
Sons, voted to remove Mistry from the post of chairman after offering him an opportunity
to resign voluntarily
Natarajan Chandrasekaran 2017 till date:
Hewas appointed as chairman on January 2017. He was instrumental in restructuring
business verticals and increasing promoter stake ownership in companies. Under his
leadership, the group made acquisitions through insolvency law and investments in E-
commerce, expanded airlines business by winning bid for Air India and completely buying
Air Asia India. He has mentioned the future strategy is to focus on healthcare, electronics,
and digital.

24. State bank of India has asset worth US 640 Billion $ and 22219 branches, including 229
Foreign branches in 31 countries and 62617ATM making it the largest banking and
financial Services Company in India by assets, World wide has already started
Restructuring process. It is 43
rd
largest bank in the world, ranked 235th in theFortune
Global 500list of the world's biggest corporations of 2023, being the only Indian bank on
the list. SBI will ramp up retail banking in USA, UK, Canada, and west Asia after having
Done in Singapore. The lender whose overseas operations have focus on corporate
banking, now Will also deploy dedicated sales teams abroad and change the business
model Abroad to attract local client. Additional efforts are on to acquire small and
medium size banks in Africa and South east Asia having large branch presences.

25. •The CNN IBN, Network 18 recognized this momentous transformation
journey,
•the State Bank of India is undertaking, and has awarded the
prestigious
•Indian of the Year –Business, to its Chairman, Mr. O. P. Bhatt in
January 2008
•SBI also adjudged as the best bank 2009 by Business India August
2009
•Bank has got may more awards such as best customer initiative
awards and the
•Best on-line banking award in the year 2010.

26. Environment of business:
Environment by definition is something external to an individual or
organization. Therefore, in strict sense business environment refers to all
external factors which have a direct or indirect impact or bearing on activities
of business.
Some expert have used the term business in a broad sense. They have defined
business environment as internal and external factors that have direct or
indirect impact on business or business activities.

27. Internal environment:
Value System:
No business firm is established for philanthropic purpose. But persons holding top
positions in certain modern corporate enterprises have some values which influence
their policies, practices and overall internal environment. These values can be positive or
negative.
Goals and objective: Apart from traditional goals every organization or a company has
got vision and mission.
Mission –Role that organization plays in a society or purpose behind existence of
organization.

28. Mission statement of Apple:
Apple designs Macs, the best personal computers in the world, along with
OS X, iLife, iWork and professional software. Apple leads the digital music
revolution with its iPods and iTunes online store. Apple has reinvented the
mobile phone with its revolutionary iPhone and App Store, and is defining
the future of mobile media and computing devices with iPad.
Samsung's mission statementis "Inspire the world, create the
future." As one of the leading electronics companies in the world, Samsung
Electronics is characterized by new technology, creative solutions and
innovative products.

29. U T I:
To keep a common man is sharp in sharp focus to encourage saving and investment habits
among them.
Tata Motors passenger car Business Unit:
To be the most admired multinational Indian car company producing vehicles that people
love to buy. Create an organisation that people enjoy working for, doing business and with
investing in it.

30. Management structure :
How is the Board of Directors!
1 Made up of Family members
2 Professionals
3 How quick decisions are taken?
Inter power relationship :
Relationship between
Board ---Sr. Management (Executive) --Share holders.

31. Technology:
Natural resources innovation and technology indicate potential for
development.
Companies are required to spend more money on Technology
development as it is not advisable to relay on Technology
developed by other countries in the world as these country may
not be giving you latest technology.
If you want to be globally competitive you should develop your
own technology

32. Technology and
Innovation
Hard Technology
and
soft Technology
Productivity Gains
Economic Growth
Optimum
use of
resources
Better standard of
living, better health,
better society.
Technology is one of the key factors considered by world economic forum to evaluate global competitiveness
of nations.
Information technology through email, internet enables dissemination of knowledge and e commerce made
the world small and market big

33. Human Resources :
The quality of human resources of a company depends
largely on skill, commitments, attitude and morale of the
employee. Whether these employees work in company or for
company makes all differences in the work culture of the
company.
Company concern for employee and employee concern for
Company both grow.
Problems of today's employees –Nuclear family, Travelling.

34. External Environment
Micro Macro
Micro Environment refers to all those factors which are out side organization but
having impact on the organization under study.
Macro Environment : It refers to all those economic and non Economic factors which
exercise their influence on the business activity in general and thus determine
opportunities that a company may have to promote its business.

35. External micro environment :
1 Shareholders
2 Workers union ( Employee )
3 Customers
4 Public
7 Supplier.
5 Competitors
6 Market intermediaries
These are also stakeholders of the company and part of the society hence company is
also expected to fulfill her obligation toward them. We can call it as social
responsibility of a company.
Why CSR? Is it Mandatory?
As per Companies Act 2013 it is mandatory for companies to spend 2% of their net
Profit on CSR.

36. 1 Shareholders:
Shareholders are interested not only in wealth creation but also in the social performance and image of the
Company in the world. They are looking for perpetual survival of the company. They have taken risk by
Subscribing to capital and hence should get reasonable dividend.
2 Employees:
Success of the organization depends upon the morale of the employee and their wholehearted cooperation.
Company’s responsibility towards workers includes payment of fair wages, best possible working conditions,
Training and education of the employees, promotions, grievance handling, employees welfare etc.
3 Customers:
Customer is the foundation of a business. Customer satisfaction is the key to achieve original goals. Better quality
Of the product, after sale service, continuous improvement in the product, research and development, reasonable
Price etc.
4 Society/ Public:
A business has a lot of responsibility to the community around its location and to the society and world at large.
Protection of environment and preservation of ecological balance, conservation of scarce resources, development
of backward areas, making contribution to social cause, rehabilitation of displace population etc. It is impossible
To run a business without public support.

