CU-MBA-SEM-I-Business, Society and Law

 On the other hand, merchandise imports (on BoP basis) at US$ 116.4 billion moderated by 6.5 per cent in Q1 of 2014-15 as against an increase of 4.7 per cent in Q1 of 2013-14. Decline in imports was primarily led by a steep decline of 57.2 per cent in gold imports, which amounted to US$ 7.0 billion, significantly lower than US$ 16.5 billion in Q1 of 2013-14. Notably, non-gold imports recorded a modest rise of 1.3 per cent as against decline of 0.6 per cent in corresponding quarter of last year reflecting some revival in economic activity.  As a result, the merchandise trade deficit (BoP basis) contracted by about 31.4 per cent to US$ 34.6 billion in Q1 of 2014-15 from US$ 50.5 billion in the corresponding quarter a year ago.  Net services receipts improved marginally in Q1 of 2014-15 on account of higher exports of services. Net services at US$ 17.1 billion recorded a growth of 1.2 per cent in Q1 of 2014-15. Elimination of Illegal Transactions in Foreign Exchange The determination of exchange rate in the foreign exchange market, by market forces, has eliminated illegal transactions in foreign exchange. Foreign currencies are now easily available in any amount for persons traveling abroad. The removal of restrictions has also helped in eliminating “black money” generated as a result of illegal transactions in foreign exchange. Improvement in Power Supply The reforms undertaken in the power sector have already started yielding good results. In Delhi, after privatization of distribution of power, power availability has drastically improved. Power theft has almost been eliminated. Consumers get electricity connections or increase in load-capacity easily. Incidence of power failure, voltage fluctuations, variations in frequency etc., has come down sharply. In short, privatization of power sector has definitely improved the quality and quantity of power supply in Delhi. Higher Revenue due to Value Added Tax Value Added Tax (VAT) is termed as the best practice in taxation all over the world. This has been introduced in India from April 2005. Many states have already shifted to Value Added Tax regime in place of Sales Tax. There has been buoyancy in revenue collections of many states after the introduction of VAT. According to the Empowered Committee of State Finance Ministers on VAT, the VAT regime has improved tax compliance among the traders and has also brought down the prices of many commodities. 151 CU IDOL SELF LEARNING MATERIAL (SLM)

6.5.3 Impact of New Industrial Policy on Business: The factors and forces of business environment have lot of influence over the business. The common influence and impact of such changes in business and industry are explained below: 1. Increasing Competition: After the new policy, Indian companies had to face all round competition which means competition from the internal market and the competition from the MNCs. The companies which could adopt latest technology and which were having large number of resources could only survive and face the competition. Many companies could not face the competition and had to leave the market. For example, Weston Company which was a leader in Т. V. market with more than 38% share in T.V. market lost its control over the market because of all round competition from MNCs. By 1995-96, the company almost became unknown in the T.V market. 2. More Demanding Customers: Prior to new economic policy there were very few industries or production units. As a result there was shortage of product in every sector. Because of this shortage the market was producer-oriented, i.e., producers became key persons in the market. But after new economic policy many more businessmen joined the production line and various foreign companies also established their production units in India. As a result there was surplus of products in every sector. This shift from shortage to surplus brought another shift in the market, i.e., producer market to buyer market. The market became customer- oriented and many new schemes were made by companies to attract the customer. Nowadays products are produced/manufactured keeping in mind the demands of the customer. 3. Rapidly Changing Technological Environment: Before or prior to new economic policy there was a small internal competition only. But after the new economic policy the world class competition started and to stand this global competition the companies need to adopt the world class technology. To adopt and implement the world class technology the investment in R & D department has to increase. Many pharmaceutical companies increased their investment in R and D department from 2% to 12% and companies started spending a large amount for training the employees. 4. Necessity for Change: Prior to 1991 business enterprises could follow stable policies for a long period of time but after 1991 the business enterprises have to modify their policies and operations from time to time. 5. Need for Developing Human Resources: 152 CU IDOL SELF LEARNING MATERIAL (SLM)

Before 1991 Indian enterprises were managed by inadequately trained personnel’s. New market conditions require people with higher competence skill and training. Hence Indian companies felt the need to develop their human skills. 6. Market Orientation: Earlier firms were following selling concept, i.e., produce first and then go to market but now companies follow marketing concept, i.e., planning production on the basis of market research, need and want of customer. 7. Loss of Budgetary Support to Public Sector: Prior to 1991 all the losses of Public sector were used to be made good by government by sanctioning special funds from budgets. But today the public sectors have to survive and grow by utilising their resources efficiently otherwise these enterprises have to face disinvestment. On the whole the policies of Liberalisation, Globalisation and Privatisation have brought positive impacts on Indian business and industry. They have become more customer focus and have started giving importance to customer satisfaction. 8. Export a Matter of Survival: The Indian businessman was facing global competition and the new trade policy made the external trade very liberal. As a result, to earn more foreign exchange many Indian companies joined the export business and got lot of success in that. Many companies increased their turnover more than double by starting export division. For example, the Reliance Company, Videocon, MRF, CEAT, etc. got a great hold in the export market. 6.5.4 New Small Sector Policy, 1991: The Industrial Policy Scheme 1991 was accompanied by a separate Policy Statement for the promotion and strengthening of small, tiny and rural industries which had following features:  De-regulation and de-bureaucratizing the procedure to impart greater vitality and growth to the sector  Modifications in all statements, regulations and procedures to ensure they do not go against the interest for small and village enterprises.  Separate package for promoting tiny units and recognition of all industry-related services and business enterprises except for specified target groups to ensure adequate flow of credit on normative basis.  To provide access to capital markets by allowing 24 percent equity participation by other industrial undertakings.  Legislation to ensure prompt payment of bills and legislation for Limited Partnership Act.  Introduction of a new scheme of integrated infrastructural development to promote industrialization in rural and backward areas. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

 Stress on technology up-gradation by setting up a technology development cell and strengthening the facilities available with Small Industry Development Organization (SIDO), and enforcement of quality control.  Promotions of exports by setting up Export Development Centre.  Change in definition of women’s enterprises and support to women entrepreneurs.  Significant expansion in programmes for entrepreneurship. Objectives: The primary objective of the Small Sector Industrial Policy during the nineties was to impart more vitality and growth impetus to the sector to enable it to contribute its mite fully to the economy, particularly in terms of growth of output, employment and exports. 1. Government have announced increase in the investment limits in plant and machinery of small scale industries, ancillary units and export-oriented units to Rs. 60 lakhs, Rs. 75 lakhs and Rs. 75 lakhs respectively. Such limits in respect of “TINY” enterprises would now be increased from the present Rs. 2 lakhs to Rs. 5 lakhs, irrespective of locations of the unit. 2. Inadequate access to credit—both short term and long-term—remains a perennial problem facing the small-scale sector. Emphasis would henceforth that from subsidized cheap credit, except for specified target groups, and efforts would be made to ensure both adequate flow of credit on a normative basis, and the quality of the delivery, for viable operations of this sector. 3. A Technology Development Cell (TDC) would be set up in the Small Industries Development Organisation (SIDO) which would provide technology inputs to improve productivity and competitiveness of the products of the small-scale sector. 4. National Small Industries Corporation (NSIC) concentrate on marketing of mass consumption items under common brand name and organic links between NSIC and SSIDCs established. The SIDO has been recognized as the nodal agency to support the small-scale industries in export promotion. 5. Government will continue to support first generation entrepreneur through training and will support their efforts. Large number of EDP trainers and motivators will be trained to significantly expand the Entrepreneurship Development Programmes (EDP). Industry Associations would also be encouraged to participate in this venture effectively. Women entrepreneurs will receive support through special training programmes. 6. Handloom sector contributes about 30 per cent of the total textile production in the country. It is the policy of Government to promote handloom to sustain employment in rural areas and to improve the quality of life for handloom weavers. 7. The activities of the Khadi and Village Industries Commission and the State Khadi and Village Industries Boards would be expanded and the organisations strengthened to discharge their responsibilities more effectively. 154 CU IDOL SELF LEARNING MATERIAL (SLM)

