CU-BCOM-SEM-III-Business Environment

4. Lack of political stability affects: a. Business Operations b. Law and order c. Elections d. Government 5. ------------ is the highest legal document from which all other laws are derived or interpreted in India. a. Legislature b. Contract c. Constitution d. Preamble Answers 1-c, 2-a, 3-c, 4-a, 5-c. 7.11 REFERENCES Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House],  C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment , Financial Times/ Prentice Hall. Reference Books:  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926. 151 CU IDOL SELF LEARNING MATERIAL (SLM)

 Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 152 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8: LEGAL ENVIRONMENT Structure 8.0 Learning Objective 8.1 Introduction 8.2 Legal Environment 8.3 Constitution of India 8.4 Company Regulatory Legislations In India 8.4.1 The Competition Act, 2002: 8.4.2 Fema: 8.4.3 Exim Policy/ Foreign Trade Policy, 2009-14: 8.5 Summary 8.6 Keywords 8.7 Learning Activity 8.8 Unit End Questions 8.9 References 8.0 LEARNING OBJECTIVES After studying this unit, you will be able to  State the implications of Legal Environment on Business  Explain different dimensions of Legal Environment  Outline the need to effectively manage Legal Environment  Explain the impact of Company regulatory legislations in India like FEMA, EXIM Understand the Company regulatory legislations in India. 8.1 INTRODUCTION ‘To the people, by the people and for the people’ – the famous saying always used to highlight the democratic stature of India. To preserve the integrity and to ensure the continuous economic growth of the country rules, regulations and legislations are adhere to maintain stability. Like we always follow left lane on the road while walking or driving which is important traffic rule mentioned in our Constitution. Similarly, we have rules and legislations for how to pass a bill in Parliament House. We have different legislations and regulations to deal with home violence, industrial disputes, frauds and criminal activity. Such a broad framework being appreciated followed, implemented and amended regularly to 153 CU IDOL SELF LEARNING MATERIAL (SLM)

ensure orderliness. Business being commercial and economic activity that also falls under the purview of political and legal framework of our country. 8.2 LEGAL ENVIRONMENT Legal environment includes various legislations issued by the government authorities- centre, state or local. Every enterprise needs to obey the law of the land so an adequate knowledge of rules and regulations framed by the government is a pre-requisite for better business performance. Non-compliance of laws can land the business enterprise into legal problems. In India, the working knowledge of the following Acts are important for doing business  Companies Act  Industries Act  Foreign Exchange Management Act  The Imports and Exports Act  Factories Act  Trade Union Act  Workmen’s Compensation Act  Industrial Disputes Act  Consumer Protection Act  Competition Act What Are the Different Legal Systems? Let’s focus briefly on how the political and economic ideologies that define countries impact their legal systems. In essence, there are three main kinds of legal systems—common law, civil law, and religious or theocratic law. Most countries actually have a combination of these systems, creating hybrid legal systems. Civil law is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. It’s the most widespread legal system in the world. Common law is based on traditions and precedence. In common law systems, judges interpret the law and judicial rulings can set precedent. Religious law is also known as theocratic law and is based on religious guidelines. The most commonly known example of religious law is Islamic law, also known as Sharia. Islamic law governs a number of Islamic nations and communities around the world and is the most widely accepted religious law system. Two additional religious law systems are the Jewish Halacha and the Christian Canon system, neither of which is practiced at the national level in a country. The Christian Canon system is observed in the Vatican City. 154 CU IDOL SELF LEARNING MATERIAL (SLM)

The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. Sharia has clear guidelines for aspects of life. For example, in Islamic law, business is directly impacted by the concept of interest. According to Islamic law, banks cannot charge or benefit from interest. This provision has generated an entire set of financial products and strategies to simulate interest—or a gain—for an Islamic bank, while not technically being classified as interest. Some banks will charge a large up-front fee. Many are permitted to engage in sale-buyback or leaseback of an asset. For example, if a company wants to borrow money from an Islamic bank, it would sell its assets or product to the bank for a fixed price. At the same time, an agreement would be signed for the bank to sell back the assets to the company at a later date and at a higher price. The difference between the sale and buyback price functions as the interest. In the Persian Gulf region alone, there are twenty-two Sharia-compliant, Islamic banks, which in 2008 had approximately $300 billion in assets. Clearly, many global businesses and investment banks are finding creative ways to do business with these Islamic banks so that they can comply with Islamic law while earning a profit. 8.3 CONSTITUTION OF INDIA Constitution means a set of fundamental principles, basic rules and established precedents (means standards/instances). It identifies, defines and regulates various aspects of the State and the structure, powers and functions of the major institutions under the three organs of the Government – the executive, the legislature and the judiciary. It also provides for rights and freedoms of citizens and spells out the relationships between individual citizen and the State and government. It is the supreme and ultimate authority. Any decision or action which is not in accordance with it will be unconstitutional and unlawful. A Constitution also lays down limits on the power of the government to avoid abuse of authority. Moreover, it is not a static but a living document, because it needs to be amended as and when required to keep it updated. Its flexibility enables it to change according to changing aspirations of the people, the needs of the time and the changes taking place in society. Values and the Salient Features of the Constitution The discussion on the Preamble embodying constitutional values clearly demonstrates that these are important for the successful functioning of Indian democracy. Your understanding of these values will be further reinforced, when you will find in the following discussion that constitutional values permeate all the salient features of Indian Constitution. The main features of the Constitution as shown in the illustration are as follows: 1. Written Constitution: As has been stated earlier, the Constitution of India is the longest written constitution. It contains a Preamble, 395 Articles in 22 Parts, 12 Schedules and 5 Appendices. It is a document of fundamental laws that define the nature of the political system and the structure and functioning of organs of the government. It expresses the vision 155 CU IDOL SELF LEARNING MATERIAL (SLM)

of India as a democratic nation. It also identifies the fundamental rights and fundamental duties of citizens. While doing so, it also reflects core constitutional values. 2. A Unique Blend of Rigidity and Flexibility: In our day-to-day life, we find that it is not easy to bring about changes in a written document. As regards Constitutions, generally written constitutions are rigid. It is not easy to bring about changes in them frequently. The Constitution lays down special procedure for constitutional amendments. In the unwritten constitution like the British Constitution amendments are made through ordinary law-making procedure. The British Constitution is a flexible constitution. In the written constitution like the US Constitution, it is very difficult to make amendments. The US Constitution, therefore, is a rigid constitution. However, the Indian Constitution is neither as flexible as the British Constitution nor as rigid as the US Constitution. It reflects the value of continuity and change. There are three ways of amending the Constitution of India. Some of its provisions can be amended by the simple majority in the Parliament, and some by special majority, while some amendments require special majority in the parliament and approval of States as well. 3. Fundamental Rights and Duties: You must be familiar with the term fundamental rights. We quite often find it in newspapers or while watching television. The Constitution of India includes these rights in a separate Chapter which has often been referred to as the ‘conscience’ of the Constitution. Fundamental Rights protect citizens against the arbitrary and absolute exercise of power by the State. The Constitution guarantees the rights to individuals against the State as well as against other individuals. The Constitution also guarantees the rights of minorities against the majority. Besides these rights, the Constitution has provisions identifying fundamental duties, though these are not enforceable as the fundamental rights are. These duties reflect some of the basic values embodied in the Constitution. 4. Directive Principles of State Policy: In addition to Fundamental Rights, the Constitution also has a section called Directive Principles of State Policy. It is a unique feature of the Constitution. It is aimed at ensuring greater social and economic reforms and serving as a guide to the State to institute laws and policies that help reduce the poverty of the masses and eliminate social discrimination. In fact, as you will study in the lesson on “India-A Welfare State”, these provisions are directed towards establishment of a welfare state. 5. Integrated Judicial System: Unlike the judicial systems of federal countries like the United States of America, the Indian Constitution has established an integrated judicial system. Although the Supreme Court is at the national level, High Courts at the state level and Subordinate Courts at the district and lower level, there is a single hierarchy of Courts. At the top of the hierarchy is the Supreme Court. This unified judicial system is aimed at 156 CU IDOL SELF LEARNING MATERIAL (SLM)

promoting and ensuring justice to all the citizens in uniform manner. Moreover, the constitutional provisions ensure the independence of Indian judiciary which is free from the influence of the executive and the legislature. 6. Single Citizenship: Indian Constitution has provision for single citizenship. Do you know what does it mean? It means that every Indian is a citizen of India, irrespective of the place of his/her residence or birth in the country. This is unlike the United States of America where there is the system of double citizenship. A person is a citizen of a State where he/she lives as well as he/she is a citizen of U.S.A. This provision in the Indian Constitution definitely reinforces the values of equality, unity and integrity. 7. Universal Adult Franchise: The values of equality and justice are reflected inyet another salient feature of the Constitution. Every Indian after attaining certain age (at present 18 years) has a right to vote. No discrimination can be made on the basis of religion, race, caste, sex, descent, and place of birth or residence. This right is known as universal adult franchise. 8. Federal System and Parliamentary Form of Government: Another salient feature of the Indian Constitution is that it provides for a federal system of state and parliamentary form of government. We shall discuss these below in detail. But it is necessary to note here that the federal system reflects the constitutional value of unity and integrity of the nation, and more importantly the value of decentralization of power. The parliamentary form of government reflects the values of responsibility and sovereignty vested in the people. The core principle of a parliamentary government is the responsibility of the executive to the legislature consisting of the representatives of the people. 8.4 COMPANY REGULATORY LEGISLATIONS IN INDIA 8.4.1 THE COMPETITION ACT, 2002: Objectives Since the adoption of the economic reforms programme in 1991, corporates have been pressing for the scrapping of the MRTP Act. The argument is that the MRTP Act has lost its relevance in the new liberalized and global competitive scenario. In fact, it is said that only large companies can survive in the new competitive markets and therefore size should not be a constraint. Thus, there is a need to shift our focus from curbing monopolies to promoting competition. In view of this, the government appointed an expert committee headed by SVS Raghavan to examine the whole issue. The Raghavan Committee submitted its Report to the Government on May 22, 2000 wherein it proposed the adoption of a new competition law and doing 63 away with the MRTP Act. Accordingly, the government decided to enact a law on 157 CU IDOL SELF LEARNING MATERIAL (SLM)