37. Suppliers :
Regular supply, Reasonable price, Keep more suppliers so that supply can be without interruption
over a long period of time. Supply of raw material should be made just in time.
Marketing Intermediaries :
Wholesalers, Retailors, distributors are playing important role in taking product to end customer. It is
difficult for companies to reach every customers, hence intermediaries are required.
Competitors :
Companies prefer non price competition as products are highly differentiated
Macro environment
Economic Non economic

38. Economic Environment
National Global
National Environment :
1 Nature of economic system
2 Macro economic scenario
3 Business cycle affect business activities
4 Role of financial system
5 Economic policies

39. Nature of economic system :
What is economic system:
Economic systems are mechanism to solve economic problem.
Economic systemsare the means by which countries and
governments distribute resources and trade goods and services.
They are used to control the five factors of production,
including: labour, capital, entrepreneurs, physical resources and
information resources.
Important Economic systems are
1 Capitalism / Market economy.
2 Communism / Socialism.
3 Mixed Economy.

40. All the above systems can be differentiated on the basis of
Following factors.
1 : Private ownership.
2 : Production for profit?
3 : Price mechanism
4 : Exploitation of Labour
5 : Inequality of labor
6 : Class contradiction(classless society)
7 : Private sector
8 : Government role

41. Macro economic scenario : It also affect the business.
1 Rate of economic growth –More economic growth after
Liberalization particularly after 2003-4. Business prefer fast
growing economies.
2 Inflation –controlled inflation is always good for economy
as it accelerate economic growth. During last year inflation
Was More. But at present it is under controlled and even
Negative In between.
3 Rate of saving –For rapid economic growth and for capital
Formation more saving is required. Saving rates in India are
Quite attractive. Between 1980-1990 China, Korea, South east
Asian country like Malaysia, Thailand and Indonesiahave
Investment rate of 30% . They registered a rapid rate of
economic growth.

42. Fiscal imbalance –It can create a problem of the economy
To grow and develop. India adopted FRBM act to have
fiscal balance.
Balance of payment deficit –It is always better to have
Favorable balance of payment.
How business cycle affect business activities –During
Boom business and Industry grow rapidly and during
downturn business activity contract.
Role of financial system –Business require funds for short
Term and long term. Money market provide short term funds
and capital market provides long term funds. For prosperity
Of business, economy should have developed money and
capital Market. Indian money market is organized and
unorganized

43. Similarly capital market is divided in to financial
institution and Security market.
Security market is further classified in to new Issue
market(primary market) and stock market.
Economic policies –There are several economic policies
Playing key role in business development. Few of them
are a) Industrial policy, Fiscal policy, Monetary policy,
Trade policy, Agriculture policy etc.

44. Non economic Environment:
1 Political and legal Environment:
2 Socio cultural Environment:
3 Demographic Environment:
4 technological Environment:
5 NaturalEnvironment:

45. Influence of political environment on Business.
Political system prevailing in the country decides, promotes, foster, encourage, shelter, directs and controls the
Business activity of that country.
A political system which is stable, honest, efficient, dynamics, which ensures political participation of the people
and assures personal security to citizens is primary factor of economics development. The rich country of today owed
Their success to political systems they really enjoy.
All the countries today a secure political context was stressed in both thought and action on economic development.
Totalitarian or authoritarian
Individual freedom is completely
subordinated to the state. The total
control is in the hands of one
person or a small group of the
people.
Democracy
Pure democracyRepresentative democracy.
Political philosophy
Each individual is given the right to vote
Important matters in pure democracy.

46. Totalitarianism from of a political system is of four types.
1)Theocratic
2)Secular
3)Right wing
4)Tribal.
Theocratic:
Here religious leader also act as a political leader. Laws are based on religious belief. For example
Afghanistan, Iran, some Shaikh domes of middle east etc.
Secular: Political leaders are guided by military and bureaucratic power. Military controls the government and
makes
decisions in the best interest of the country. For example Pakistan, North Korea, Taiwan, Singapore, Indonesia,
Philippines. This form of government is loosing its ground. The above countries are giving political freedom to
people.
Right wing: Private ownership of property is endorsed by the government, market forces are allowed A free play
but
political freedom is rarely granted by the government. China is the best example. Argentina, Brazil, Chile.
Tribal: Political party that represents the interest of a particular tribe monopolise the power. For example
African
countries, Zimbabwe, Tanzania, Uganda, Kenya.

47. •What is good?
•Democracy or Dictatorship?
•No answer to which is better. Because both form of system have shown good progress and bad progress of
business.
•Economic progress is influenced by many variables other than political and civil liberties such as countries
tax system,
•Policies towards foreign and domestic investment, judiciary, political stability etc.
Political system under democratic dispensation like India comprises of three/ four institutions.
Legislators
Executives
Judi
Press
Judiciary:
Legislature: Most powerful institution vested with powers of forming policies,
laws, budget etc. Influence of legislature on business is considerable for
example who should own the business? what should be its size? Etc.
Executive: They control the structure and functioning of the society.

48. Judiciary:
To check whether executives are working as per the law and ensure that the law is interpreted in its true
meaning.
Press: Job of the press is to report happenings in the economy and society to public.
There are four basic legal system
Islamic law:
Derived from interpretation of Quran. Example all Muslim countries. Surrender to the will of the god.
Manager should keep in mind that laws are interpreted differently by different countries.
Common Law:
Derived from English law. Example all countries which were under British rule.
Civil or code Law:
Derived from Roman law. Found in Germany, Japan, France etc. Seen in non-Marxist non-Islamic countries.
Marxist Legal system: Systems prevails in communist countries.

49. Business obligation to Government:
Payment of Tax
Providing information to government on business matters
Government contract
Provide service to Government on various advisory Board.
Take active part in political activity
Help government during natural calamities by generously donating money.
Government Obligation towards Business:
Establishment and enforcement of law and order.
Providing adequate money and credit
Orderly growth-Balance regional, full employment, protect economy against recession etc.
Provide adequate and quality infrastructure
Provide information to government to formulate appropriate policy
Assistance to small scale industry
Help to transfer technology
Compete with private sector enterprises

50. Judiciary:
Judiciary in a country is influence by political system. For example, totalitarian state tends to enact laws that
severely restrict private enterprises whereas democratically elected government promote private enterprises and
are pro consumer. Power of the Judiciary affect business considerably. Court and judiciary also protect the citizens
from unlawful acts passed by the legislature and arbitrary act done by executive.
Economic role of the government: Government normally play four important roles in an economy.
Regulatory role: Government regulation of business may cover a broad spectrum extending from entry to
the final result of a business. Government regulation of the economy may be broadly divided into direct control
and indirect control.
Indirect controls are generally exercise through various fiscal and monetary measures such as high import duty,
Low interests credit, tax holiday etc.