6.5.5 National Manufacturing Policy, 2011 The success of India’s economic story has mainly been due to service’s sector growth. Despite strong policy measures, the industrial sector (especially manufacturing) has stagnated. The maximum contribution of the sector in the overall GDP is close to 15%, which is far less than that of other emerging economies like China (whose share is close to 45%). As a result of which, India has failed to provide gainful employment to its massive labour force. Lack of employment in the manufacturing sector has put excessive pressure on the agriculture sector to provide employment, which is not possible under any economic model. The result of this is the phenomenon called “Jobless Growth”, which is specific to India. The Government recognising this fact and in order to promote manufacturing sector launched National Manufacturing Policy on November 2011. Objectives of the National Manufacturing Policy 1. Medium Term growth in Manufacturing Sector by 14-15% 2. Increase in contribution of Manufacturing in GDP upto 25% by 2022. 3. Creation of 100 Million jobs in Manufacturing Sector by 2022 4. Skill development of backward class and people below poverty line in rural and urban region. 5. Introduction of new technology and increase in domestic value. 6. Increasing competitive edge of manufacturing sector in global market. (Source: civilsdaily.com) Government Policy support under NMP 1. The manufacturing policy proposes to create an enabling environment for the growth of manufacturing in India. 2. The NMP envisages simplification of business regulations significantly. 3. The NMP proposes the development of the MSMEs sector. The proposal includes technological upgradations of the MSMEs; adoption of business-friendly policies; equity investments. 4. Skill Development of the youth is the most important part of the NMP. 5. Setting up of National Investment and Manufacturing Zones (NIMZ) with significant incentives like easy land acquisitions, integrated industrial township development, world-class physical infrastructure. 6. A total of 12 NMIZ have been announced so far by the government. Out of the total 12, 8 NIMZ are located in the Delhi-Mumbai Industrial Corridor. Other 4 NMIZ is 155 CU IDOL SELF LEARNING MATERIAL (SLM)

planned to build in; Nagpur; Tumkur (Karnataka); Chittoor (Andhra Pradesh); Medak (Andhra Pradesh). 6.5.6 Make in India Program Make in India is a campaign launched by the government of India on 25 September 2015. The aim of the Make in India program is to project India as an efficient and competitive powerhouse of global manufacturing. The program aims to convert India into “World’s Factory” by promoting and developing India as a leading manufacturing destination and a Hub for the production of manufacturing goods. Make in India is essentially an invitation to the foreign companies to come and invest in India on the back of the Government promise to create an environment easy for doing business. But contrary to public perception, no specific concessions have been offered to foreign investors under this scheme till date. The government since the launch of the program is trying to make India an attractive destination for global Multinationals by focussing on ease of doing business, liberal FDI regime, improving the quality of Infrastructure and Business-friendly policies. How Government is supporting the Program • Improving Ease of Doing Business and promoting use of technology; • Opening up of new sectors for FDI, undertaking de-licensing and deregulation of the economy on a vast scale; • Introduction of new and improved infrastructure through industrial corridors, industrial clusters and smart cities; • Strengthening IPR infrastructure to nurture innovation; and • Building a new mindset in government to partner industry instead of working as a regulator in Economic Growth of the country. The Government has taken various measures for the success of Make in India ‘campaign as under: a) Industrial Corridors Cities/regions have been identified to be developed as investment centres in the Delhi- Mumbai Industrial Corridor in partnership with the State Governments. (i) Ahmedabad-Dholera Investment Region, Gujarat; (ii) Shendra-Bidkin Industrial Park city near Aurangabad, Maharashtra; 156 CU IDOL SELF LEARNING MATERIAL (SLM)

(iii) Manesar-Bawal Investment Region, Haryana; (iv) Khushkhera-Bhiwadi-Neemrana Investment Region, Rajasthan; (v) Pithampur-Dhar-Mhow Investment Region, Madhya Pradesh; (vi) Dadri-Noida-Ghaziabad Investment Region, Uttar Pradesh; and (vii) Dighi Port Industrial Area, Maharashtra. b) Foreign Direct Investment Liberalisation of the FDI in the majority of sectors to attract investments. Example: 100% FDI under automatic route has been permitted in construction, operation and maintenance in specified Rail Infrastructure projects; FDI in Defence liberalized from 26% to 49%. In cases of modernization of state-of-art proposals, FDI can go up to 100%; the norms for FDI in the Construction Development sector are being eased. c) Easing of Laws, Rules and Regulations Major changes have been proposed in various laws and rules to overcome regulatory hurdles. d) Investment Security and Stable and Conducive Government Policies The Government is committed to chart out a new path wherein business entities are extended red carpet welcome in a spirit of active cooperation. Invest India will act as the first reference point for guiding foreign investors on all aspects of regulatory and policy issues and to assist them in obtaining regulatory clearances. The Government is closely looking into all regulatory processes with a view to making them simple and reducing the burden of compliance on investors. An Investor Facilitation Centre has been created under Invest India to provide guidance, assistance, handholding and facilitation to investor during the entire circle of the business. 6.6 CONSUMER PROTECTION ACT, 1986 “An Act to provide for better protection of the interests of consumers and for that purpose to make provision for the establishment of consumer councils and other authorities for the settlement of consumers' disputes and for matters connected therewith.”(According to Consumer Protection Act, 1986) Consumer Protection Act, 1986 seeks to promote and protect the interest of consumers against deficiencies and defects in goods or services. It also seeks to secure the rights of a consumer against unfair or restrictive trade practices. This act was passed in Lok Sabha on 9th December,1986 and Rajya Sabha on 10th December, 1986 and assented by the President 157 CU IDOL SELF LEARNING MATERIAL (SLM)

of India on 24th December, 1986 and was published in the Gazette of India on 26th December, 1986. 6.6.1 Jurisdiction and Objective The judicial system set up under the Consumer Protection Act, 1986, consists of consumer courts at the district level, state level and national level. These are known as District Forum, State Consumer Disputes Redressal Commission (State commission) and National Consumer Disputes Redressal Commission (National Commission). Any individual consumer or association of consumers can lodge a complaint in writing with the district, state or National level forum, depending on the value goods and claim for compensation, if any. The district forum has the jurisdiction to deal with all complaints where the value of the goods or services or the compensation claimed does not exceed Rs 20 lakhs. The state commissions are empowered to deal with cases where the value or amount involved exceed Rs 20 lakhs but does Consumer Protection 161 not exceed Rs One Crore. The State commissions also deal with appeals and against orders of the district forum. The National commission has the juistisdiction to take up all claims and grievances exceeding the value of Rs. one crore. It has also appellate jurisdiction, that is, power to deal with appeals against orders passed by state commissions. An aggrieved party can appeal to the Supreme Court against the orders of the National Commission 6.6.2 Consumer Protection Councils Three – tier Enforcement machinery The Consumer Protection Act provides for setting up of a three-tier enforcement machinery at the District, State, and the National levels, known as the District Consumer Dispute Redressal Forum, State Consumer Disputes Redressal Commission and the National Consumer Disputes Redressal Commission. While the National Commission is set up by the Central Government, the State Commissions and the District Forums are set up, in each State and District, respectively, by the State Government concerned. 158 CU IDOL SELF LEARNING MATERIAL (SLM)