competition. Competition Bill, 2001 was introduced in Parliament and passed in December 2002. The Act is called Competition Act, 2002. The Act was amended in September 2007. OBJECTIVES TO BE ACHIEVED I. To check anti-competitive practices II. To prohibit abuse of dominance III. Regulation of combinations. IV. To provide for the establishment of CCI, a quasi-judicial body to perform below mentioned duties:  Prevent practices having adverse impact on competition  Promote and sustain competition in the market  Protect consumer interests at large  Ensure freedom of trade carried on by other participants in the market  Look into matters connected therewith or incidental thereto. Competition Commission of India: The Act provides for the establishment of the Competition Commission of India (CCI). According to Section 18, it shall be the duty of the Commission to eliminate practices having adverse effects on competition, to promote and sustain competition in markets in India, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in market in India. Some protagonists of private sector have argued that that there is no requirement of CCI because all that is required is removal of licensing requirements and knocking down of entry barriers. However, the fact of the matter is that the market does not always guarantee competition. There will always be unfair and restrictive business practices. Besides, mergers and acquisitions would need to be scrutinised. It is on account of this reason that most countries have competition or free trade commissions. This explains the rationale of CCI in India. Overall Scheme: Competition Act, 2002 is designed for the following purposes: (1) Prohibition of anticompetitive agreements, (2) Prohibition of abuse of dominant position, and (3) Regulation of combinations. Let us understand in detail: 1. Prohibition of Anti-Competitive Agreements: 158 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 3 of the Act makes provision for prohibition of anticompetitive agreements. According to Section 3(1) of the Act, \"no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.\" Section 3(2) states that any agreement entered into in contravention of the provisions contained in Section 3(1) shall be void. 2. Prohibition of Abuse of Dominant Position: Section 4(1) of the Act states that no enterprise shall abuse its dominant position It may be noted that 'dominant position' itself is not prohibited. What is prohibited is its misuse. Dominant position means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i) Operate independently of competitive forces prevailing in the relevant market; or (ii) Affect its competitors or consumers or the relevant market in its favour. 3. Regulation of Combinations: Section 5 of the Act defines combination while Section 6 is concerned with regulation of combinations. According to Section 5, the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be treated as 'combination' of such enterprises and persons or enterprises in the following cases: (a) Acquisition by large enterprises; (b) Acquisition by group; (c) Acquisition of enterprises having similar goods/services; (d) Acquiring enterprises having similar goods/services by a group; (e) Merger of enterprises; and (f) Merger in group company Section 6 of the Act relates to 'regulation of combinations.' According to Section 6 (1), no person or enterprise shall enter into a combination which causes is likely to cause an appreciable adverse effect on competition, within the relevant market in India and such a combination shall be void. The definition and heading of the section itself means that it is 'regulation of combination'. Thus, combination, in itself, is not prohibited. It will be held void only if adversely affects competition. Provisions of the Competition Act, 2002 As per the provisions of the Competition policy, the Government of India enacted a legislation called the Competition Act, 2002. The Act aimed at promoting competition through prohibition of anti-competitive practices, abuse of dominance by an enterprise and regulation of combinations such as mergers and acquisitions. 159 CU IDOL SELF LEARNING MATERIAL (SLM)

The Act repealed the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 and thus dissolved the Monopolies and Restrictive Trade Practices Commission (MRTPC) which was set up to inquire into the provisions of the MRTP Act. Moreover, in the era of liberalization, privatisation and globalisation, it was felt that the existing MRTP Act, 1969 had become obsolete in certain respects and there is a need to shift the focus from curbing monopolies to promoting competition. The new competition law, the Competition Act, 2002 provides for a modern framework of competition. The main objectives of the Act are:-  To provide for the establishment of a commission to prevent practices having adverse effect on competition  To promote and sustain competition in markets in India  To protect the interests of consumers  To ensure freedom of trade carried on by the participants in the markets in India and for related matters. The Competition Act, 2002 has been amended by the Competition (Amendment) Act, 2007. In order to enforce the provisions of the Competition Act, an autonomous body called Competition Commission of India (CCI) was set up with regulatory and quasi-judicial powers. Certain Behaviours Prohibited by the Act Under this act following are restricted practice and these practices are stopped by this act. 1. Price fixing:- If two or more supplier fixes the same price for supply the goods then it will be restricted practice. 2. Bid ragging: - If two or more supplier exchange sensitive information of bid, then it will also be restricted practice and against competition 3. Re-sale price fixation: - If a producer sells the goods to the distributors on the condition that he will not sell any other price which is not fixed by producer 4. Exclusive dealing: - This is also restricted practice. If a distributor purchases the goods on the condition that supplier will not supply the goods any other distributor. Above all activities promote monopoly so under competition act these are void and action of competition commission will not entertain by civil court. CCI, entrusted with eliminating prohibited practices, is a body corporate and independent entity possessing a common seal with the power to enter into contracts and to sue in its name. It is to consist of a chairperson, who is to be assisted by a minimum of two, and a maximum of ten, other members. 160 CU IDOL SELF LEARNING MATERIAL (SLM)

8.4.2 FEMA: From FERA to FEMA Some of the differences between FERA and FEMA were: 1. Under FERA the emphasis was on regulation of foreign exchange whereas under FEMA the emphasis was on management of foreign exchange. 2. All foreign exchange dealings (whether current account or capital accounts transactions) required general or special permission of the Reserve Bank of India (RBI) under FERA. Whereas under FEMA, permission for current account transactions had already been granted in the law itself (section 5), and for capital account transactions permission of RBI is required (section 6). In 1997, the Tarapore Committee recommended that India is geared up to bring capital account convertibility. In India, the foreign exchange transactions are broadly classified into two accounts: current account transactions and capital account transactions. If an Indian citizen needs foreign exchange of smaller amounts, for travelling abroad or for educational purposes, she/he can obtain the same from a bank or a money-changer. This is a “current account transaction”. But, if someone wants to import plant and machinery or invest abroad, and needs a large amount of foreign exchange, the importer will have to first obtain the permission of the Reserve Bank of India (RBI). 3. The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. In fact it is the central legislation that deals with inbound investments into India and outbound investments from India and trade and business between India and the other countries. The FEMA provides: Free transactions on current account subject to reasonable restrictions that may be imposed RBI control over Capital Account Transactions Control over realization of export proceeds Dealings in Foreign Exchange through Authorized Person (e.g.Authorized Dealer/ Money Changer/ Off-shore Banking Unit) Adjudication of Offences Appeal provisions including Special Director (Appeals) and Appellate Tribunal Directorate of Enforcement If approved, this becomes a “capital account transaction”. This means that any domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before carrying out any financial transactions or change of ownership of assets that comes under the capital account. Of course there are a whole range of financial transactions on the capital account that may be freed form such restrictions, as is the case in India today. But this is still not the same as full capital account convertibility. By “Capital Account Convertibility” (or CAC in short), we mean “the freedom to convert the local financial assets into foreign financial assets 161 CU IDOL SELF LEARNING MATERIAL (SLM)

and vice-versa at market determined rates of exchange. It is associated with the changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by the rest of the world. …” (Report of the Committee on Capital Account Convertibility, RBI, 1997) Thus, in simpler terms, it means that irrespective of whether one is a resident or non-resident of India one’s assets and liabilities can be freely (i.e. without permission of any regulatory authority) denominated (or cashed) in any currency and easily interchanged between that currency and the Rupee. 4. Under FERA all violations would attract prosecutions. FEMA diluted the rigorous enforcement provisions which were the hallmark of the erstwhile legislation. Violation of FERA was a criminal offence whereas violation of FEMA is a civil offence. The categorization of offences under FEMA as civil and not criminal constitutes one of the most important differences between the two statutes. Contravention of FEMA provisions are dealt with under civil law procedures, for which there is a separate administrative procedure and mechanism in the form of Compounding Rules, Adjudicating Authority, Special Director (Appeals) and Appellate Tribunal. 5. Offences under FERA were not compoundable whereas offences under FEMA are compoundable. 6. Citizenship was a criterion to determine residential status of a person under FERA, while stay of More than 182 days in India is the criteria to decide residential status under FEMA. 7. Provisions in respect of Basic Travel Quota (BTQ), business travel, export commission, gifts, donations etc. have been considerably liberalized in FEMA. 8. FEMA is a civil law, while FERA was a draconian police law. FOREIGN EXCHANGE MANAGEMENT ACT, 1999 The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. In fact it is the central legislation that deals with inbound investments into India and outbound investments from India and trade and business between India and the other countries. The FEMA provides: Free transactions on current account subject to reasonable restrictions that may be imposed RBI control over Capital Account Transactions Control over realization of export proceeds Dealings in Foreign Exchange through Authorized Person (e.g. Authorized Dealer/ Money Changer/ Off-shore Banking Unit) Adjudication of Offences Appeal provisions including Special Director (Appeals) and Appellate Tribunal Directorate of Enforcement Main Provisions of Foreign Exchange Management Act, 1999 162 CU IDOL SELF LEARNING MATERIAL (SLM)