51. Industrial Policy
Industrial base was small. Tremendous shortage of capital. Bad industrial relation.
Industries didn't know the policy of the government in relation to industries.
The government call industrial conference in December 1947. First industrial policy was announced on 6th April 1948.
What is industrial policy?
Important document which lays canvas and sets tone for implementing promotional and regulatory role of the government.
It is government policy towards industries. Industrial development of the state will be shaped, foster, guided, regulated and
controlled by industrial policy.
Rational of industrial policy
1) To correct imbalance in development of industrial.
2) Flow of resources in the most desirable areas.
3) Prevent wasteful use of resources.
4) Demarcate areas among public & private sector.
5) Prevent formation of monopolies.

52. 1948 Industrial Policy: Announced on 6
th
April 1948.
acceptance of importance of public & private sector.
Division of industries into
a) Industries where state had monopoly
i) Arms & ammunition ii) Atomic energy iii) Railways
b) Mixed Sector
i) Coal ii) Iron & Steel iii) Aircraft Manufacturing iv) Ship Building v) Manufacturing of telephone,
telegraph & wireless apparatus vi) mineral oils.
Existing private company are allowed to operate for ten years. After words government will review the situation and
acquire any exiting company after paying compensation.
c) Field of government control–eighteen industries are incorporated.
d) Field of private enterprise –all other industries not included in a, b, c.
Importance of small & Cottage industries, role of foreign capital was recognized. Harmonious labour and management
relations.

53. What had happened between 1948 and 1956?
1956 Industrial policy: Policy was announced on 30
th
April 1956
Objectives:
1 To accelerate the rate of economic growth and speed up industrialization.
2 To develop heavy industries and machine making industries
3 To expand public sector.
4 To reduce disparities between income and wealth.
5 To build up large and growing co operative sector.
6 To prevent monopolies and concentration of wealth and income in the hands of small numbers of individuals.
Salient features of the industrial policy:
Division of the industrial sector:
1: Monopoly of the state: Schedule A: 17 industries were identified and included in this group, and are group in to five
categories such as defence, heavy industries, minerals, transport and communication, power.
Arms and ammunition, atomic energy, railways and air transport will be exclusive monopoly of the state. In other
areas existing private sectors will be allowed to operate but the entry of new private companies are prohibited.
2: Mixed sector: Schedule B: 12 industries are included. Public and private sector exist side by side and will help each
other for their development.
3: Private sector: Schedule C: Industries not incorporated in A and B incorporated in C.
Mutual dependence of public and private sector.
Importance of small scale industries.
Reduction of economic inequality are key stated objectives.
Other policy statements: 2
nd
Feb. 1973, 23
rd
July 1980

54. 1991 Industrial Policy:
Back ground of the policy: Foreign exchange crises.
Announced on 24th July 1991 by P. V. Narasimha Rao government.
Objectives :
1) Self reliance
2) Encouragement to entrepreneurship, promotion of productivity and employment generation.
3) Development of indigenous technology and R&D.
4) Removing regulatory system.
5) Increasing competitiveness
6) Industrialization of backward area.
7) Making PSU profitable
8) Abolish of monopoly.
9) Support to small scale industries.
10)Globalization of economy.

55. To achieve the above objectives government announced series of initiatives in respect of polices relating to
following areas.
1) Industrial licensing.
2) Foreign Investment.
3) Foreign Technology Agreement.
4) Public Sector Policy
5) MRTP act.

56. Industrial Licencing:
Liberalization of Industrial Licensing Policy.
The list of items covered under compulsory licensing under the Industries (Development & Regulation) Act,
1951 is reviewed on an ongoing basis. At present, only five industries are under compulsory licensing mainly
on account of environmental, safety and strategic considerations.
Industries subjected to compulsory licencing
Tobacco Items
Defence aerospace and warship
Hazardous Chemicals
Industrial Explosive
In case of delicensed industries no approval is required from government. Industries are required to submit
Industrial Entrepreneurs’ Memorandum (IEM) to secretariat for industrial approval. He will give
acknowledgement which itself is licence. Approval is required for such exempted industries.

57. Foreign Investment:
FDI is prohibited in
Lottery
Gambling
Atomic Energy.
In several areas 100% FDI is permitted in
industries such as Automobile, Defence, Airport,
Asset Reconstruction company etc.

58. Foreign Technology Agreement:
Indian companies would be free to negotiate the terms of
technology transfer with their foreign counterparts
according to their own commercial judgement.
The hiring of foreign technology and foreign testing of
indigenous develop technology would also not require prior
approval from the government.

59. Public sector policy:
following 2 industries reserved for public sector at present:
1.Atomic energy: Production, separation or enrichment of special fissionable materials and substances
and operation of the facilities, specified in DIPP Notification No. S.O.2630 (E) dated 19.10.2009
2.Railway transport.
Loss making public sector would be referred to Board of Industrial and Financial Reconstruction (BIFR)
for financial Viability. Based on their advice one time financial assistant will be provided with more
autonomy to function. PSUs failed to deliver will be closed or privatized.
MRTP goes: All firms with assets size above a certain size (100 cr.) were classified as MRTP firm. Such
firms were permitted to enter selected industries only and this also on case to case basis. The government
felt that this was having adverse effect on many large firms in their plans for growth and diversification.
Government therefore scrape the threshold limit.