National Supreme Commission Court District State Forum Commission Fig 6.1 Three – tier Enforcement machinery as per Consumer Protection Act, 1986 1. District Forum: District forum consists of a president and two other members. The president can be a retired or working judge of District Court. They are appointed by state government. The complaints for goods or services worth Rs 20 lakhs or less can be filed in this agency. The agency sends the goods for testing in laboratory if required and gives decisions on the basis of facts and laboratory report. If the aggrieved party is not satisfied by the jurisdiction of the district forum then they can file an appeal against the judgment in State Commission within 30 days by depositing Rs 25000 or 50% of the penalty amount whichever is less. 2. State Commission: It consists of a president and two other members. The president must be a retired or working judge of high court. They all are appointed by state government. The complaints for the goods worth more than Rs 20 lakhs and less than Rs 1 crore can be filed in State Commission on receiving complaint the State commission contacts the party against whom the complaint is filed and sends the goods for testing in laboratory if required. In case the aggrieved party is not satisfied with the judgment then they can file an appeal in National Commission within 30 days by depositing Rs 3500 or 50% of penalty amount whichever is less. 3. National Commission: The national commission consists of a president and four members one of whom shall be a woman. They are appointed by Central Government. The complaint can be filed in National Commission if the value of goods exceeds Rs 1 crore. On receiving the complaint, the National Commission informs the party against whom complaint is filed and sends the goods for testing if required and gives judgment? If aggrieved party is not satisfied with the judgment then they can file a complaint in Supreme Court within 30 days. 159 CU IDOL SELF LEARNING MATERIAL (SLM)

6.6.3 Consumer Disputes Redressal Agencies Procedure for redressal of consumer grievances As stated in the previous section consumer complaints can be filed by an individual consumer or association of consumers. The complaint may be filed before the District Forum for the district where the cause of action has arisen or where the opposite party resides, or before the State Commission notified by the state government or the union territory, or it can be filed before the National Commission at New Delhi. There is no fee charged for filing a complaint. The complaint may be filed by the complainant or his/her authorized agent in person, or it may be sent by post. Five copies of the complaint are generally required to be filed along with the following information. i) Name, description and address of the complainant; ii) Name, description and address of the opposite party or parties, as the case may be; iii) Facts relating to the complaint and when and where it arose; iv) Documents, if any, in support of the allegations contained in the complaint (like cash memo, receipt, etc.) v) The nature of relief which the complainant is seeking. The complaint should be signed by the complainant or his/her authorized agent. It has to be addressed to the president of the District Forum or State Commission or National Commission. A complaint is required to be filed within a period of two years from the date on which the cause of action arose. If these are delay and it is excused by the concerned Forum/Commission, the reason must be on record. Complaints are expected to be decided, as far as possible, within three months from the date of notice received by the opposite parties. For those complaints which require laboratory analysis or testing of products, the period is extended to five months. Depending on the nature of complaint and relief sought by the consumer and facts of the case, the redressed Forum/Commission may order one or more of the following reliefs: (a) Removal of defect in goods/deficiency in services. (b) Replacement of the goods/restoration of the service. (c) Refund of the price paid for goods or excess charge paid for service. (d) Compensation for loss or injury suffered. 6.6.4 Consumer Complaints Department of Consumer Affairs has been receiving a very large number of complaints from the consumers regarding shortfall in the supplies/expectations of the consumers. The complaints cover a wide range of subjects like supply of defective refrigerators, T.V. Sets, use of poor material by the builders in the construction of flats, non-refund of fixed deposit 160 CU IDOL SELF LEARNING MATERIAL (SLM)

amounts by companies on maturity and complaint against unfair trade practice against service providers, etc. Consumer Grievance Redressal Cell (CGRC) and Consumer Coordination Council (CCC) The department had set up a Consumer Grievance Redressal Cell (CGRC) in February 2002, for providing services for redressal of complaints of the consumers belonging to the following categories:  Sale of defective goods or deficient services and charging of higher prices, etc.  General grievances including those received from the Cabinet Secretary and the PMO related to consumer matters.  Attending to the consumer complaints appearing in the columns of the newspapers to the extent possible. Also, complaints regarding delay in disposal of pending cases with the various districts/States/National Commission were received and processed and necessary follow up action were taken up as pro-active measures in order to redress their grievances to their satisfaction. The Redressal Cell had received 2272 complaints up to 31st March 2007. These complaints were forwarded to the Consumer Coordination Council (CCC) for redressal regarding replacement of goods, re-installation of telephone/electricity, rectification of wrong bills, possession of allotted flats, payment of amounts due to the investors on maturity, etc. The Consumer Grievance Redressal Cell and Consumer Coordination Council do not have any statutory powers to take action on the complaints of consumers. Hence, they forward the complaints to the concerned authorities to get the redressal. Who Can File a Complaint? A complainant in relation to any goods or services may be filled by-  A consumer or  Any voluntary consumer association registered under the Companies Act, 1956 (1of 1956)or under any other law for the time being in force or  The Central Government or any State Government; or  One or more consumers, where there are numerous consumers having the same interest or  In case of death of a consumer, his legal heir or representative A power of attorney holder cannot file a complaint under the Act. What Constitutes a Complaint? 161 CU IDOL SELF LEARNING MATERIAL (SLM)

A complaint means any allegation in writing made by a complainant that-  An unfair trade practice or a restrictive trade practice has been adopted by any trader or service provider  The goods bought by him or agreed to be bought by him; suffer from one or more defects  The services hired or availed of or agreed to be hired or availed of by him suffer from deficiency in any respect  A trader or service provider, as the case may be, has charged for the goods or for the service mentioned in the complaint a price in excess of the price fixed by or under any law for the time being in force or displayed on the goods or any package containing such goods or displayed on the price list exhibited by him by or under any law for the time being in force or agreed between the parties  Goods which will be hazardous to life and safety when used or being offered for sale to the public Services which are hazardous or likely to be hazardous to life and safety of the public when used, are being offered by the service provider which such person could have known with due diligence to be injurious to life and safety. 6.6.5 Penalties Penalties and administrative fines Any person convicted of an offence is liable for a fine or imprisonment for a period not exceeding 12 months, or both a fine and imprisonment. The NCT may impose an administrative fine in respect of prohibited or required conduct. An administrative fine imposed may not exceed the greater of 10 per cent of the respondent's annual turnover during the preceding financial year, or Rs 1000000. Clearly, non-compliance with the Act will result in regulatory risk for any business that transacts with consumers. However, the reputational risk of non-compliance could be as severe. Businesses would be well advised to actively prepare for the Act to mitigate these risks. This will protect their business interests as well as their reputations and help them to avoid negative public opinion and potential loss of business arising from, for example, damaging media reports about their non-compliance with the Act or complaints by consumers about their disregard for consumerrights in general and for the purposes of the Consumer Protection Act. 162 CU IDOL SELF LEARNING MATERIAL (SLM)