Objectives of FEMA The objective of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. FEMA extends to the whole of India. It applies to all branches, offices and agencies outside India owned or controlled by a person who is a resident of India and also to any contravention thereunder committed outside India by any person to whom this Act applies. Except with the general or special permission of the Reserve Bank of India, no person can:-  deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;  make any payment to or for the credit of any person resident outside India in any manner; The Main Features of the FEMA: The following are some of the important features of Foreign Exchange Management Act: 1. It is consistent with full current account convertibility and contains provisions for progressive liberalisation of capital account transactions. 2. It is more transparent in its application as it lays down the areas requiring specific permissions of the Reserve Bank/Government of India on acquisition/holding of foreign exchange. 3. It classified the foreign exchange transactions in two categories, viz. capital account and current account transactions. 4. It provides power to the Reserve Bank for specifying, in , consultation with the central government, the classes of capital account transactions and limits to which exchange is admissible for such transactions. 5. It gives full freedom to a person resident in India, who was earlier resident outside India, to hold/own/transfer any foreign security/immovable property situated outside India and acquired when s/he was resident. 6. This act is a civil law and the contraventions of the Act provide for arrest only in exceptional cases. 7. FEMA does not apply to Indian citizen’s resident outside India. 8.4.3 EXIM Policy/ Foreign Trade Policy, 2009-14: The year 2009 needs no introduction of its own as we know that the world was going through the period of global recession due to the sub-prime crisis and the back to back downgrading of the US credit rating by the largest credit rating firm S & P. Countries across the world had been affected in varying degrees and all major economic indicators of industrial 163 CU IDOL SELF LEARNING MATERIAL (SLM)

production – trade, capital flows, unemployment, per capita investment and consumption have taken a hit. The WTO estimated the global trade to decline by 9% in volume terms and the IMF estimated a decline of over 11%. It was also estimated by World Bank that 53 million more people would fall into the poverty net that year and over a billion people would go chronically hungry. India was not affected to the same extent as compared to the other economies of the world, yet the exports suffered a decline, due to a contraction in demand in the traditional markets of India’s exports. In the grim economic climate it was indeed a daunting task to formulate the foreign trade policy due to declining demand in the developed world. In order to maintain fruitful trade practices in the coming five years it is needed that motion strategies and policy measures are set in such a manner that it will catalyse the growth of exports and then the Foreign Trade Policy, 2009-14 came into the picture. EXIM POLICY OBJECTIVE:  To arrest and reverse declining trend of exports is the main aim of the policy. This aim will be reviewed after two years.  To Double India’s exports of goods and services by 2014.  To double India’s share in global merchandise trade by 2020 as a long term aim of this policy. India’s share in Global merchandise exports was 1.45% in 2008.  Simplification of the application procedure for availing various benefits  To set in motion the strategies and policy measures which catalyse the growth of exports  To encourage exports through a “mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhance market access across the world and diversification of export markets. Aim in General: The policy aims at developing export potential, improving export performance, boosting foreign trade and earning valuable foreign exchange. FTP assumes great significance this year as India’s exports have been battered by the global recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in large-scale unemployment. Targets: Export Target: $ 200 Billion for 2010-11 Export Growth Target: 15 % for next two year and 25 % thereafter. 164 CU IDOL SELF LEARNING MATERIAL (SLM)

The short term objective of the policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. The policy is empowered with objective of achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011. In the remaining three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum. By 2014, policy expects to double India’s exports of goods and services. The long term objective of policy for the Government is to double India’s share in global trade by 2020. In order to meet these objectives, the Government would follow a mix of policy measures including fiscal incentives, institutional changes, procedural rationalization, and enhanced market access across the world and diversification of export markets. Improvement in infrastructure related to exports; bringing down transaction costs, and providing full refund of all indirect taxes and levies, would be the three pillars, which will support us to achieve this target. Endeavour will be made to see that the Goods and Services Tax rebates all indirect taxes and levies on exports. MAIN FEATURES OF FTP 2009-14: The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India’s foreign trade and goes beyond the traditional focus on pure exports. This would be clear from the following statement in the policy document, “Trade is not an end in itself, but a means to economic growth and rational development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity.” The government unveiled a mix of procedural measures and fiscal incentives to trade with non- traditional destinations to bolster export order books drying out in two top regional markets-the US and the European Union. New emerging markets have been given a special focus to enable exports to be competitive. Incentive schemes are being rationalised to identify leading products which would catalyse the next phase of export growth. The government plans to introduce a nation-wide uniform GST from next year that would subsume the complex web of indirect taxes imposed by state governments. The introduction of zero duty capital goods scheme will add to expansion and modernization of production base at a time when investment is drying up in export industries. Other important features of the policy include: (i) $ 200 billion or Rs 98,000 crore is the export target for 2010-11. (ii) 100% growth of India’s export of goods and services by 2014. (iii) 15% growth target for next two years; 25% thereafter. (iv) 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%. 165 CU IDOL SELF LEARNING MATERIAL (SLM)

(v) Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence. (vi) 26 new markets added to focus market scheme. (vii) Provision for state-run banks to provide dollar credits. (viii) Duty entitlement passbook scheme extended till Dec. 2010. (ix) Tax sops for export-oriented and software export units extended till March 2011. (x) New directorate of trade remedy measures to be set up. (xi) Plan for diamond bourses. (xii) New facility to allow import of cut and polished diamonds for grading and certification. (xiii) Export units are allowed to sell 90% of goods in domestic market. (xiv) Export oriented instant tea companies can sell up to 50% produce in domestic market. (xv) Single-window scheme for farm exports. (xvi) Number of duty-free samples for exporters rose to 50 pieces. (xvii) Value limits of personal carriage increased to $5 million (Rs 24.5 core) for participation in overseas exhibitions. Highlights of EXIM Policy (2015-2020): 1. Merchandise Exports from India Scheme (MEIS):- Earlier there were five different schemes for rewarding merchandise exports. To make it simple, all five schemes have been merged into a single scheme, MEIS. Rewards for export of notified goods to notified markets under MEIS shall be payable as percentage of realized FOB value. In order to avail this benefit, all exporters are advised to declare on all shipping bills that “We intent to claim rewards under Merchandise Exports from India Scheme (MEIS)” 2. Service Exports from India Scheme (SEIS):- Served from India Scheme (SFIS) has been replaced with Service from India Scheme (SEIS). SEIS shall apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’. Thus, SEIS provides for rewards to all service providers of notified services from India, regardless of the constitution or profile of the service provider. The rate of reward under SEIS would be based on net foreign exchange earned. 3. Scrips issued under Export from India Scheme can be used for the payment of the Custom duty, Excise duty and service tax. 8.5 SUMMARY Legal environment includes various legislations issued by the government authorities- centre, state or local. The working knowledge of the following Acts are important for doing business  Companies Act  Industries Act 166 CU IDOL SELF LEARNING MATERIAL (SLM)

 Foreign Exchange Management Act  The Imports and Exports Act  Factories Act  Trade Union Act  Workmen’s Compensation Act  Industrial Disputes Act  Consumer Protection Act  Competition Act There are three main kinds of legal systems—common law, civil law, and religious or theocratic law. Constitution means a set of fundamental principles, basic rules and established precedents (means standards/instances). It identifies, defines and regulates various aspects of the State and the structure, powers and functions of the major institutions under the three organs of the Government – the executive, the legislature and the judiciary. The main features of the Constitution as shown in the illustration are as follows:  Written Constitution:  A Unique Blend of Rigidity and Flexibility:  Fundamental Rights and Duties:  Directive Principles of State Policy:  Integrated Judicial System:  Single Citizenship:  Universal Adult Franchise  Federal System and Parliamentary Form of Government: Three important COMPANY regulatory legislations in India are: Competition Act,2002 - The Act aimed at promoting competition through prohibition of anti- competitive practices, abuse of dominance by an enterprise and regulation of combinations such as mergers and acquisitions FEMA, 1999 - The objective of the Act is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. Foreign Trade Policy: The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India’s foreign trade and goes beyond the traditional focus on pure exports. 8.6 KEYWORDS  Exploitation: the action or fact of treating someone unfairly in order to benefit from their work. 167 CU IDOL SELF LEARNING MATERIAL (SLM)

 Secularism: the principle of the separation of government institutions and persons mandated to represent the state from religious institutions and religious dignitaries.  Amendment: minor change or addition designed to improve a text, piece of legislation, etc.  Socialistic: is a social and economic system characterized by social ownership of the means of production and co-operative management of the economy, as well as a political theory and movement that aims at the establishment of such a system. 8.7 LEARNING ACTIVITY 1. Explain the significance of Constitution. __________________________________________________________________________ __________________________________________________________________________ 2. Discuss the importance of EXIM policy 2015-2020 __________________________________________________________________________ __________________________________________________________________________ 8.8 UNIT END QUESTIONS A. Descriptive Questions Short Answers: 1. What is Legal Environment? 2. Highlight the main features of FEMA. 3. Write a note on Constitution of India. 4. Brief about Directive Principle of State Policy. 5. What are Behaviours Prohibited by the Act by Competition Act, 2002? Long Answers: 1. Discuss Salient Features of the Constitution. 2. Explain the role of Competition Commission of India. 3. State the difference between FERA and FEMA. State the reason why FERA is not followed. 4. Discuss the objectives of Foreign Trade Policy. 5. Present the features of FEMA(2015-2020) and explain the strategies to take advantage 168 CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple choice questions 1. The Indian Constitution was prepared by ------------- a. Dr. Ambedkar b. Dr. Rajendra Prasad c. Pt. Jawaharlal Nehru d. Mahatma Gandhi 2. India is a living document, because it needs to be --------------- a. Practiced b. Granted c. Amended d. Valued 3. The -------------- divides powers between the Union and the State governments a. Constitution of India b. President c. Prime minister d. Chief minister 4. The State governments can make laws on the subjects mentioned in the ------------ a. Union List b. Concurrent List c. State List d. Current List 5. In the context of the plurality in India, --------------is seen as a great constitutional value. a. Secularism b. Democracy c. Separation of Powers d. Directive Principles Answers: 1-a, 2 c, 3-d, 4-a, 5-c. 8.9 REFERENCES Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House], 169 CU IDOL SELF LEARNING MATERIAL (SLM)