60. Merits of 1991 policies:
Is it truly historic?
Bold decisions were taken to make Indian Industry competitive!
No much regulations, hence no trips to government!
No MRTP means no restriction on expansion!
Sick units were referred to BIFR leads to their better performance!
Indian economy integrated to world economy. More capital and new technology coming
Scraping of licencing means to scope to decide our priority. No proper exit policy
hence more sick units. Surrendering economic sovereignty to IMF and World Bank
Infrastructural deficiency will not bring required foreign investment.
On 1 December 2016, theNarendra Modi governmentdissolved BIFR and referred all
proceedings to theNational Company Law Tribunal(NCLT) andNational Company Law
Appellate Tribunal(NCLAT) as per provisions ofInsolvency and Bankruptcy Code.

61. The concept of Inclusive growth
Subsidies, JAM (Jandhan, Aadhar and
Mobile) and the "Make in India Campaign”.

62. Was there money in the system?
No. Why?
Money was not required.
Dead lock. Solution was money.
Who invented money? When?
Not known due to lack of record.
What was used as money? And how it got evoled?
Animal money
Commodity money
Metallic money
Paper money
Credit money
Plastic money
Digital money
Functions of money: Medium of exchange, measure of value, standard of deferred payment, store of
value.

63. Quantity theory of money: Fisher’s quantity theory of money: MV= PT
Neutrality of moneyis the idea that a change in thestock of moneyaffects
onlynominalvariables in the economy such asprices, wages, andexchange
rates, with no effect onrealvariables, like employment,real GDP, and
realconsumption.Neutrality of money is an important idea inclassical
economicsand is related to theclassical dichotomy. It implies that
thecentral bankdoes not affect the real economy (e.g., the number
ofjobs, the size of real GDP, the amount of real investment) by creating
money. Instead, any increase in the supply of money would be offset by a
proportional rise in prices and wages. This assumption underlies some
mainstream macroeconomic models (e.g.,real business cyclemodels).
Others likemonetarismview money as being neutral only in the long-run.

64. Demand for money and supply of money:
Demand for money: Transaction purpose, precautionary purpose and speculative purpose.
Supply of money: It is made by RBI The total stock of money in circulation among the public at a particular point of time is
called money supply. The measures of money supply in India are classified into four categories M1, M2, M3 and M4
along with M0. This classification was introduced in April 1977 byReserve Bank of India. Let’s discuss these one by one
Reserve Money (M0):It is also known as High-Powered Money, monetary base, base money etc.
M0 = Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI for examples current depositsof
foreign central banks, financial institutions and quasi-financial institutions such as IDBI, IFCI, etc., otherthan of banks,
IMF, IBRD, etc. It is the monetary base of economy.
Narrow Money (M1):
M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other
deposits with RBI
M2 = M1 + Time liabilities of saving deposits with banks + certificates of deposits issued by banks + Term deposits
(excluding FCNR(B) deposits with banks.
Broad Money (M3)
M3 = M1 + Time deposits with the banking system
M4 = M3 + All deposits with post office savings banks

65. Source: https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/40T_150920222395047907F24566B95B69A1E471CAF2.PDF
(No in Crore)

66. Credit creation of commercial Bank.
•Money in the system is assumed to be Rs. 1000. It is received as
primary deposit by bank A. It will maintained reserve of Rs.100
which is 10% of deposit. Bank A will
give credit of Rs. 900. The credit given by bank A will come as
deposit with bank B
and the process will be repeated as shown in the table. Total credit
created will be Rs.9000 and total money in the system will be Rs.
10000.
Credit multiplier will be 1/reserve ratio. Credit multiplier is 10.
Total money in the system is equal to primary deposit received by
the bank multiplied by credit multiplier. It is Rs. 1000 multiplied by
10 = 10000. It is shown in the following table.

67. Credit creation of commercial Bank.
Name of the bankDeposi reciivedReserve ratio Crdit given
A 1000 100 900
B 900 90 810
C 810 81 729
. . . .
. . . .
. . . .
All Banks 10000 1000 9000
Deposit Multiplier = Total deposit / Total cash reserve. Deposit multiplier = 1/ r
Credit Multiplier = Total credit / Total cash reserve. Credit multiplier = (1-r) / r

68. Monetary policy
Since credit created by commercial banks is much more than the currency in the system, it is necessary
to control it. It is done through monetary policy.
https://www.youtube.com/watch?v=083BZoY34Mw
Monetary Policy: It is a deliberate program of action taken by central bank through which RBI controls
supply of money and credit to achieve predetermined macro economic goals or objectives. Macro
economic objectives are inflation control(4±2), employment, growth etc.
For that purpose RBI is empowered with qualitative and quantitative credit control measures.
Quantitative credit controls are 1) Repo and Reverse Repo 2) Bank rate 3) Open market operation 4)
Cash reserve ratios. RBI is empowered to change them as per the requirement of the economy. (For
current rates refer to RBI web site)
Qualitative credit controls are
•Margin requirements
•Consumer Credit Regulation
•RBI Guidelines
•Rationing of credit
•Moral Suasion
•Direct Action

69. What is inflation?
Def. by Gardner Ackley: Persistent and appreciable rise in the
general price level.
Other definitions: Too much of money is chasing too few
goods.
Inflation is a situation in which value of money falls
considerably.
What is opposite of inflation?
Deflation.
Prices of goods and services falls continuously.
What will you prefer?
Why?

70. Inflation means persistent and appreciable rise in
general price level.
What is appreciable?
Moderate Inflation: Single digit. Developing and developed
economy. What is moderate for India?
Galloping inflation: Two to three digit.
Hyper inflation: Four and more than four digit.
Moderate inflation is good for the economy.

71. Inflation: price index of the current year is higher than the previous year
and also base year.
Disinflation: Price index of the current year is lower than the previous year
but higher than the base year.
Deflation: Price index of the current year is lower than the previous year
and is also lower than the base year.
Open inflation: Prices are allowed to find their level
Suppressed inflation: Prices continue to rise in spite of measures taken by
the government to control them.
Core Inflation: Long run trend in the price level. Transitory price change
are excluded. It ignores food and energy.
Head line inflation: Total inflation within the economy. It includes short
time shocks.