Case Law: Sehgal School of Competition v Dalbir Singh The factual background of the case In this landmark judgement concerning educational institutions that dates back to the year 2005, a student was asked to deposit lump sum fees of ₹18,734 as fees for coaching for medical entrance examinations for the next two years. This was deposited by the student in two complete instalments within the first six months of classes. However, the student realised later that the quality of the coaching institute was substandard, and therefore sought a refund for the remaining period, which was refused by the coaching institute. Questions before the court  Can a student seek a refund of fees paid to a coaching class for the remaining period of classes that are yet to be held?  In case of a refusal to refund fee, can a claim for mental agony for pressing legal charges to be sought? The reasoning of the Commission – Upholding student’s right to be refunded for remaining classes  Clauses prohibiting refund of fees are unfair – The Commission notes that educational institutes or coaching centre that charge a lump sum fees for the whole duration or should refund the fees if service is deficient in the quality of coaching etc. Any clause saying that fees once paid shall not be refunded is unconscionable and unfair and therefore not enforceable. This view was maintained by District and State Forums as well as in appeal by the National Commission.  Quashing respondent’s argument on the reservation of seat – The respondent coaching centre argued before the commission that the student had withdrawn voluntarily and, therefore, there exists no deficiency of service. They submitted records that showed good results of the institute and alleged that it was wrong to observe that their coaching was not up to the mark. To justify taking the entire fees of two years lump sum, it was stated that the conditions imposed by the coaching required non-transferability of the seat, and therefore no refund of the fee was possible under any circumstance. The court dismissed this argument andfurther quoted UGC guidelines that mention that even if a student has not attended even a single class, an amount of ₹1000 may be deducted and proportionate charges for hostel fees, etc, and the balance amount has to be refunded in its entirety. On blocking of the seat, the Commission advised that a reserve list of candidates may be maintained, and waitlisted candidates may be given the opportunity to apply for the seat.  Additional compensation – In the order by State Consumer Forum, it was mentioned that not just the balance amount of fee, but also a higher compensation for legal costs as well as the pain that the student had to undertake, could be availed in such cases. [Reference: https://vakilsearch.com/] 163 CU IDOL SELF LEARNING MATERIAL (SLM)

6.7 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, viz., MRTP Act, Competition Act, Consumer Protection Act. There are three main kinds of legal systems—common law, civil law, and religious or theocratic law. A strong and robust systems of policies and initiatives to achieve the designed objectives gives a concrete platform for the development and growth of Indian economy. The main objectives of Industrial Policy are: 1. Liberalization of the Economy: It means removing unnecessary trade restrictions and making the economy more competitive. It aims to free the private sector from rigorous controls and licensing thus encouraging the private sector to flourish. 2. Privatization: It means removing strict control over the private sector and allowing them to take necessary decisions. In our country, since independence public sector and its development is top priority but along with its strong private sector is essential to bring about the balance economic development. 3. Globalization of the Economy: Free interaction among economies of the world in the field of trade, finance, production, technologies and investment is termed as globalization of the economy. It encourages foreign trade, private and institutional foreign investment. It practically removes all hindrances and restrictions of foreign trade. Rights of the consumers are (i) Right to safety (ii) Right to be informed (iii) Right to choose (iv) Right to be heard (v) Right to seek redressal (vi) Right to consumer education Consumer protection refers to the steps necessary to be taken or measures required to be accepted to protect consumers from business malpractices. 6.8 KEYWORDS  Regional imbalances or disparities means wide differences in per capita income, literacy. rates, health and education services, levels of industrialization, etc. between different regions.  Regulation - a rule or directive made and maintained by an authority. 164 CU IDOL SELF LEARNING MATERIAL (SLM)

 Substantial Expansion means increase in the investment in the plant and machinery by at least twenty-five per cent. of the book value of plant and machinery  Grievance: an official statement of a complaint over something believed to be wrong or unfair.  Consumerism: the protection or promotion of the interests of consumers 6.9 LEARNING ACTIVITY 1. What are the drawbacks of the MRTP Act? ___________________________________________________________________________ ___________________________________________________________________________ 2. Educating Consumers regarding their rights and responsibilities is one of the best ways of empowering consumer. Support this statement with necessary arguments. ___________________________________________________________________________ ___________________________________________________________________________ 6.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Legal Environment? 2. Enlist the Behaviors Prohibited by the Act by Competition Act, 2002. 3. Why business should be concerned for Consumer Protection? 4. Discuss provision of MRTP Act. 5. What was the important provision related toForeign investment and Technology agreements as per new Industrial Policy? Long Questions: 1. What are the important functions of Competition Commission of India? 2. State the procedure to be followed for redressal of consumer grievances. 3. Enlist all the important features of New Industrial Policy with its impact. 4. Discuss New Small Sector Policy, 1991. 5. Compare the benefits of National Manufacturing Policy, 2011and Make in India Program for global and domestic business . B. Multiple Choice Questions 165 CU IDOL SELF LEARNING MATERIAL (SLM)

1. The definition of ____________________as adopted under the MRTP Act, was having some loopholes, which have helped some industrial houses to escape from the purview of the Act. a. Amalgamation b. Merger c. Joint venture d. Inter-connected companies 2. Which section of the Competition Act, 2002 makes provision for prohibition of anticompetitive agreements. a. Section 5 b. Section 4 c. Section 3 d. Section 8 3. As per new Industrial Policy, to provide access to capital markets by allowing _________ percent equity participation by other industrial undertakings. a. 18 b. 24 c. 34 d. 100 4. Consumerism refers to movement by a. Government b. Society c. Producers d. Consumers 5. Which right provides due compassion to consumers? 166 a. Right to be informed b. Right to seek redressal c. Right to be heard d. Right to choose Answers 1 - d; 2 - c; 3 – b; 4 – d; 5 – b. CU IDOL SELF LEARNING MATERIAL (SLM)

6.11 SUGGESTED READING 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:  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.  Dr. Durga Surekha, 2010, Consumers‟ Awareness about Rights and Grievance Redressal, Abhijeet Publications.  Akanksha Rana, Consumer Claims, Eastern Book Company 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. 167 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT-7 LEGAL ENVIRONMENT-II Structure 7.0 Learning Objective 7.1 Introduction 7.2 The Environment Protection Act,1986 7.2.1 The Statement of the ACT: 7.2.2 Definitions. 7.3 Power of Central Government 7.4 Prevention, Control and Abatement of Environmental Pollution: 7.5 The National Environment Appellate Authority 7.5.1 Statement 7.5.2 Definitions 7.5.3 Establishment of Authority 7.5.4 Procedure and powers of Authority. 7.6 Summary 7.7 Keywords 7.8 Learning Activity 7.9 Unit End Questions 7.10 Suggested readings 7.0 LEARNING OBJECTIVE After Studying this Unit, Students will able to  Analyze the significance of the Environment Protection Act, 1980.  Highlight the framework and limitations set by Power of Central Government  Compare the Prevention, Control and Abatement of Environmental Pollution and penalties in case of default.  Outline the function of National Environment Appellate Authority 7.1 INTRODUCTION The Environment Protection Act was enacted in 1986 with an objective of safeguarding the flora and fauna, the natural resource of the country. This is one of the broad legislations in 168 CU IDOL SELF LEARNING MATERIAL (SLM)