 C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment , Financial Times/ Prentice Hall. Reference Books:  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 170 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 9: SOCIAL ENVIRONMENT 171 Structure 9.0 Learning Objectives 9.1 Introduction 9.2 Relationship between Society and Business 9.3 Business Ethics 9.3.1 Concept 9.3.2 Importance 9.3.3 Relevance of Ethics in Business 9.4 Principles of Business Ethics 9.5 Examples of Ethics at Workplace 9.6 Corporate Social Responsibility 9.7 Background theories of CSR 9.7.1 The Trusteeship Model 9.7.2 The Social Entity Theory 9.7.3 The Pluralistic Model 9.7.4 The Four Models of Corporate Responsibility to Society 9.8 Scope of CSR 9.8.1 CSR towards Consumers and Community 9.8.2 CSR towards employees 9.8.3 CSR Towards Owners and Inter-business 9.8.4 CSR at Dr. Reddy’s 9.9 Summary 9.10 Keywords 9.11 Learning Activity 9.12 Unit End Questions 9.13 References CU IDOL SELF LEARNING MATERIAL (SLM)

9.0 LEARNING OBJECTIVE After studying this unit, you will be able to  Illustrate the relationship of Business with Society  Explain the impact and expectation of Society on Business  Highlight the significance of ethical practices in Business  Analyze the CSR concept and its relevance with performance of Business 9.1 INTRODUCTION The social environment consists of the summation of a society's beliefs, customs, practices and behaviours. It is completely man-made which is different than the natural environment in which we live. Each and every society has its own social environment. Some of the customs, beliefs, practices and behaviours are similar across cultures, and some are not. For example, an American traveling to Britain will find many familiar practices but not so much if travelling to China. The beliefs, values and norms of a society determine how individuals and organisations should be inter-related. As society has created the social environment, so business operations are considered as external social environment. Social environment is a web of distinct element of values, beliefs and customs of diverse culture that makes it more convoluted. Even organization defines social environment within their boundaries as an internal social environment which is made up of practice, beliefs and conduct. Therefore, organization can manage internal social environment more than the external social environment. It is almost not possible for business to manage the fundamental norm of the particular society, which sometime acts as a crucial aspect of business operation. Let’s discuss dominant elements of Social environment as follows: a) Social concerns, such as the role of business in society, environmental pollution, corruption, use of mass media, and consumerism. b) Social perspective and morale, such as assurance of society from business, social norms, beliefs, traditions and practices, changing patterns of way of life and materialism. c) Family principles- Family structure and the changes in it, outlook towards and within the family, and family integrity. d) Part of women in society, stance of children and adolescents in family and society. e) Grade of Education, understanding and perception of rights, and determination of members of society. 172 CU IDOL SELF LEARNING MATERIAL (SLM)

9.2 RELATIONSHIP OF BUSINESS AND SOCIETY Society, in its broadest sense, refers to human beings and to the social structures they collectively create. Society means sub division of human being who belongs to specific interest group, community or country. Also, business is constructed humans, so organization is also an important part of the society. On the other hand, business from the rest of society which is possible due to presence of defined limits. Organization is involved in interchange of resources with its external environment across these dividing borders. For example, businesses recruit employees, buy raw material, and borrow money; they also sell products, donate time, and pay taxes. A simple diagram of the relationship between the two appears in Figure 9.1. Fig 9.1 Relationship between Business and Society Business activities impact other activities in society, and actions by various social actors and governments continuously affect business. 9.2.1 SYSTEM THEORY: According to System Theory, business (social aspects) has to continuously deal with the social structure (external environment) in which it is integrated. Organization is involved in interchange with different strata of the society like government officials, competitors, consumers, media and different groups and individuals. System theory has always presented the impressive platform to perceive the correlation between the business and its external environments. 173 CU IDOL SELF LEARNING MATERIAL (SLM)

Interactive social system is established when society and business are considered at the same time. They are dependent on each other and as they are interlinked, they always affect each other. Even though they are different but still a strong relation exists between them. They are both separate and connected. As society has an implications for various business function and also business is important commercial aspect of the society and society is an important cultural aspect of the business. 9.2.2 BUSINESS AND STAKEHOLDER RELATIONSHIP: According to the stakeholder theory of the firm, the corporations serve a broad public purpose: to create value for society. Business is drive by profit objectives of promoters and that is main reason of their existence. Business is always dedicated to satisfy their shareholders and for this they are continuously involved in delivering quality products and services to the consumers and designs such initiatives that contribute in growth and development of employees. Generally, we used the term stakeholder for investors who have stake or who has bought shares of the company. In broader sense, stakeholders have effects on business and they are employees, consumers, investors, board of directors, CEO and Managers, suppliers, government and media. Also, federations and trade association falls under the category of stakeholders. Different individuals with different background share a relationship with business, which is defined by the level of relation exists between them and the business. Some stakeholders are involved in the process of value creation by accessing the resources and some exert influence on value chain. Decision making process in influenced by small number of shareholders and it can become complex with large pool of stakeholders. Managers decision purely rely on understanding the significance of relationship and interaction with the stakeholders. Stakeholders act as an asset if they have optimistic bond with the company or pessimist if interaction of business and stakeholder is not considered properly. Negative perception can cause damage to business. Business are more alert and does not conduct the business close to any community or society that objects its presence. Not adhering to the environmental laws business may attract the lawsuits and loses their respective market share. Stakeholders are divided into Market and Nonmarket Stakeholders. Market stakeholders defines as those who are actively participates in monetary transactions with the business that exists primarily for providing goods and services to the society. Investors put their money in business and expect returns on their investment in the form of dividends and capital gains. Employees in the exchange of compensation offers skills and capabilities to be utilized for smooth operations of business. Even the expectation of workforce is to ensure professional and personal development at workplace and business expects loyalty, productivity and performance. Suppliers supply quality raw material on as per the schedule against payment and Creditors offers money at interest. Market 174 CU IDOL SELF LEARNING MATERIAL (SLM)

intermediaries like retailers, distributors and wholesalers contributes in distribution of products and services in exchange of money. Consumers that contribute in achieving good profit margin as they buy goods and services of the organization. So, business maintains two- way interaction with the society. Employees Customers Stockholders Distributors Business wholesalers Firm Retailers Creditors Suppliers Fig 9.2: Business Firm and its Market stakeholders Nonmarket stakeholders include the community, various levels of government, nongovernmental organizations, the media, business support groups, and the general public. They neither have any effect on business functions and operations nor business tries to influence them. Figure 9.2.3 represents the nonmarket stakeholders of business (also called secondary stakeholders by some theorists). Non-government organization involves natural environment which not a stakeholder. . 175 CU IDOL SELF LEARNING MATERIAL (SLM)

Business General Support Public Groups Communities Public Business Firm Government Non- Goverment Organization Fig 9.3 Business Firm and Non-Market Stake-Holder 9.3 BUSINESS ETHICS 9.3.1 Concept: Business ethics is all about the morality of an organization. It indicates various procedures and practices adopted by the organization to create an environment where all employees are respected, treated with fairness and honesty is maintained in each and every operation. Business ethics is meant for all the levels i.e., it is applicable from top management till new joinee’s. Business ethics provides framework that will define what is right and acceptable behaviour and conduct at workplace. Business ethics will promote corporate governance, implementing HR and organizational policies throughout the organization and addressing conflicts through grievance procedure. Business ethics will also serve as mechanism to reduce or prohibit misconducts like bribery, biased behaviour of seniors, sexual harassment, etc. 9.3.2 Importance of Business Ethics Business is the sub system existing in the society and thus, its operations should be advantageous for the society. Such firm enjoys the tag of being ethical and honest in operations as they adopt right practices and ensures quality in their offerings which are beneficial for the society. Another important aspect for business to stick to ethics is that they prevent themselves in getting involved in any kind of misconduct which is against legal 176 CU IDOL SELF LEARNING MATERIAL (SLM)

system of the country. Business respects their stakeholders and that is reflected in their conduct. Ethical companies have strong brand image in the eyes of customers, employees, creditors and investors. Ethical conduct of business increases the value of shares in the market, enjoys customer’s and employee’s loyalty. Even ethical practices adopted by business can help to build brand equity and increase the market share. Like Tata company- is the most ethical company in India, so they enjoy reasonable market share and consumer base because of this. Competitive advantage can be maintained by adopting ethical practices. Consumer’s are more loyal to ethical brands and also such business able to fascinate talent pool and end up selecting highly competitive individuals. Also, cost of recruitment and selection will gradually decrease in such organization as employee’s commitment is very high and thus, reducing attrition rate. Adopting business ethics in finance, human resource, marketing and production helps organization to maintain competitive advantage as well as help to achieve good rankings in global market. 9.3.3 RELEVANCE OF ETHICS IN BUSINESS Business ethics principle was dated back during barter system, when trust was the basis of all commodity exchange. The modern approach of Business Ethics came into existence after rise of anti-big business protest groups in 1970. Government played a very active role and converted Business ethics into legislation and so we have seen business to adhere to the practice of Corporate Governance and Corporate Social responsibility. Since more than a decade most of the corporates are contributing for social cause like environment protection initiatives, public health and education, improving infrastructure and lifestyle of region where business is operating. This kind of initiatives got embedded in the organizational policy and now they are one of the main objectives of sustainable development. So, business ethics is an important dimension of internal environment of an organization and treated as moral duty of business to adopt morale principle towards stake holders. The principles of business ethics are adopted in each and every function of Organization. Ethics in Finance: Implement ERP modules and centralized system to manage the finance and accounts of the organization which is transparent and easily visible to all the other functions where they can easily relate investment vs. returns. Ethics in Marketing: Clear communication regarding product and service details to consumers, updating all the records and communications with customer, maintenance of sales records and developments provide precise data sharing among all the levels of marketing with Top management. 177 CU IDOL SELF LEARNING MATERIAL (SLM)