72. Inflation measurement in India
•There are two main set of inflation indices for measuring price level changes in India
–the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). The WPI,
where prices are quoted from wholesalers, is constructed by Office of Economic
Affairs, Ministry of Commerce and Industries. In the case of CPI (prices quoted from
retailers), there are several indices to measure it: CPI for industrial labourers (CPI-IL),
agricultural labourers (CPI-AL) and rural labourers (CPI-RL) besides an all India CPI.
•In addition, Gross Domestic Product (GDP) deflator and Private Final Consumption
Expenditure (PFCE) deflator from the National Accounts Statistics (NAS) provide an
implicit economy-wide inflation estimate.
https://www.indianeconomy.net/splclassroom/measurement-of-inflation-in-india/

73. Methods of measuring inflation:
Measuring inflation by PIN method:
Rate of inflation = (PINt –PIN(t-1))/PIN(t-1) *100
GDP deflator: GDP deflator is equal to Nominal GDP divided by
Real GDP multiplied by 100.
Rate of inflation = (GDP deflator of t –GDP deflator (t-1))/GDP
deflator (t-1)*100

74. Demand pull inflation
Cost push inflation: It taking place because of the following
reasons.
1)Mark up/Profit push inflation
2)Wage push Inflation
3)Supply shock Inflation: Sudden and unexpected decrease in
the supply of major commodities such as crop failure.

75. Impact of Inflation on different section of the society:
1)Borrowers
2)Lenders
3)Fixed income group people
4)Business man
5)Government
6)Retired people
7)Organized work force
8)Daily wage earners in unorganized sectors.

76. Philip curve: The Philip curve is an economic concept developed by A.W. Philip stating that inflation and
unemployment have a stable inverse relationship.

77. How to control Inflation?
Monetary measures
Fiscal measure
Other measures.

78. What is national Income?
National Income is defined as money value of sum total of all final goods and services
produced in an economy during a given period of time which is normally one year.
Where national income of India lies?
It lies with every individual and organization. It keeps on moving continuously. It is called as
circular flow of national income.

80. National Income concepts:
GNP, NNP, GDP, NDP, PI, PDI, PCI
All the above concepts are expressed at market price, constant
Price or real and factor cost.
GNP: It is defined as money value of sum total of all final goods
And services produced by country's nationals during a given
period of time which is normally one year.
GNP = C+I+G+X-M+R-P
NNP = GNP –Depreciation.
GDP: : It is defined as money value of sum total of all final goods
And services produced within the boundaries of the during a given
period of time which is normally one year.
GNP = C+I+G+X-M
NDP = GDP –Depreciation.

81. Personal Income:
Income which accrues to an individual from all sources
during a given period of time is called as personal income.
Personal Disposable Income:
Personal income –direct taxes.
Per capita Income:
National Income divided by population.
All the above concepts are calculated at market price. The money value is to be calculated by
considering the market prices of goods and services of the Respective year. For example if we
are calculating GDP of the year 2016 at market price then real output is multiplied by prices
of these goods and services in the year 2016.

82. These concepts are calculated at constant prices:
Money value of out put is calculated in terms of the prices of the base year. Base year is the
year in the recent past in which there were no major man made or nature made calamities. It
is also called as real national income concept. Real national income concepts measures the
true growth of the economy.
These concepts are also calculated at factor cost.
NI at factor cost = NI at market price –indirect taxes + subsidies.

83. New Series Estimates of National Income, Consumption Expenditure, Saving and
Capital Formation (Base Year
2011-12)
India has shifted to a new GDP series. The organisation responsible for
calculating national income –CSO (Central Statistical Organisation) –
adopted a new series based on the year 2011-12 instead of the
previous 2004-05. One might need to understand a few technical
terms like GVA at basic prices, production tax, product tax etc. to
understand the changes brought about in the new series, whichis
explained below.

84. •Factor Cost vsBasic Price vsMarket Price
•General Relationship between Factor Cost and Market Price:
•Factor Cost = Market Price –Indirect Tax + Subsidies
or
•Market Price.= Factor Cost + Indirect Tax –Subsidies
•The relationship between Factor Cost and Basic Price:Factor cost + production tax –
production subsidies = Basic prices
or
•Basic prices = Factor cost + production tax –production subsidies
•The relationship between Basic Price and Market Price:Basic Price + Product tax –Product
Subsidy = Market Price.
•Market Price = Basic Price + Product tax –Product Subsidy
•Note: Thus, it is clear that market price includes both product tax as well as production tax
while excludes both product and production subsidies.
•Basic price:Basic prices exclude any taxes on products the producer receives from the
purchaser and passes on to the government (Eg:GSTor Sales Tax or Services Tax) but include
any subsidies the producer receives from government and uses to lower the prices charged
to purchasers. In simple terms, basic price is the subsidized price without tax.

85. •GVA
•GVA is defined as the value of output less the value of intermediate consumption. For
example, if the value of final output is Rs.25 and that of an intermediate product is Rs.17,
then the value addition is Rs.8. The gross value addition –when value additions at all
intermediate stages are calculated should be equal to the GDP, ieRs.25.
•The significance of GVA: Value added represents the contribution of labour and capital to the
production process.
•The connection between GDP and GVA: As an example consider the case of 1 bottle of
orange juice you buy from a retail outlet for Rs. 30. As this is the money value of the final
output, Rs.30is value for GDP. The same GDP can be calculated by counting the value
addition in intermediate stages too.
•GVAis calculated usually without discounting for capital consumption or depreciation.
•When the value of taxes on products (less subsidies on products) is added, the sum of value
added for all resident units gives the value of gross domestic product (GDP).
•Note:GDP at market price (current prices):Under the Fiscal Responsibility and Budget
Management Act 2003 and Rules there under, Ministry of Finance uses the GDP numbers (at
current prices) to peg the fiscal targets.
•The relationship between Factor Cost and Basic Prices:Factor cost + production tax –
production subsidies = Basic prices.

86. •Indian GDP series –Base Year 2004-05
•Headline GDP:Headline GDP was GDP at factor cost.
•Producer-end given preference: GDP at market prices could have
beenderived from factor cost but Indian GDP was always expressed as
GDP at factor cost.
•The relation between GDP at factor cost and GDP at market
price:Indirect tax was added and subsidies were subtracted from factor
cost, to obtain GDP at market price.