India that helps to protect the exploitation and malpractices against environment and encourages the initiatives for improvement of the environment. Article 48A of the Constitution also highlights and guides the state to undertake all necessary actions to preserve the wildlife and protect the forests. Article 51 of the constitution also highlights the important duty of citizen is to protect the Environment and safeguard the forest heritage. 7.2 THE ENVIRONMENT PROTECTION ACT,1986 7.2.1 The Statement of the ACT: THE ENVIRONMENT (PROTECTION) ACT, 1986 ACT NO. 29 OF 1986 [23rd May, 1986.] An Act to provide for the protection and improvement of environment and for matters connected therewith. WHEREAS decisions were taken at the United Nations Conference on the Human Environment held at Stockholm in June, 1972, in which India participated, to take appropriate steps for the protection and improvement of human environment; AND WHEREAS it is considered necessary further to implement the decisions aforesaid in so far as they relate to the protection and improvement of environment and the prevention of hazards to human beings, other living creatures, plants and property; BE it enacted by Parliament in the Thirty-seventh Year of the Republic of India as follows:— Short title, extent and commencement .—(1) This Act may be called the Environment (Protection) Act, 1986. (2) It extends to the whole of India. (3) It shall come into force on such date1 as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and for different areas. 7.2.2 Definitions.— In this Act, unless the context otherwise requires,— (a) “environment” includes water, air and land and the inter-relationship which exists among and between water, air and land, and human beings, other living creatures, plants, micro- organism and property; (b) “environmental pollutant” means any solid, liquid or gaseous substance present in such concentration as may be, or tend to be, injurious to environment; 169 CU IDOL SELF LEARNING MATERIAL (SLM)

(c) “environmental pollution” means the presence in the environment of any environmental pollutant; (d) “handling”, in relation to any substance, means the manufacture, processing, treatment, package, storage, transportation, use, collection, destruction, conversion, offering for sale, transfer or the like of such substance; (e) “hazardous substance” means any substance or preparation which, by reason of its chemical or physico-chemical properties or handling, is liable to cause harm to human beings, other living creatures, plants, micro-organism, property or the environment; (f) “occupier”, in relation to any factory or premises, means a person who has control over the affairs of the factory or the premises and includes, in relation to any substance, the person in possession of the substance; (g) “prescribed” means prescribed by rules made under this Act. 7.3 SCOPE AND OBJECTIVES Scope: The Act is applicable to whole of India including Jammu and Kashmir. The Act came into force on 19th November, 1986 Objectives: 170 CU IDOL SELF LEARNING MATERIAL (SLM)

7.4 POWER OF CENTRAL GOVERNMENT (1) Subject to the provisions of this Act, the Central Government shall have the power to take all such measures as it deems necessary or expedient for the purpose of protecting and improving the quality of the environment and preventing, controlling and abating environmental pollution. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), such measures may include measures with respect to all or any of the following matters, namely:— (i) co-ordination of actions by the State Governments, officers and other authorities— (a) under this Act, or the rules made thereunder; or (b) under any other law for the time being in force which is relatable to the objects of this Act; (ii) planning and execution of a nation-wide programme for the prevention, control and abatement of environmental pollution; (iii) laying down standards for the quality of environment in its various aspects; (iv) laying down standards for emission or discharge of environmental pollutants from various sources whatsoever: Provided that different standards for emission or discharge may be laid down under this clause from different sources having regard to the quality or composition of the emission or discharge of environmental pollutants from such sources; (v) restriction of areas in which any industries, operations or processes or class of industries, operations or processes shall not be carried out or shall be carried out subject to certain safeguards; (vi) laying down procedures and safeguards for the prevention of accidents which may cause environmental pollution and remedial measures for such accidents; (vii) laying down procedures and safeguards for the handling of hazardous substances; 171 CU IDOL SELF LEARNING MATERIAL (SLM)

(viii) examination of such manufacturing processes, materials and substances as are likely to cause environmental pollution; (ix) carrying out and sponsoring investigations and research relating to problems of environmental pollution; (x) inspection of any premises, plant, equipment, machinery, manufacturing or other processes, materials or substances and giving, by order, of such directions to such authorities, officers or persons as it may consider necessary to take steps for the prevention, control and abatement of environmental pollution; (xi) establishment or recognition of environmental laboratories and institutes to carry out the functions entrusted to such environmental laboratories and institutes under this Act; (xii) collection and dissemination of information in respect of matters relating to environmental pollution; (xiii) preparation of manuals, codes or guides relating to the prevention, control and abatement of environmental pollution; (xiv) such other matters as the Central Government deems necessary or expedient for the purpose of securing the effective implementation of the provisions of this Act. (3) The Central Government may, if it considers it necessary or expedient so to do for the purposes of this Act, by order, published in the Official Gazette, constitute an authority or authorities by such name or names as may be specified in the order for the purpose of exercising and performing such of the powers and functions (including the power to issue directions under section 5) of the Central Government under this Act and for taking measures with respect to such of the matters referred to in sub-section (2) as may be mentioned in the order and subject to the supervision and control of the Central Government and the provisions of such order, such authority or authorities may exercise the powers or perform the functions or take the measures so mentioned in the order as if such authority or authorities had been empowered by this Act to exercise those powers or perform those functions or take such measures. Rules to regulate environmental pollution. — (1) The Central Government may, by notification in the Official Gazette, make rules in respect of all or any of the matters referred to in section. (2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:— (a) the standards of quality of air, water or soil for various areas and purposes; (b) the maximum allowable limits of concentration of various environmental pollutants (including noise) for different areas; 172 CU IDOL SELF LEARNING MATERIAL (SLM)

(c) the procedures and safeguards for the handling of hazardous substances; (d) the prohibition and restrictions on the handling of hazardous substances in different areas; (e) the prohibition and restrictions on the location of industries and the carrying on of processes and operations in different areas; (f) the procedures and safeguards for the prevention of accidents which may cause environmental pollution and for providing for remedial measures for such accidents. 7.4 PREVENTION, CONTROL AND ABATEMENT OF ENVIRONMENTAL POLLUTION: Persons carrying on industry, operation, etc., not to allow emission or discharge of environmental pollutants in excess of the standards.—No person carrying on any industry, operation or process shall discharge or emit or permit to be discharged or emitted any environmental pollutant in excess or such standards as may be prescribed. Persons handling hazardous substances to comply with procedural safeguards.—No person shall handle or cause to be handled any hazardous substance except in accordance with such procedure and after complying with such safeguards as may be prescribed. Furnishing of information to authorities and agencies in certain cases.—(1) Where the discharge of any environmental pollutant in excess of the prescribed standards occurs or is apprehended to occur due to any accident or other unforeseen act or event, the person responsible for such discharge and the person in charge of the place at which such discharge occurs or is apprehended to occur shall be bound to prevent or mitigate the environmental pollution caused as a result of such discharge and shall also forthwith— (a) intimate the fact of such occurrence or apprehension of such occurrence; and (b) be bound, if called upon, to render all assistance, to such authorities or agencies as may be prescribed. (2) On receipt of information with respect to the fact or apprehension of any occurrence of the nature referred to in sub-section (1), whether through intimation under that sub-section or otherwise, the authorities or agencies referred to in sub-section (1) shall, as early as practicable, cause such remedial measures to be taken as are necessary to prevent or mitigate the environmental pollution. (3) The expenses, if any, incurred by any authority or agency with respect to the remedial measures referred to in sub-section (2), together with interest (at such reasonable rate as the Government may, by order, fix) from the date when a demand for the expenses is made until it is paid, may be recovered by such authority or agency from the person concerned as arrears of land revenue or of public demand. Powers of entry and inspection.—(1) Subject to the provisions of this section, any person empowered by the Central Government in this behalf shall have a right to enter, at all reasonable times with such assistance as he considers necessary, any place— (a) for the purpose of performing any of the functions of the Central Government entrusted to him; (b) for the purpose of determining whether and if so in what manner, any such functions are to be 173 CU IDOL SELF LEARNING MATERIAL (SLM)