Ethics in Human Resource Management: HR policy ensures ethical guidelines are in place with respect to the different functions of HR like recruitment, training, performance appraisal, so on. Ethics in Production: Quality management and improved customer service on real time basis are few of the domain where ethics principle are implemented successfully. 9.4 PRINCIPLES OF BUSINESS ETHICS There are various distinctive approaches involved in Business Ethics. Business ethics is based on few basic principles that acts as a guideline for corporates to practice it. Respect Leadership Fairness Principles of Business Ethics Integrity Honesty Fig 9.4 Principle of Business Ethics Leadership: Leaders represent the theme of organization which implies they are the representation of Organizational culture and values to the internal as well as to the external environment. If Leaders at all levels practices and exemplify the importance of ethics in day- to-day function then whole organization follows the same. So, it’s very important the ethical people are assuming the role of managers and top management to set the approach. 178 CU IDOL SELF LEARNING MATERIAL (SLM)

Respect: It is used in many senses. As we show courtesy to elders and young ones at home. Similarly, showing courtesy at workplace plays a very important role. Manager’s always encourage their subordinates to participate and share their opinions regarding operations, strategies and performance standard. This way team members feel important and sense of belongingness is developed. Respect is always expressed in the form of appreciation, encouragement, empathy and concern. Leaders with such quality are termed as People oriented leaders and they enjoy team loyalty as reward. Same way respect can be expressed to customers by providing efficient complaint resolution systems and approachable customer service. Fairness: Adopting the equity principle in conduct at employee-level as well at organizational level. If customer service is catering the query of customer who has bought low value product in the same way as customer service is provided with to the customer who has bought high value product. Similarly, recognizing the performance of new-hire in the same way as it is done for Assistant Manager. Honesty: ‘Honesty is the best policy’, that is what we have learnt through fable stories. Such approach is not only the propounding impact on an individual personality but it is in similar fashion is integrated in the Organizational culture as well. Being Transparent, admitting mistakes, setting examples by improving the mistakes and in return such practices are followed by subordinates assure Honest in the operations. It also implies that certain behaviour is not appreciated like lies, holding back important information related to any project and so on. Similarly, with customers avoiding mis-selling like passing on lucrative information about product and services which are not true. Integrity: Prioritizing organization’s and team goals over personal wishes is the courageous decision that is always expected from trustworthy manager. Trustworthy, honesty and integrity are inter-related aspect. Honesty and integrity principle will lead to trustworthy behaviour. Defining right is all different then practising it. Managers and top-manager who practice of selecting right activities even if it cost loss to them in person, is the one who possess integrity. Such people submerged this dimension in the organizational operations with their continuous efforts resulting in formation of Ethical firm. 9.5 EXAMPLES OF ETHICAL BEHAVIOR IN THE WORKPLACE While understanding the basic principles of business ethics is important, it is arguably more important to understand how these ideas apply to day-to-day business operations. Here are some examples of how ethical behaviors can be practically applied. 179 CU IDOL SELF LEARNING MATERIAL (SLM)

Putting Customer Needs First Companies that build their workplace culture around putting customer needs first and hiring people who engage in this behavior are participating in ethical behaviors. For example, if a customer comes into a store looking for a product that meets very specific needs, it's important to provide them the best product for the situation described instead of upselling them or encouraging them to buy a product that won't meet their needs. However, it is important to ensure that the \"customer first\" attitude does not unintentionally result in the unethical treatment of employees -- such as encouraging them to work more overtime than allowed, forcing them to endure abuse from customers with no safe way to escape the situation, and more. Being Transparent Transparency and clear communication is paramount when it comes to ethical workplace behaviors. Employees and consumers alike should never be lied to or told untruths, as this breaks trust within the business. For example, when faced with a public relations crisis, companies should call a meeting and address the problem directly with their employees. It's important to truthfully describe the situation as it unfolded, present solutions, and accept criticism humbly. Prioritizing Workplace Diversity Part of being fair is providing everyone with an equal opportunity to be employed at the company. While there is much political debate around how to create workplace fairness, it is undeniable that providing equal opportunity for employment to every applicant is an ethical standard. For example, if someone notices that management tends to hire the same type of person, they may suggest getting employees more involved in the hiring process. This will introduce different perspectives to the hiring process and increase the possibility that different kinds of applicants will be selected for a position. Respecting Customer Information Many businesses collect the personal information of their customers, whether it's payment information, health information, or similar. One of the priorities for any business should be securing and protecting this information. For example, a hospital may create and enforce aggressive policies around staff sharing patient information on social media. Having an employee share this kind of information on their personal accounts is not only disrespectful of the patient's privacy, but could also put the hospital at risk of violating HIPAA regulations. Providing Resources for Reporting Unethical Behavior If an employee notices unethical behavior in the workplace, they should have an outlet to report these behaviors. The business is responsible for putting this infrastructure in place and designing it in a way that insulates the employee from harm. For example, a research university should have a neutral office of compliance that is organizationally detached from 180 CU IDOL SELF LEARNING MATERIAL (SLM)

the research arm of the institution. This provides a neutral space where academics can report unethical studies or harmful practices without fear of workplace repercussions. 9.6 CORPORATE SOCIAL RESPONSIBILITY Definitions The World Business Council for Sustainable Development in its publication Making Good Business Sense by Lord Holme and Richard Watts used the following definition: “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”. The above definition provides base for that distinct societies and culture will have diverse perspective of corporate social responsibility which will differ from region to region or country to country. Philanthropic model is adopted in the USA, wherein corporates fulfil the obligations of CSR by paying taxes and donating some share for charity work. While European organization believes in incorporating social responsibility in their business functions and through their operations, they direct their efforts to improve the communities. Thus, the above models are more feasible as: (i) Business operations are not only involved in profit making but they are socially active that is embedded in the methodology of business. It will improve competitiveness in the industry and contribute in expanding the profit margins. (ii) CSR is the second priority when it comes to philanthropic approach, but that gets its importance when corporates want to earn some social incentives. CSR activities will get defined differently for different countries as there is vast difference in lifestyle and social concerns. So, CSR cannot be restricted to single definition. Also, different business will prioritize different social concern or issue. Noteworthy, the role of Manager is emphasized to create equilibrium between return on investment objective and taking care of social initiatives related to employees, consumers and society in broader sense. Nobel laureate, economist Milton Friedman, says: “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it engages in open and free competition, without deception or fraud.”7 To Henry Ford, “The purpose of business is to do as much good as we can, everywhere for everybody concerned… and incidentally to make money”.8 No wonder the meaning of the concept of Corporate Social responsibility seems to differ from person to person according to their own sensitivity. To Manmohan Singh, Prime Minister of India, “Corporate social responsibility is no philanthropy. It is not charity. It is an investment in our collective future. 181 CU IDOL SELF LEARNING MATERIAL (SLM)

The simplest and the most significant definition of CSR was given by Mahatma Gandhi who said: “Wealth created from society has to be ploughed back into society. The sum and substance of all these definitions can be put into the following propositions:10 1. It is an attempt made by companies to be voluntarily responsible to ethical and social considerations. 2. It is not a legal binding for the company, unlike corporate accountability (which makes company adhere to legal and social norms). 3. Compulsion to implement such framework or implement decision that is favourable to the purpose and beliefs of the society. 4. The set of obligations an organization has to project, enhance, and otherwise work to the betterment of the society in which it functions. 5. Corporate Social Responsibility is the overall relationship of the corporate with all of its stakeholders. These include customers, employees, communities, owners/investors, government, suppliers and competitors. Different aspect of Corporate Social Responsibility includes employee engagement, generating employment opportunities, financial standards and benchmark achieved, contribution for the welfare of society. 6. The social responsibility of business encompasses the economic, legal, ethical and discretionary expectations placed on organizations by society at a given point of time (Carrol 1989). This could be explained by the following equation. Corporate social responsibility is essentially a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. This means not only fulfilling legal expectations, but also going beyond compliance and investing in human capital, the environment and relations with stakeholders. To put in simpler terms, stakeholders are those organizations and individuals who have an interest or “stake” in the business or corporation and its success. This includes clients, the population of small business people, other business assistance organizations, other economic development organizations, legislators at the country, federal, and state levels, executive branches of government, executive departments and agencies, the staff and contracted consultants and trainers, vendors, and taxpayers. The list is very broad and inclusive. The development of CSR reflects the growing expectations of the community and stakeholders of the evolving role of companies in society and the response of companies to growing environmental, social and economic pressures. Through voluntary commitment to CSR, companies are hoping to send a positive signal of their behaviour to their various stakeholders (employees, shareholders, investors, creditors, consumers, regulators, NGOs and the Government) and in so doing make an investment in their future and help to increase profitability. Many driving forces are fostering the evolution of corporate social responsibility such as:  New concerns and expectations from citizens, consumers, public authorities and investors in the context of globalization and large-scale industrial change 182 CU IDOL SELF LEARNING MATERIAL (SLM)