87. Indian GDP series –Base Year 2011-12
Headline GDP:Headline GDP is nowGDP at market prices as per the new GDP series.
GVA at basic prices:GDP at market prices isderived from a new quantity ie.Gross Value Added (GVA) at basic prices.
The relation between GVA and GDP:GVA at basic prices + (product taxes) –(product subsidies) gives GDP at market price.
Consumer-end given importance:Earlier, domestic GDP was calculated at factor cost, which took into account prices of products received by
producers. The new formula takes into account market prices paid by consumers.
More data from manufacturing sector:The new GDP has incorporated more comprehensive data on corporate activity and has brought
more factories under its umbrella. Now,selling and marketing expenses are also reckoned, and notjust production costs.
Government’s earnings, ietax –subsidies:Previously, in India what government received was not included in the headline GDP. Now what it
earns by the indirect taxes (such as sales tax and excise duty) after deducting subsidy is also included in headlineGDP. ieGDP at constant
market price.
Criticism:The objection to this method is that the GDP figure can be manipulated by changing subsidy disbursal or by raising taxes.
Results of the change
Taking the old definition and base of 2004-05, India’s GDP growth stood at 4.5 percent in 2012-13 and 4.7 per cent in 2013-14. However, the
new Indian GDP series put GDP growth at 5.1 percent for 2012-13 and 6.9 percent for 2013-14.
The move towards this method of GDP calculation has brought the method in par with those used by international agencies like IMF, World
Bank etc.
Production taxes vsProduct taxes
Production taxes/subsidies are independent of thequantity (volume) of production. It is often imposed even if the products are not produced
(Eg: tax —land revenues, stamps fees, registration fees tax on the profession; subsidies —subsidies to Railways, input subsidies to farmers,
subsidies to the village and small industries, administrative subsidies to corporations or cooperatives, etc.).
Product taxes/subsidies depend on quantity produced. Product taxes or subsidies are paid or received on per unit of product(Eg: tax —excise
tax, sales tax, service tax and import and export duties; subsidies —food, petroleum and fertiliser subsidies, interest subsidies given to
farmers, households, etc)

88. GDP at Factor Cost vsGVA at Basic Prices
•In place of GDP at factor cost, gross value added (GVA) at basic prices will be used now.
•For a producer, GDP at factor cost represents what he gets from the industrial activity. This can
be broken down into various components —wages, profits, rents and capital —also commonly
known factors of production. Aside from these costs, producers may also incur other expenses
such as property tax, stamp duties and registration fees, among others.Similarly, producers may
also receive subsidies (production related) such as input subsidies to farmers and to small
industries (not food or petrol subsidies that you get on the final product). It is important to note
that only taxes and subsidies on intermediate inputs are adjusted.
•For arriving at the new gross value added (GVA) at basic prices, production taxes, such as
property tax, are added and subsidies are subtracted from GDP at factor cost.
•Put simply, GVA at basic price represents what accrues to the producer, before the product is
sold.
•The price paid by the consumer is not the same as the revenue received by the producer. This is
because of the taxes that are paid to the government in the form of indirect taxes. Similarly, the
consumer may receive subsidies on food or petrol.
•GVA at basic prices will include production taxes and exclude production subsidies available on
the commodity.
•GVA at factor cost includes no taxes and excludes no subsidies.
•GDP at market prices include both production and product taxes and excludes both production
and product subsidies.

89. •Summary
•In simple terms, for any commodity, thebasic priceis the amount
receivable by the producer from the consumerfor a unit of a
productminus anytaxon the productplus anysubsidyon the product.
•GDP –can be calculated as the final value of the output. It can also be
calculated as the sum of value additions done in different stages to
obtain the final output.
•GDP at factor cost→GVA at basic prices→GDP at market prices.
•The objection to this method is that the GDP figure can be manipulated
by changing subsidy disbursals or raising taxes

90. Methods of measuring N.I.
Income method.
Output method
Expenditure method
In India N.I. is measured by C.S.O. and a combination of Income
method and Output method is usesd.

91. Difficulties in the measurement of National Income.
1) Lack of reliable statistical data: what ever data available is use. It may or may not be
reliable.
2) Problem of double counting: one commodity may be added twice as it is treated as
some times final good and some times semifinished goods
3) Lot of output produce by the farmers is not coming to market and hence is not
added. It results into underestimation of national income
4) Illiterate people: They do not keep proper account of their activity
5) Difficulty in calculation of depreciation. Hence difficult to calculate NNP/NDP
6) Illegal income is earned by the people which is not added
7) Defining national income is not easy. It is difficult to say which goods are final goods
and which goods are intermediate goods.
8) Farm product kept for family consumption is difficult to add.
9) Rent of the house paid by the tenant is added into National income but if the house
is owned by a person, how to add such rental value is a difficulty.

92. What is added in National Income: Income earned by undertaking any legal
economic activity. For example value of all final goods produced. Income
earn by person by way of profit, salary, commission
What is not added in National Income:
•Services of housewives
•Black money
•Capital gains
•Transfer payments: Pensions, subsidy, Scholarship, gift
•Goods made for self-use
•Old goods, income from sale of old house, sale of shares etc.

93. Environmental scanning is a process of gathering information
about the events and their relationship with the internal and
external environment of the organization. The primary aim of
environmental scanning is to find out the future prospects of
business organization.
All internal and external environmental factors are to consider
here.