performed or whether any provisions of this Act or the rules made thereunder or any notice, order, direction or authorisation served, made, given or granted under this Act is being or has been complied with; (c) for the purpose of examining and testing any equipment, industrial plant, record, register, document or any other material object or for conducting a search of any building in which he has reason to believe that an offence under this Act or the rules made thereunder has been or is being or is about to be committed and for seizing any such equipment, industrial plant, record, register, document or other material object if he has reasons to believe that it may furnish evidence of the commission of an offence punishable under this Act or the rules made thereunder or that such seizure is necessary to prevent or mitigate environmental pollution. (2) Every person carrying on any industry, operation or process or handling any hazardous substance shall be bound to render all assistance to the person empowered by the Central Government under sub-section (1) for carrying out the functions under that sub-section and if he fails to do so without any reasonable cause or excuse, he shall be guilty of an offence under this Act. (3) If any person wilfully delays or obstructs any person empowered by the Central Government under sub-section (1) in the performance of his functions, he shall be guilty of an offence under this Act. (4) the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), or, in relation to the State of Jammu and Kashmir, or any area in which that Code is not in force, the provisions of any corresponding law in force in that State or area shall, so far as may be, apply to any search or seizure under this section as they apply to any search or seizure made under the authority of a warrant issued under section 94 of the said Code or, as the case may be, under the corresponding provision of the said law. Power to take sample and procedure to be followed in connection therewith.—(1) The Central Government or any officer empowered by it in this behalf, shall have power to take, for the purpose of analysis, samples of air, water, soil or other substance from any factory, premises or other place in such manner as may be prescribed. (2) The result of any analysis of a sample taken under sub-section (1) shall not be admissible in evidence in any legal proceeding unless the provisions of sub-sections (3) and (4) are complied with. (3) Subject to the provisions of sub-section (4), the person taking the sample under sub-section (1) shall,— (a) serve on the occupier or his agent or person in charge of the place, a notice, then and there, in such form as may be prescribed, of his intention to have it so analysed; (b) in the presence of the occupier or his agent or person, collect a sample for analysis; (c) cause the sample to be placed in a container or containers which shall be marked and sealed and shall also be signed both by the person taking the sample and the occupier or his agent or person; (d) send without delay, the container or the containers to the laboratory established or recognised by the Central Government under section 12. (4) When a sample is taken for analysis under sub-section (1) and the person taking the sample serves on the occupier or his agent or person, a notice under clause (a) of sub-section (3), then,— (a) in a 174 CU IDOL SELF LEARNING MATERIAL (SLM)

case where the occupier, his agent or person wilfully absents himself, the person taking the sample shall collect the sample for analysis to be placed in a container or containers which shall be marked and sealed and shall also be signed by the person taking the sample, and (b) in a case where the occupier or his agent or person present at the time of taking the sample refuses to sign the marked and sealed container or containers of the sample as required under clause (c) of sub-section (3), the marked and sealed container or containers shall be signed by the person taking the samples, and the container or containers shall be sent without delay by the person taking the sample for analysis to the laboratory established or recognised under section 12 and such person shall inform the Government Analyst appointed or recognised under section 13 in writing, about the wilful absence of the occupier or his agent or person, or, as the case may be, his refusal to sign the container or containers Penalty for contravention of the provisions of the Act and the rules, orders and directions.— (1) Whoever fails to comply with or contravenes any of the provisions of this Act, or the rules made or orders or directions issued thereunder, shall, in respect of each such failure or contravention, be punishable with imprisonment for a term which may extend to five years or with fine which may extend to one lakh rupees, or with both, and in case the failure or contravention continues, with additional fine which may extend to five thousand rupees for every day during which such failure or contravention continues after the conviction for the first such failure or contravention. (2) If the failure or contravention referred to in sub-section (1) continues beyond a period of one year after the date of conviction, the offender shall be punishable with imprisonment for a term which may extend to seven years. 7.5 THE NATIONAL ENVIRONMENT APPELLATE AUTHORITY 7.5.1 Statement: THE NATIONAL ENVIRONMENT APPELLATE AUTHORITY ACT, 1997 ACT NO. 22 OF 1997 [26th March, 1997.] An Act to provide for the establishment of a National Environment Appellate Authority to hear appeals with respect to restriction of areas in which any industries, operations or processes or class of industries, operations or processes shall not be carried out or shall be carried out subject to certain safeguards under the Environment (Protection) Act, 1986 and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Forty-eighth Year of the Republic of India as follows:— 1. Short title and commencement.—(1) This Act may be called the National Environment Appellate Authority Act, 1997. (2) It shall be deemed to have come into force on the 30th day of January, 1997. 2. 175 CU IDOL SELF LEARNING MATERIAL (SLM)

7.5.2 Definitions. In this Act, unless the context otherwise requires, — (a) “Act” means the Environment (Protection) Act, 1986 (29 of 1986); (b) “Authority” means the National Environment Appellate Authority established under sub- section (1) of section 3; (c) “Chairperson” means the Chairperson of the Authority; (d) “Member” means a Member of the Authority; (e) “prescribed” means prescribed by rules made under this Act; (f) “Vice-Chairperson” means the Vice-Chairperson of the Authority. 7.5.3 Establishment of Authority 3. Establishment of Authority.—(1) The Central Government shall, by notification in the Official Gazette, establish a body to be known as the National Environment Appellate Authority to exercise the powers conferred upon, and to perform the functions assigned to, it under this Act. (2) The head office of the Authority shall be at Delhi. 4. Composition of Authority.—The Authority shall consist of a Chairperson, a Vice-Chairperson and such other Members not exceeding three, as the Central Government may deem fit. 5. Qualifications for appointment as Chairperson, Vice-Chairperson or Member.—(1) A person shall not be qualified for appointment as a Chairperson unless he has been— (a) a Judge of the Supreme Court; or (b) the Chief Justice of a High Court. (2) A person shall not be qualified for appointment as a Vice-Chairperson unless he has— (a) for at least two years held the post of a Secretary to the Government of India or any other post under the Central or State Government carrying a scale of pay which is not less than that of a Secretary to the Government of India; and (b) expertise or experience in administrative, legal, managerial or technical aspects of problems relating to environment. (3) A person shall not be qualified for appointment as a Member unless he has professional knowledge or practical experience in the areas pertaining to conservation, environmental management, law or planning and development. (4) The Chairperson, the Vice-Chairperson and the Members shall be appointed by the President. 6. Vice-Chairperson to act as Chairperson or to discharge his functions in certain circumstances.—(1) In the event of the occurrence of any vacancy in the office of the Chairperson by reason of his death, resignation or otherwise, the Vice-Chairperson shall act as the Chairperson until the date on which a new Chairperson appointed in accordance with the provisions of this Act to fill such vacancy enters upon his office. (2) When the Chairperson is unable to discharge his functions owing to absence, illness or any other cause, the Vice-Chairperson or, as the case may be, such one of the Member as the Central Government may, by notification, authorise in this behalf, shall discharge the functions of the Chairperson until the date on which the Chairperson resumes his duties. 7. Term of office.—The Chairperson, the Vice-Chairperson or a Member shall 176 CU IDOL SELF LEARNING MATERIAL (SLM)