 Social criteria are increasingly influencing the investment decisions of individuals and institutions, both as consumers and as investors  Increased concern about the damage caused by economic activity to the environment  Transparency of business activities brought about by the media and modern information and communication technologies 9.7 BACKGROUND THEORIES OF CSR Social scientists have formulated several theories that justify the importance of corporates engaged in promoting social welfare of the society in which they operate. The following sections describe these theories: 9.7.1 The Trusteeship Model The Trusteeship Model adopts a realistic and descriptive perspective in viewing the current governing situation of a publicly held corporation, drawing from the continental European conception of the corporation as a social institution with a corporate personality. Kay and Silberston (1995) argue that a public corporation is not the creation of a private contract and thus not owned by any individual. Ownership is by definition where the owner has exclusive rights of possession, use, gain and legal disposition of a material object. Yet shareholders merely own their shares in a company and trade their shares with others in the stock market. They do not have rights to possess and use the assets of the company, to make decision about the direction of the company, and to transfer the assets of the company to others. The residual claims of the shareholders are determined by the company and if the company's performance does not satisfy the shareholders requirements, the shareholders are left with a single option of “exit” rather than “voice” as shareholders, in general, are in no way able to monitor the management effectively and neither are interested in running corporate business. In this sense, the assumption that the corporation is owned by the shareholders is in fact meaningless. For Kay and Silberston, ownership rights are not important to business.11 Many public institutions such as museums, universities, and libraries perform well without clear owners. Indeed, the Indian Company Law does not explicitly grant shareholders ownership rights because the corporation is regarded as an independent legal person separate from its members, and shareholders are merely the “residual claimants” of the corporation. The company has its own assets, rights and duties, and has its own will and capacity to act and is responsible for its own actions. Therefore, Kay and Silberston reject the idea that management are the agents of shareholders. Instead, they suggest that managers are trustees of the corporation. The trusteeship model differs from the agency model in two ways: First, the fiduciary duty of the trustees is to sustain the corporation's assets, including not only the shareholders' wealth, but also broader stakeholders' value such as the skills of employees, the 183 CU IDOL SELF LEARNING MATERIAL (SLM)

expectations of customers and suppliers, and the company's reputation in the community. Managers as trustees are to promote the broader interests of the corporation as a whole, not solely the financial interest of its shareholders. Second, managers have to balance the conflicting interests of current and future stakeholders and to develop the company's capacities in a long-term perspective rather than focus on short-term shareholder gains. To establish a trusteeship model, they ask for statutory changes in corporate governance, such as changing the current statutory duties of the directors, ensuring the power of independent directors to nominate directors and select senior managers and appoint CEOs for a fixed 4- year term and so on. 9.7.2 The Social Entity Theory The theory has, in recent years, been promoted by three major social thinkers—the Democratic Political theorist, Robert Dahl (1985) using economic democracy, Paul Hirst (1994) using associationalism, and Jonathan Boswell (1990) 12 using communication notion of property. The social entity conception of the corporation regards the company not as a private association united by individual property rights, but as a public association constituted through political and legal processes and as a social entity for pursuing collective goals with public objections. The social entity theory views the corporation as a social institution in society based on the grounds of fundamental value and moral order of the community. “With the fundamental value of human rights and standard of a corporation's usefulness is not whether it creates individual wealth, but sense of the meaning of the community by honouring individual dignity and promoting over all welfare.” Sullivan argues that corporations are granted charter entity for a commercial purpose, but more importantly, as a social entity for general community needs. The corporation identity and executives are representatives and guardians of all corporate stakeholder's interests. The recent resurgence of the moral aspect of stakeholder perspectives has been, in general, associated with the social entity conception of the corporation. 9.7.3 The Pluralistic Model The Pluralistic Model supports the idea of multiple interests of stakeholders, rather than shareholder interest alone. It argues that the corporation should serve and accommodate wider stakeholder interests in order to make the corporation more efficient and legitimate. It suggests that corporate governance should not move away from ownership rights, but that such rights should not be solely claimed by, and thus concentrated in, shareholders; ownership rights can also be claimed by other stakeholders, particularly employees. Stakeholders who make firm specific investments and contributions and bear risks in the corporation should have residual claims and should participate in the corporate decision making to enhance corporate efficiency. It is asserted that if corporations practise stakeholder management, their growth and profitability will increase and they will be more stable. 184 CU IDOL SELF LEARNING MATERIAL (SLM)

9.7.4 The Four Models of Corporate Responsibility to Society Model Emphasis Proponent Ethical Voluntary commitment by companies to public welfare Mahatma Gandhi Statist State ownership and legal requirements determine corporate Jawaharlal responsibilities Nehru Liberal Corporate responsibilities limited to private owners Milton (shareholders) Friedman Stakeholder Companies respond to the needs of stakeholders— R. Edward customers, creditors, employees, communities, etc. Freeman 9.8 SCOPE OF CSR Three levels of social responsibility can be identified (evolution of areas of social responsibility):  Market forces: Responding to the demands of the market. Managerial decisions that involve business responding to the economics of the market place by efficiently and effectively using resources. The greatest impact of business on society comes from “normal” operations, therefore, shows greatest social responsibility.  Mandated actions: Government mandates or negotiated agreements (regulatory requirements and guidelines, contracts/agreements with stakeholders). Managerial decisions that reflect business responses to government mandated requirements and/or pressure group stakeholders (e.g. unions).  Voluntary actions: Managerial decisions that are undertaken without outside pressure: voluntary social programmes  Legal plus: “go beyond status” and regulatory requirements  Respond to national consensus; recognized problems  In areas with no consensus The following are the issues that are commonly addressed in corporate social responsibility  The community, assistance in solving community problems 185 CU IDOL SELF LEARNING MATERIAL (SLM)

 Health and Welfare  Education  Human rights  Natural environment  Culture (i.e., music, arts, sports, etc.) The following sections outline the corporate social responsibilities to different groups of stakeholders. 9.8.1 Social Responsibilities of Business Towards Consumers and Community  Goods must meet the requirements of different classes, their tastes and purchasing power  Goods must be reasonably priced, must be of dependable quality and of sufficient variety  Provision of after-sales service advice, guidance and maintenance  A fair widespread distribution of goods and services among all sections of consumers and community  Provision of free competition and prevention of concentration of goods in the hands of a limited number of producers or purchasers or groups  Present a “good image” in the minds of the public for honesty and integrity of character  Advertising policy should be based on moral/ethical principles. It should not mislead by false, misleading and exaggerated advertisements  Support to educational, charitable and other programmes for the benefit of the community  Social accountability to consumers and public regarding the business conditions  Avoidance of social and moral dangers of “high spots” and “social tensions”  Prevention of the growth of slums, improvement of housing conditions, elimination of crimes in industrial areas, and meeting the heavy costs of pollution and waste disposal  Business should have a progressive outlook  Proper training should be offered to the existing employees  Should behave like a law-abiding citizen to the State  To pay its dues and taxes to the state fully and honestly  Maintain impartiality towards political affairs, i.e., to abstain from direct political involvement; and not to support political parties  To follow honest trade practices, and avoid activities leading to restraint of trade and commerce  To try not to contact public servants for selfish ends  To sell commodities without adulteration 186 CU IDOL SELF LEARNING MATERIAL (SLM)

9.8.2 Social Responsibilities Towards Employees  Promote a spirit of cooperative endeavour between employees and employers through participation in decision making and in improving production and administration  To pay fair and reasonable wages to labour and fair salaries to executives  To develop and adopt a progressive labour policy based on recognition of genuine trade union right; settlement of disputes and conciliation; to create a sense of belonging to the business, and improving human qualities of labour by education, training, living conditions, housing, leisure and amenities  To provide reasonable and just work conditions  To recognize labourers as a “human being” and respect their dignity, and preserve their individual liberty  Provide facilities for joint consultation and collective bargaining  Help development of proper leadership from among the employees  Guarantee religious, social and political freedom to workers to take part in the civic activities 9.8.3 Social Responsibilities Towards Owners and Inter-business  To provide a fair return or dividend on the capital invested  Give fair and impartial treatment to all  Develop healthy cooperative business relationship between different business  Advance of such unfair practices as price-rigging, undercutting, patronage, unfair canvassing and unethical advertisements  Help in the control of monopoly and promotion of healthy competition 187 CU IDOL SELF LEARNING MATERIAL (SLM)