94. What is Globalization?
It refers to shift towards a more integrated and interdependent world
economy.
Globalizationorglobalisationis the process ofinteractionand
integration among people, companies, and governmentsworldwide.
As a complex and multifaceted phenomenon, globalization is
considered by some as a form of capitalist expansion which entails
the integration of local and national economies into a global,
unregulated market economy.
It increase the links between the economies

95. Drivers of Globalization:
1: Trade in goods and services
2: Financial flows
3: Investments and transnational corporations
4: Technology, transport and communication
5: International division of labour.
Advantages and dis advantages of globalization:
More job
Market expansion
Technological progress
More new goods
Increase in the standard of living
Economic growth/GDP growth
Dis advantages of globalization:
Job loss
Indian business which failed to compete suffer
Indian market is captured by foreign goods.
Cutthroat competition etc

96. •WhatisPrivatization?
•Privatizationreferstotheprocessoftransferringownershiporcontrolofthegovernmentassets,firms,and
Thisprocessoftransfertakestheformofissueandsaleoroutrightdistributionofsharestothegeneral
includesallotherpoliciessuchas“outsourced”whichistheprocessbywhichactivitieswhilepublically
byprivatesectorcompanies.Forexample,garbagecollection,streetplanning,housing,education,etc.
Merits/Advantages:
ImprovedEfficiency:State-runcompaniesarepredominantlyinfluencedbypoliticalintentionsratherthan
economicwell-being.Ithinderstheefficiencyofpublicsectorcompaniesandpreventsgrowth.Privatization
economicgrowth.Asprivatebodiesdonothaveapoliticalagenda,theyfocusmoreonspurringgrowthand
greatergenerationofrevenues.
IncreasedCompetition:State-runcompaniesenjoyamonopolyandremainundisturbedbycompetitioninthe
market.Privatization,accompaniedbyderegulationofthemarket,allowstheprivatesectortoengagemore
competitionwill,inturn,accelerateoverallindustrialandeconomicgrowthandprotectthemarketagainst
PromotesMarketDynamism:Privatizationliberatestheeconomyfromstatecontrol.Withoutgovernment
regulationsdictatingmarketprogression,themarketoperatesorganically.Duetoalackofgovernment
dynamicandfollowsintegraleconomicvaluesofdemandandsupply.Consumerresponsetoamoredynamic
andgenerateshigherrevenues.
RevenuefromtheSaleofaCompany:Aprimaryobjectiveofprivatizationisaone-timerevenuegenerationfor
thegovernment.Severalgovernmentshavepreviouslyresortedtoprivatizationwhenfacingafiscalcrisis.
Lesserfiscaldeficit
Moremoneyforinfrastructuredevelopment
Lossmakingcompaniesareclosed
BetterCustomerService:Asprivatecompaniesareprofit-drivenandfunctioninacompetitivemarket,their
primaryfocusrestsonefficientcustomerservice.State-runcompanieslackthisfeatureastheyfaceno
motivated.Furthermore,customerserviceisenhancedinprivatizationduetotheeliminationofunnecessary

97. DisadvantageofPrivatization:
IssuesofRegulatingMonopolies:Theprivatesectorcanmanipulatetheirmonopolyandneglect
socialcosts.Privatizationofcertainstateindustriessuchaswaterandelectricityregulatorsmay
createonlysinglemonopolies.
PublicInterest:Theprofitmotiveshouldnotbetheprimaryobjectivefortheindustrywhich
performsanimportantpublicservice,e.g.healthcare,education,andpublictransport.For
example,Accordingtotheresearchers,theprivatesectorinIndiahasgrownindependentlywithout
anymajorregulation;InthehandsofPrivatehealthsector,someprivatepractitionersarenoteven
registereddoctorsandarereferredtoasquacks.
Accountability:Thepublicdoesnothaveanycontroloradministrationofprivatecompanies.
PrivatizationhasabadeffectonaccountabilitybecauseInvestorsretainfullauthoritytodo
anything.
UnassuredSuccess:Privatizationisunassuredintermsofthesuccessratesofanyindividualunit,
duetowhichmanyprivatesectorcompaniessufferhugelosses.
Lesstransparent
Highercosttoconsumers

98. Fiscmeans state treasury. Fiscal policy means policy to manage state treasury.
What is 'Fiscal Policy‘? What are its objective?
Fiscal policy refers to the use of government spending and tax policies to influence macroeconomic
conditions, including aggregate demand,employment, inflation and economic growth.
Stance of fiscal policy, Kinds of fiscal policy:
Stances. Thethree stances of fiscal policyare: Neutralfiscal policyis usually undertaken when an
economy is in neither a recession nor a boom. ...
Expansionary fiscal policyinvolves government spending exceedingtaxrevenue by more than it has
tended to, and is usually undertaken during recessions. Contractionaryfiscal policyoccurs when
government deficit spending is lower than usual.
Instruments of Fiscal Policy: The tools offiscal policyare taxes, expenditure, public
debt and a nation's budget. They consist of changes in government revenues or rates
of the tax structure so as to encourage or restrict private expenditures on
consumption and investment.

99. •Theobjective of fiscal policyis to maintain the condition of full
employment, economic stability and to stabilize the rate of growth. For
an under-developed economy, the main purpose offiscal policyis to
accelerate the rate of capital formation and investment.
•Target variables of fiscal policy: Aggregate demand, Investment, saving,
FDI, employment, economic growth etc.
•Taxation policy: Indirect tax is a major source of tax revenue to
government in the developing country though it does not follow the
principal of ability to pay.
•Receipt and expenditure of the government: See the buget document.

100. Adeficitis usuallyfinancedthrough borrowing from either the central
bank of the country or raising money from capital markets by issuing
different instruments like treasury bills and bonds.
Stance of the fiscal policy: Neutral expansionary contractionary.

101. Budget :
•From where the word Budget is coming from?
It is coming from the French word Bougette.
•What does it mean?
Bougettemeans a small leather purse
containing financial proposal.

102. Budget January 2021

105. •In the entire text of the Indian Constitution you
will not find the word budget.
•Well Indian Constitution calls it Annual
Financial Statement.
•Its detail can be found in Article 112 of Indian
constitution.

106. What is Budget?
•Financial Statement that shows the expected
revenue and expenditure of the Government
during the particular financial period,
usually one year.

107. Do you prepare budget for you?
What is the difference between your budget
and Governments Budget?
Government budget is prepared on cash basis
here unused funds of the year are not available
for the next year. Your budget is prepared
on accrual basis.
•When you make your budget, What do you
consider first?
Income.