hold office as such for a term of three years from the date on which he enters upon his office, but shall be eligible for re-appointment for another term of three years: Provided that no Chairperson, Vice-Chairperson or Member shall hold office as such after he has attained,— (a) in the case of the Chairperson, the age of seventy years; and (b) in the case of the Vice- Chairperson or a Member, the age of sixty-five years. 7.5.4 Procedure and powers of Authority.— (1) The Authority shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908) but shall be guided by the principles of natural justice and subject to the other provisions of this Act and of any rules made by the Central Government, the Authority shall have power to regulate its own procedure including the fixing of places and times of its inquiry and deciding whether to sit in public or in private. (2) The Authority shall have, for the purposes of discharging its functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:— (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872 (1 of 1872), requisitioning any public record or document or copy of such record or document from any office; (e) issuing commissions for the examination of witnesses or documents; (f) reviewing its decisions; (g) dismissing a representation for default or deciding it, ex parte; (h) setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and (i) any other matter which is required to be, or may be, prescribed by the Central Government. CASE LAW: Ms. Betty C. Alvares v. The State of Goa and Ors.; National Green Tribunal Judgment- A complaint regarding various instances of illegal construction in the Coastal Regulation Zone of Candolim, Goa was made by a personal of foreign nationality. Her name was Betta Alvarez. The first objection was that Betty Alvarez had no locus standi in the matter because she was not an Indian citizen and thus legally incompetent to file the petition under Article 21 because as a non-citizen, she has not been guaranteed any right under the Indian Constitution. The second objection was that the matter was barred by the law of limitation and should be dismissed. The case was initiated in the Honourable High Court of Bombay Bench at Goa in the form of a PIL but by an order dated Oct 23, 2012, the Writ Petition was transferred to the National Green Tribunal. Therefore, The Tribunal in bold terms stated that even assuming that the Applicant – Betty Alvarez is not a citizen of India, the Application is still maintainable as she had filed several other writ petitions and contempt applications before she filed the present application, in which she had asserted that the Respondents had raised some illegal constructions by way of which they were encroaching the sea beaches along with governmental properties. The Court laid down in very bold terms that once it is found that any person can file a proceeding related to the environmental dispute, Ms. Betty’s application is maintainable without regards to the question of her nationality. 177 [Source: https://legaldesire.com/] CU IDOL SELF LEARNING MATERIAL (SLM)

7.6 SUMMARY Environment- the need and necessity of the mankind needs serious interventions and measures against exploitation. The Environmental Protection Act, 1986 highlights the importance of conservation of the environment and encourages the participation of business to implement such measures that reduces the harmful effect of business operation on the environment around. The Act talks about recognizing the following factors:  Administrating and monitoring the impact of business on environment and following all the relevant provisions that ensures the maintenance of environment balance.  Efforts by every individual is eligible to create changes in environment because of any activity like economic or other.  Adaptive, responsive, reasonable, timely and effective, these are some of the qualities which must be present in administrative, management and administrative procedures. The main reason behind the Act is to improve the quality of environment which is deteriorating and that is a big threat for all biotic (living) and abiotic (non-living) component of the environment. The Environment Protection Act is divided into four chapters and 26 sections.In Section1, the short title, the extension of the act and the commencement dates are mentioned. It is mentioned that the Act is applicable all over India. In section 2, definitions of various terms mentioned in the Act is explained. Those terms are  Environment  Environmental pollutant  Environmental pollution  Handling  Hazardous substance  Occupier  Prescribed The Scope, Objective, Powers of Central Government, Rules to regulate environmental pollution and Penalty for contravention of the provisions and the rules, orders and directions are also covered by the Act and role ofthe National Environment appellate authority is included. All this aspect of Act is very important for Business to design the operations in such a way to ensure safety of environmentand avoid the penalty and fines. 178 CU IDOL SELF LEARNING MATERIAL (SLM)

7.7 KEYWORDS  The United Nations (UN) - is an intergovernmental organization that aims to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and be a centre for harmonizing the actions of nations.  Enact - make (a bill or other proposal) law  Notification - the act of telling someone officially about something, or a document, etc.  Intimation- an indication or hint  Furnish - be a source of; provide. 7.8 LEARNING ACTIVITY 1. Why it is important to establish or recognize the environmental laboratories? ___________________________________________________________________________ ___________________________________________________________________________ 2. Highlight the important rules Central Government can make as per the provision of the Environment Protection Act. ___________________________________________________________________________ ___________________________________________________________________________ 7.9 UNIT END QUESTIONS A. Descriptive Questions: Short Questions 1. Explain the statement of Environment Protection Act,1986 2. Define the following terms: a. Environment Pollution b. Hazardous substance c. Occupier 3. Which rules are being made by the Central Government to prevent the environment 4. Discuss the hierarchy of National Appellate Authority 5. What is the penalty for contravention of the provisions of the Act and the rules, orders and directions? Long Questions 1. Illustrate the significance of Environment Protection Act,1986 for business success 2. What are the important objectives of Environment Protection Act,1986? 3. Discuss the powers of the Central Government. 179 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Explain the role and significance of National Appellate Authority 5. Elaborate Prevention, Control and Abatement of Environmental Pollution. B. Multiple Choice Questions 1. The Act is based on the United Nations Conference on the Human Environment held at Stockholm in June, ___________, in which India participated, to take appropriate steps for the protection and improvement of human environment; a. 1974 b. 1971 c. 1972 d. 1973 2. Under the Environment Protection act, 1986 central government has power to lay down standards for emission or discharge of __________________from various sources whatsoever. a. environmental pollutants b. water c. smoke d. plastic waste 3. The Central Government may, by notification in the_____________, make rules in respect of all or any of the matters referred to in section a. District Court b. Official Gazette c. Parliament d. Legislative Assembly of the State 4. Persons handling hazardous substances to comply with__________ a. training b. operational manual c. procedural safeguards d. Manager 5. In which of the following situation it is important to furnish the information to authorities and agencies 180 CU IDOL SELF LEARNING MATERIAL (SLM)

a. The expenses, if any, incurred by any authority or agency with respect to the remedial measures referred to in sub-section. b. for the purpose of examining and testing any equipment, industrial plant, record, register, document or any other material object c. person shall handle or cause to be handled any hazardous substance d. to take sample Answers 1 - c; 2 - a; 3 – b; 4 – c; 5 – a. 7.10 SUGGESTED READINGS 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:  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  Hemant Pathak, A Hand Book of Environmental Protection Act, CreateSpace Independent Pub 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.  http://www.legalserviceindia.com/  https://lawsisto.com/ 181 CU IDOL SELF LEARNING MATERIAL (SLM)