9.8.4 CSR at Dr. Reddy’s DRF - ABOUT DRF’S EDUCATION PROGRAM Our education program started with education for street children to discourage child labor. DRF started several school projects to help children from marginalized communities get access to quality education. Youth ABOUT GROW To address the vast disconnect between the demand and supply of skilled human resources – largely because of the poor quality of skill training – GROW focuses on improving ‘Core Employability’ skills to ensure the student is equipped with appropriate knowledge for his/her sector-of-choice and help kick start their career. Rural Household MITRA focuses on empowering small and marginal farmers by nudging them to adopt latest technologies and best farming practices. The program bridges the lack of last-mile delivery of 188 CU IDOL SELF LEARNING MATERIAL (SLM)

agriculture extension services at the grass roots by helping marginal farmers to access existing public extension facilities, engage with agri-scientists and embrace best farming practices, and more importantly, to impart this to other farmers through peer learning and sharing. We envision a sustainable and scalable community platform to address the last-mile delivery challenges, which can be replicated across the country to benefit 100 million small and marginal farmers. ABOUT FLHTL (First Level Health Team Leaders) First Level Health Team Leaders (FLHTL) play a crucial role within the Primary Health Care system and research confirms the need for enhancement of managerial and leadership skills as a key lever to improve health outcomes. While it has been a priority to impart technical skills to health workers -including FLTHL- it is noted that managerial and leadership skill building has been relegated to the periphery. DRF aims to address this gap by building an intervention for enhancing Managerial and Leadership skillsets for FLHTL. We expect a tangible shift in behavioural change resulting in effective leadership of FLHTLs and increased performance of the Indian Primary Health Care System ABOUT ACE DRF’s Action for Climate and Environment Program (ACE) focuses on climate-proofing the livelihoods of small and marginal farmers to the increasingly adverse impacts of climate change by pushing or nudging them to adopt climate-friendly technologies and farming practices. The program seeks to leverage the agriculture sector’s immense inherent potential for mitigating emissions by encouraging the adoption of technologies and practices that sequester carbon and lower GHG emissions. It focuses on a co-benefit approach that aims at identifying strategies that prioritize win-win solutions aimed at capturing not only climate benefits but also secondary economic, social or environmental improvements in a single measure or policy. 9.9 SUMMARY The survival and success of any business depends upon the thorough understanding of internal and external factors of business environment and adopting such environmental scanning techniques which not only provide the framework for organizational restructuring in present situation but also provides strong foundation for future growth and expansion. The focus of business is not only restricted to the technological development and competitive 189 CU IDOL SELF LEARNING MATERIAL (SLM)

advantage but to achieve sustainable development. Thus, business needs to cater all the stakeholders and achieve globally competitive position. Some of the important factors and influences operating in this environment are as follows: a) Social concerns, b) Social attitudes and values, c) Family structure and the changes in it, d) Role of women in society, position of children and adolescents in family and society. e) Educational levels Leveraging business ethics wisely can result in increased brand equity overall. Types of Business Ethics – Caring, Fairness, Trust, Respect. Social scientists have formulated several theories that justify the importance of corporates engaged in promoting social welfare of the society in which they operate  The Trusteeship approach  The Social Entity approach  The Pluralistic approach The four Model of CSR are  Ethical  Statist  Liberal  Stakeholder Three levels of social responsibility  Market forces  Mandated Actions  Voluntary Actions 9.10 KEYWORDS  Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.  Business transparency is the process of being open, honest, and straightforward about various company operations.  A social concern is any issue, problem, or conflict that is a high priority for a society to solve or prevent. 190 CU IDOL SELF LEARNING MATERIAL (SLM)

 Society, in its broadest sense, refers to human beings and to the social structures they collectively create.  The term stakeholder refers to persons and groups that affect, or are affected by, an organization’s decisions, policies, and operations. 9.11 LEARNING ACTIVITY 1. Justify “thou shalt not’s and its respective Do’s and Don’t’s ___________________________________________________________________________ _______________________________________________________________ 2. How business and society are inter-related? ___________________________________________________________________________ _____________________________________________________________ 9.12 UNIT END QUESTIONS A. Descriptive Questions: Short Answers: 1. Explain the Trusteeship theory 2. What are the three levels of CSR? 3. State the types of business ethics. 4. What is Business Ethics? Elaborate. 5. What is System theory? Long Answers: 1. Compare the role of an organization as a social responsibility towards consumer, employees and inter-business 2. Discuss the different tools adopted by an organization to implement Business Ethics. 3. General behaviour of ethics adopted and practiced at workplace. 4. Why Business and stakeholder relationship highlights the necessity of Business ethics and CSR? 5. State the role of Market and non-Market Stake holders? What is the priority for business and Why? B. Multiple choice Questions: 191 1. Social responsibility becomes an integral part of the ______________. a. Wealth Creation Process CU IDOL SELF LEARNING MATERIAL (SLM)

b. Union Budget c. Stock listing d. Increasing employee’s turnover. 2. What is the “thou shalt not’s? a. Procedures b. Code of Conduct c. Code of Ethics d. Training 3. Business ethics is a ________field because there are so many different topics that fall under its umbrella. a. small b. Mix c. Narrow d. Broad 4. This social environment created by a society-at-large in which a business functions can be referred to as its ___________ social environment a. Internal b. Lateral c. External d. Parallel 5. _______________, by contrast, are people and groups who are not engage in direct economic exchange with the firm—are nonetheless affected by or can affect its actions. a. Suppliers b. Non-market stakeholders c. Creditors d. Employees Answers 1 – a ; 2 - c; 3 - d;4 - c;5 – b; 9.13 REFERENCES Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House],  C. Fernando, Business Environment Kindle Edition, Pearson 192 CU IDOL SELF LEARNING MATERIAL (SLM)

 K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment , Financial Times/ Prentice Hall. Reference Books:  Engineering Economic-Dr. Rajan Mishra by University Science Press  The Gazette of India, Ministry of Law and Justice, New Delhi. No.311, June’16, 2006.  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  International Journal of Scientific and Research Publications, Volume 2, Issue 12, December 2012  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 193 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 10: CONSUMER PROTECTION ACT 1986 Structure 10.0 Learning Objectives 10.1 Introduction 10.2 Consumer: 10.2.1 Rights & Responsibilities of Consumer 10.2.2 Exploitation of Consumers 10.3 Legal protection to Consumers 10.4 Consumer Protection Act, 1986 10.4.1 Jurisdiction and Objective 10.5 Consumer Protection Councils 10.5.1 Consumer Disputes Redressal Agencies 10.5.2 Consumer Complaints 10.5.3 Remedial Action 10.5.4 Penalties 10.6 Summary 10.7 Keywords 10.8 Learning Activity 10.9 Unit End Questions 10.10 References 10.0 LEARNING OBJECTIVES After studying this unit, Students will be able to  Explain the meaning of consumer protection  State the various problems faced by consumers  Realize the need for consumer protection  Identify the parties involved in consumer protection  Outline the provisions of laws aimed at protecting consumers  Discuss the jurisdiction of consumer courts established for redressal of consumer disputes 10.1 INTRODUCTION Consumer protection is a group of laws and organizations designed to ensure the rights of consumers as well as fair trade, competition and accurate information in the marketplace. 194 CU IDOL SELF LEARNING MATERIAL (SLM)

The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors. The Consumer Protection Act, 1986 was enacted to provide a simpler and quicker access to redressal of consumer grievances. The Act for the first time introduced the concept of ‘consumer’ and conferred express additional rights on him. It is interesting to note that the Act doesn’t seek to protect every consumer within the literal meaning of the term. The protection is meant for the person who fits in the definition of ‘consumer’ given by the Act. 10.2 CONSUMER: A consumer is an individual who buys products or services for personal use and not for manufacture or resale. A consumer is someone who can make the decision whether or not to purchase an item at the store, and someone who can be influenced by marketing and advertisements. Any time someone goes to a store and purchases a toy, shirt, beverage, or anything else, they are making that decision as a consumer. 10.2.1 Rights & Responsibilities of Consumer Rights Right to safety: It refers to the right of a consumer to be protected against hazardous effects of all possible consumption patterns and to all goods and services which may affect life and property. Right to choose: The right to choose means the right to be assured, wherever possible, access to a variety of goods and services at competitive prices. Right to information: The right to information not only means disclosure regarding weight or price or the MRP of the product, i.e. the physical properties of the product and service but also the legal implications of the transactions. Right to be consumer education: Consumer education empowers consumers to exercise their consumer rights. It is perhaps the single most powerful tool that can take consumers from their present disadvantageous position, to strength them in the marketplace. Right to a safe and healthy environment: Since the beginning of civilization man has been disturbing the ideal balance of nature. Using natural resources is not harmful because nature has its own cleaning mechanism. But rapid industrialization, deforestation, etc. the environment is deteriorating fast. The need for 195 CU IDOL SELF LEARNING MATERIAL (SLM)

environmental conservation is seen as a necessary defense against deteriorating quality of life world -wide. Consumers need to understand that only a safe environment can ensure the fulfillment of their rights. Right to basic needs: The right to basic needs is an important right which has been conferred by UN on developing countries for consumers to lead a normal life. Right to be heard: The right to be heard means that consumers should be allowed to voice their opinions and grievance at appropriate forums. The right to seek redressal: A consumer has the right to seek redressal for any goods, deficiency in services and loss due to unfair trade practices. Every day the manufactures are finding new ways of cheating and duping the consumer. Responsibilities Be Critically Aware The responsibility to be more alert and to question more – about prices, about quantity and quality of goods bought and services used. Be Involved The responsibility is to be assertive – to ensure that you get a fair deal as a consumer, but if you are passive, you are likely to be exploited. Be Organized The responsibility is to join hands and raise voices as consumers; to fight in a collective and to develop the strength and influence to promote and protect consumer interest. Practice Sustainable Consumption The responsibility to be aware of the impact of your consumption on other citizens, especially the disadvantaged or powerless groups; and to consume based on needs – not wants. Be Responsible to the Environment The responsibility is to be aware and to understand the environmental consequences of our consumption. We should recognize our individual and social responsibility to conserve natural resources and protect the earth for future generations. 196 CU IDOL SELF LEARNING MATERIAL (SLM)