108. But for Government Budget, they plan their expenditure first.
Therefore when the budget is presented planed expenditure by the
government is presented first there after proposal to raise revenue
are presented.

109. Some Facts about Indian Budget:
1.Who presents budget and when?
Budget is presented by finance minister in the
parliament on Feb. last working day.
January Now
2.Who presented first Indian Budget?
India's first budget was presented by
James Wilson on 7th April 1860. At that time we
were following 1 May to 31 April Fiscal.
The current system of April to March started in
1867.
In 1984 Govt. committee suggested to shift
Fiscal to Jan. Dec. but it did not change.

110. 3.Railway budget separated from Union Budget in the year 1924.
4.Post Independence LiaquatAli Khan member ofthe interim govt.
presented the budget for 1947-48.
5.R.K. ShanmukhamChettypresented the first full fledge budget of
independent India on 26 Nov. 1947.

111. 6.Budget is a secret document before it is presented to parliament
7.Where it is printed?
It is printed in the budget press located in the basement of
north block forbidden a month before a budget.

112. 8.Construction/maintenance work if any is to completed before 30
th
of November.
9.Security arrangements are overseen by IB.
10.The entire text of the budget document is prepared by few
selected officials and stenographers working on computers which
are delinked from all network.

113. 11.All officials, technical, legal experts from law ministry and workers
involved in the printing are quarantined. They have to sleep in the
north block only.
12.All quarantined officials walk out of the North block after the
budget has been tabled by FM in Loksabha. Finance minister’s
speech is printed at the end.

114. 13.IB monitors every movement, phone calls and the security of all
officials involved in the budget preparation.
14.On the morning of the budget day govt. seeks President's
approval through a ‘summary for the President ‘ approved by FM
and PM.

115. 15.The FM briefs the cabinet on the budget proposals through a
‘summary for the cabinet’ he presents in loksabha.
16.FM presents budget in loksabha outlining key estimates and
proposals.
17.In the Parliament first Railway Budget is presented. Economic
survey is presented the next day. The budget is presented on the
next day of Economic Survey.

116. 18.The FM briefs the cabinet on the budget proposals through a
summary for the cabinet beforehe presents it in Lokasabha.
19.FM presets budget in Lokasabha outlining key estimates and
proposals.
20.The budget presented in the parliament has two parts.

117. 21.Part A deals with general economic survey and policy statement
of the country and Part B contains tax proposals.
22.The budget is tabled in the Rajya sabha after the FM speech. No
discussion takes place on the day of the Budget.

118. What are the different types of Budget?
•Balance Budget.
•Surplus Budget.
•Deficit Budget.
•Interim Budget.

119. Money received by Government is appropriated
to three accounts:
•Consolidated Fund.
•Public Account Fund.
•Contingency Fund

120. Summary of the budget:
1.Revenue receipts(a+b)
a)Tax revenue.
b) Non Tax revenue.
2. Revenue Expenditure (a+b+c)
a)Interest Payment.
b) Major Subsidy.
c)Defense Expenditure.
3.Revenue Deficit ( 2 –1 )
4.Capital Receipt ( a+b+c).
a)Recovery of loans.
b)Other receipt.
c)Borrowing and other liabilities.
5.Capital Expenditure.
6.Total Expenditure ( 2+5 )
7.Fiscal Deficit: (6 -1 –4a –
4b)
8.Primary Deficit: (7 –2a).

121. Balance of Payment: It is systematic record of economic
transaction of the reporting country with the rest of the
world
Balance of payment is based on double entry book keeping system
and it is always in balance.
There are two accounts in Balance of payment.
Current account: It incorporates all transaction which are as follows.
1)Export of goods
2)Import of goods. The balance is called as tread balance.
Normally it is negative for developing country.
3)Export of services
4)Import of services. The balance is called as current account
balance. When current account balance is positive, balance of
payment is consider to be favorable to a country.
Capital account:
1)Inflow of capital
2)Outflow of capital. In flow and outflow of capital can be in the
form loan or investment.

122. Unfavorable BOP
If BOP is unfavorable it can be made favorable by
adopting several policy measures such as
1)Foreign Tread policy
2)Currency devaluation
3)Currency depreciation
4)Restriction on import and exports.
5)Quota etc.

123. The SDR is an international reserve asset, created by the IMF in
1969 to supplement its member countries’ official reserves. So
far SDR 204.2 billion (equivalent to about US$291 billion) have
been allocated to members, including SDR 182.6 billion
allocated in 2009 in the wake of the global financial crisis. The
value of the SDR is based on a basket of five currencies—the
U.S. dollar, the euro, the Chinese renminbi, the Japanese yen,
and the British pound sterling.
•SDR VALUE
The SDR value in terms of the U.S. dollar is determined daily
based on the spot exchange rates observed at around noon
London time, and posted on the IMF website.

124. The market theory of Exchange rate

125. PPP Theory
This theory stated that the relative value of different currency
correspond to the real purchasing power of each currency in its own
country.
For example a basket of goods and services can be bought in India for
Rs. 100 and in USA for $2. Then Rs. 100 = $2.
Hence rate od exchange is One $ for Rs. 50

126. Afixed exchange rate, sometimes called apegged
exchange rate, is a type of exchange rate regimein which
currency's value is fixed against another single currency or
to a basket of other currency.or to another measure of
value, such asgold.
Capital account convertibilityis the ability to conduct
transactions of local financial assets into foreign financial
assets freely or at country determined exchange rates.

127. •What is the 'Nominal Effective Exchange Rate -NEER'?
The nominal effective exchange rate (NEER) is an
unadjustedweighted averagerate at which one country's
currency exchanges for a basket of multiple foreign
currencies. In economics, the NEER is an indicator of a
country's international competitiveness in terms of
theforeign exchange(forex) market.
•What is the 'Real Effective Exchange Rate -REER'
The real effective exchange rate (REER) is theweighted
averageof a country's currency in relation to an index or
basket of other major currencies, adjusted for the effects of
inflation. Thisexchange rateis used to determine an
individual country's currency value relative to the other
major currencies in the index, such as the U.S. dollar,
Japanese yen and the euro.