10.2.2 Exploitation of Consumers Meaning of consumer exploitation When a producer is doing selfish deeds for his/her own benefit and the decision is a purpose giving more than mental happiness for only the producer and having adverse effects on consumer who may be illiterate or unaware, etc. Cause of Consumer Exploitation  Illiteracy and Ignorance: Consumers in India are mostly illiterate and ignorant  Unorganized Consumers: In India consumers are widely dispersed and are not united.  Spurious Goods: There is increasing supply of duplicate products Consumers are, however, by and large, practically denied most of these rights. They are exploited by a large number of restrictive and unfair trade practices. A situation has developed in science is extensively applied to marketing to ruthlessly, exploit the consumers by stimulating the weak points and soft corners of their mind. Misleading, false or deceptive advertisements are quite common. Many a time the advertisements deliberately give only half truths so as to give a different impression than is the actual fact. Thus, advertisements may, be misleading because things that should be said have not been said, or, because advertisements are composed or purposefully presented in such a way as to mislead. Although nowadays consumer is the king pin of market but then also there is lot of exploitation of consumers as businessmen use various unfair trade practices to cheat and exploit consumers. Consumer protection provides safeguard to consumers from such exploitation. Problems Faced by Consumers Consumers may be deceived in various ways by unscrupulous businessmen including traders, dealers, producers and manufacturers as well as service providers. Some of the following unfair practices must have come to your notice sometime or the other: 1. Adulteration that is, adding something inferior to the product being sold. This is a practice we come across in the case of cereals, spices, tea leaves, edible oil, petrol, etc. For example, mustard oil may be adulterated with rape seed oil or argemone oil, black pepper is known to be adulterated with dry papaya seeds, petrol is mixed with kerosene oil, vanaspati may be mixed with ghee/butter. Sometimes, the inferior material used with the product may be injurious to health. 2. Sale of spurious products, that is, selling something of no value instead of the real product. This is often found in the case of medicines and drugs or health care products. Cases have Consumer Protection 155 been reported where ampoules for injections contained only water or glucose water in bottles contained only distilled water. 197 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Use of false weights and measures is another malpractice which some traders adopt while selling the goods. Goods which are sold by weight (kg.) like vegetables, cereals, sugar, etc., those sold by measures (meter) like textile fabrics, suit pieces, are sometimes found to be less than the actual weight or length. False weights (Kg, 500 grams, 250 grams, etc) or measuring tapes or sticks having false markings are used for the purpose and buyers are cheated. Sometimes packaged goods and sealed containers (tins) contain fewer quantities, than what is stated on the label or packet. This cannot be easily verified. Sweets are often weighed along with the card board box which may weigh up to 50-100 grams. You pay for it at the same rate as the sweets. 4. Sale of duplicates, that is, goods that indicates a mark which shown it is of superior quality than what it actually is. For example, goods which are locally made are sold at a higher price as imported items expected to be of superior quality. Certain products like washing soap, detergent powders, tube lights, jams, edible oil, even medicines, carry well known brand names although these are made by others. 5. Hoarding and black-marketing is another problem that consumer often face. When any essential commodity is not made available in the open market and stocks are intentionally held back by dealers it is known as hoarding. Its purpose is to create an artificial scarcity, to push up the prices. Black marketing is the practice of selling hoarded goods, secretly at a higher price. These practices are sometimes adopted when there is short supply of any product. You may have read in the newspapers sometime back about scarcity of onions in the open market in some states and high prices being charged by traders who had stocks. 6. Tie-in-Sales: Buyers of durable consumer goods are sometimes required to buy some other goods as a pre-condition to sale or may be required to pay after-sales service charges for one year in advance. You may have heard about tying up of new gas connections with the sale of gas stoves (burners). Also TV sets are sometimes sold on the condition that the buyers will make advance payment of a year’s service charge. 7. Offering gifts having no additional value or coupons to collect a gift on the next purchase of some product are practices aimed at alluring consumers to buy a product. Often gifts are offered after the price of the product on sale has been increased. Dealers also announce contests or lottery among buyers of a product without the intention of awarding any prize. 8. Misleading advertisement is yet another practice by which consumers are deceived. Such advertisements falsely represent a product or service to be of superior quality, grade or standard, or falsely assert the need for or usefulness of a product or service. A pharmaceutical company advertised that use of its paracetamol tablet did not have any side effects like aspirin, but it suppressed the experts’ report that the use of paracetamol had adverse effect on the liver. A company announced in its advertisement that it was manufacturing 150 cc. scooters in technical collaboration with a foreign company, although no such collaboration had been entered into. In another case, a company used the trademark Business Studies 156 of a well-known company ‘Philips’ in its advertisement for TV sets.. On enquiry it was found that the company did not have the necessary permission from Philips for the use of its trade 198 CU IDOL SELF LEARNING MATERIAL (SLM)

mark on TV sets. It was a case of misrepresentation of facts although that company was authorized to use the trademark ‘Philips’ on its audio products (radio sets) only. 9. Sale of sub-standard goods i.e., sale of goods which do not conform to prescribed quality standard particularly for safety. Such products include pressure cookers, stoves, electric gadgets (heaters, toasters, etc.), and cooking gas cylinders. 10.3 LEGAL PROTECTION TO CONSUMERS A number of laws have been passed by the Government of India over the years to protect the interest of consumers. A brief outline of the purpose of these laws in given below: (i) Agricultural Products (Grading and Marketing) Act, 1937: This Act provides for grading and certifying quality standard of agricultural commodities which are allowed to be stamped with AGMARK seal of the Agricultural marketing department of the Government. (ii) Industries (Development and Regulation) Act, 1951: This Act provides for control over production and distribution of manufactured goods. According to this Act, the central government may order investigation of any industry, if it is of the opinion that there has been substantial fall in the volume of production, or a marked decline in the quality of a product, Consumer Protection 159 or any unreasonable rise in price. After due investigation, the government may issue directions to set things right. If the directions are not acted upon, the government may take over the concerned undertakings. (iii) Prevention of Food Adulteration Act, 1954: This Act provides for severe punishment for adulteration of food articles. In the case of sale of adulterated food which is injurious to health and likely to cause death, life imprisonment with a minimum fine of Rs 3000 may be payable. Food inspectors are appointed and they have powers to lift samples and send them for analysis. Penalties are also provided under the act for offences committed by persons with regard to manufacture, import, storage, sale and distribution of adulterated food articles. (iv) Essential Commodities Act, 1955 : Under this Act, the Government has power to declare any commodity as essential in the public interest. Thereby the government can control the production, supply and distribution of the trading of such commodities. It also provides for action against anti-social activities of profiteers, hoarders and black-marketers. (v) The Standards of Weights and Measures Act, 1956: This Act provides for the use of standard weights and standard measures of length throughout the country. ‘Metre’ has been specified as the primary unit for measuring length, and ‘kilogram’ as the primary unit for measuring weight. Before this act came into force, different system of weights and measures were used in different parts of the country like ‘pound’, 199 CU IDOL SELF LEARNING MATERIAL (SLM)

(vi) ‘Chhatak’ and ‘Seer’ as weights, yard, inch and foot for length, etc. These (vii) differences provided opportunities for traders to exploit the consumers. (viii) Monopolies and Restrictive Trade Practices Act, 1969: Under the provisions of this Act, as amended in 1983 and 1984, consumers and consumer groups can (ix) exercise their right of redressal by filing complaints relating to restrictive and unfair trade practices. The government has constituted the MRTP commission which is empowered to deal with consumer complaints after due investigation and enquiry. The Commission has power to award compensation for any loss or injury suffered by consumers. Prevention of Black-marketing and Maintenance of Essential Supplies Act, 1980: The primary objective of this act is to provide for detention of persons with a view to prevention of black-marketing and maintenance of supplies of commodities essential to the community. The maximum detention for persons acting in any manner against the intention of the act can be imprisonment upto 6 months. Bureau of Indian Standards Act, 1986: The Bureau of Indian Standards has been set up under this Act, replacing the Indian Standards Institution (ISI), to protect and promote consumer interest. It has two major activities : formulation of quality standards for goods and their certification through the BIS certification marks scheme by which manufacturers are permitted to use the standardization mark (ISI) on their products after due verification of conformity with prescribed quality standards of safety and performance. The Bureau has set up a consumer affairs department to create quality consciousness among ordinary consumers. There is also a public grievances cell to which consumers can make complaint The MRTP Act in going to be repealed when the Competition Act, 2002, comes into force. The Competition Commission to be set up under the new Act will also replace the MRTP Commission. Business Studies 160 about the quality of products carrying ISI mark. Consumer Protection Act, 1986: This Act provides for consumer protection more comprehensively than any other law. Consumers can seek legal remedy for a wide range of unfair practices not only with respect to goods but also for deficiency in services like banking, insurance , financing, transport, telephone, supply of electricity or other energy, housing, boarding & lodging, entertainment, amusement, etc. This Act also includes provision for the establishment of consumer protection councils at the centre and the state. For the settlement of consumer disputes, the act has provided for a semi-judicial system. It consists of District Form, State Commission and National Commission for redressal of consumer disputes. These may be regarded as consumer courts. Consumerism Concept of Consumerism: 200 CU IDOL SELF LEARNING MATERIAL (SLM)