182 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8: FINANCIAL ENVIRONMENT-I 183 Structure 8.0 Learning Objective 8.1 Introduction 8.2 Financial System 8.2.1 Meaning 8.2.2 Constituents 8.3 Financial Market 8.3.1 Meaning 8.3.2 Functions 8.3.3 Classifications 8.4 MONEY MARKET 8.4.1 Meaning 8.4.2 Features 8.4.3 Characteristics of Indian Money Market: 8.4.4 Instruments 8.5 Capital Market 8.5.1 Meaning 8.5.2 Importance 8.5.3 Structure of Indian Capital Market: 8.6 Commercial Banks 8.6.1 Concept and Types 8.6.2 Functions 8.7 Financial Institution: 8.7.1 Banking Institutions 8.7.2 Non-Banking Institution: 8.8 Summary 8.9 Keywords 8.10 Learning Activity CU IDOL SELF LEARNING MATERIAL (SLM)

8.11 Unit End Questions 8.12 Suggested Readings 8.0 LEARNING OBJECTIVE After studying this Unit, students will be able to  Explain the meaning and constituent of Financial System, Financial Institution and its types  Compare the functions of Financial Market, Money Market and Capital Market including their concept, structure and instruments involved.  Outline the significance of Government Securities and Industrial Securities Market  Describe the role of Development Financial Institutions, Financial Intermediaries and Regulatory authorities of Indian Financial System.  Analyze the Financial Sector Reforms 8.1 INTRODUCTION The well-structured financial system is the base of economic growth and development of any country because it helps in the formation of a capital. Financial System is a set of institutional arrangements which include all conditions and mechanisms governing the production, distribution, exchange and holding of financial assets or instruments of all kinds and the organisations as well as the manner of operations of financial markets and institutions of all descriptions. Its main purpose is to mobilise the financial surpluses from surplus units and transferred it to the deficit spenders. The financial system is basically characterised by the presence of integrated, organized and regulated financial markets and institutions that fulfil the short-term and long-term financial needs of both the individual and corporates. The financial system helps production, capital accumulation, and growth by (i) encouraging savings, (ii) mobilising them, and (iii) allocating them among alternative uses and users. Each of these functions is important and the efficiency of a given financial system depends on how well it performs each of these functions. 8.2 FINANCIAL SYSTEM: 8.2.1 Meaning The financial system is possibly the most important institutional and functional vehicle for economic transformation and development. A financial system consists of institutional units and markets that interact, typically in a complex manner, for the purpose of mobilizing funds for investment and providing facilities, including payment systems, for the financing of commercial activity. The role of financial institutions within the system is primarily to intermediate between those that provide funds and those that need funds, and typically 184 CU IDOL SELF LEARNING MATERIAL (SLM)

involves transforming and managing risk.Financial markets provide a forum within which financial claims can be traded under established rules of conduct and can facilitate the management and transformation of risk. According to Christy, the objective of the financial system is to “supply funds to various sectors and activities of the economy in ways that promote the fullest possible utilization of resources without the destabilizing consequence of price level changes or unnecessary interference with individual desires.” According to Robinson, the primary function of the system is “to provide a link between savings and investment for the creation of new wealth and to permit portfolio adjustment in the composition of the existing wealth. Thus, Finance is the access with which the financial system performs its functions that sets the pace for the achievement of broader national objectives. Features of financial system The features of a financial system are as follows 1. Financial system provides an ideal linkage between depositors and investors, thus encouraging both savings and investments. 2. Financial system promotes efficient allocation of financial resources for socially desirable and economically productive purposes. 3. Financial system facilitates expansion of financial markets over space and time. 4. Financial system influences both the quality and the pace of economic development. 8.2.2 Constituents of Financial System The financial system consists of four segments or components. These are: financial institutions, financial markets, financial instruments and financial services. 1. Financial institutions: Financial institutions are intermediaries that mobilize savings & facilitate the allocation of funds in an efficient manner. They can be classified as banking & non-banking financial institutions. Banking institutions are creators of credit while non-banking financial institutions are purveyors of credit. While the liabilities of banks are part of the money supply, this may not be true for non-banking financial institutions. Financial institutions can also be classified as term-finance institutions such as the industrial development bank of India (IDBI), industrial credit & Investment Corporation of India (ICICI), industrial financial corporation of India (IFCI), small industries development bank of India (SIDBI) & industrial investment bank of India (IIBI). In India, non-banking financial institutions, namely, the developmental financial institutions (DFIs) & non-banking financial companies (NBFCs) as well as housing finance companies (HFCs) are the major institutional purveyors of credit. 185 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Financial markets: Financial markets are a mechanism that enables participants to deal in financial claims. The markets also provide a facility in which their demands & requirements interact to set a price for such claims. Money market and Capital market is the main organized financial markets in India. The money market is a market for short-term securities and it deals with financial assets & securities which have a maturity period of up to one year. While the capital market is a market for long term securities that have a maturity period of one year or more. The Reserve Bank of India regulates the money market and Securities Exchange Board of India (SEBI) regulates capital market. 3. Financial Instruments: Financial instruments refer to those documents which represents financial claims on assets. A financial asset refers to a claim to the repayment of certain sum of money at the end of specified period together with interest or dividend. Examples: bills of exchange, treasury bills, government bonds, promissory notes, deposit receipts, shares, debentures etc. Financial instruments can also be called as financial securities and classified into: i. Primary or direct securities ii. Secondary or indirect securities. 4. Financial Services: Financial intermediaries provide key financial services such as merchant banking, leasing hire purchases, credit-rating, and so on. Financial services rendered by the financial intermediaries’ bridge the gap between lack of knowledge on the part of investors and increasing sophistication of financial instruments and markets. These financial services are vital for creation of firms, industrial expansion, and economic growth. Before investors lend money, they need to be reassured that it is safe to exchange securities for funds. This reassurance is provided by the financial regulator, who regulates the operation of the market, and intermediaries to protect the investors’ interests. [Reference: www.imf.org and http://mbaseminars.blogspot.in/] 8.3 FINANCIAL MARKETS: 8.3.1meaning: In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions that takes place between them. 186 CU IDOL SELF LEARNING MATERIAL (SLM)

A financial market is a market in which people and entities can trade financial securities, commodities and other fungible items at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. The term \"financial market\" is used for exchanges and organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange like it may be from a physical location (like the NYSE, BSE, NSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange generally and also to certain extent by corporate actions (mergers, spinoffs) which are outside an exchange. For example when any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange is also termed as a trading. Trading includes products like currencies and bonds. The important role of a Financial markets is to attract the funds from investors or savers and channel them to corporations so that they can finance their operations and achieve the desired goals. Financial markets help the borrowers to find the lenders which is difficult on their part and intermediaries like Banks, Investment Banks, and Boutique Investment Banks can help in this process. Banks are popular option for lending money in the form of loans and mortgages. Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain long-term funding support (known as maturity transformation). A good example of a financial market is a stock exchange. A company can raise money by selling shares to the investors or buying and selling its existing shares. The following table illustrates where financial markets fit in the relationship between lenders and borrowers: Relationship between lenders and borrowers Lenders Financial Financial Markets Borrowers Intermediaries  Individuals  Banks o Interbank o Individuals  Companies  Insurance o Stock o Companies Companies Exchange 8.3.2 Functions A financial market helps the economy in the following manner.  To mobilize the savings: It helps to obtain the funds from the those entities that are interested to save like household individuals, business firms, public sector units, central government, state governments etc.  Investment Option: It helps to arrange the investment option for the collected funds. 187 CU IDOL SELF LEARNING MATERIAL (SLM)

 National Growth: It helps to ensure unfettered flow of surplus funds to deficit units thus that helps in the development of the country which contributes towards nation’s growth. The different components of financial markets help to achieve an accelerated industrial and economic growth of a country that contributes to raise the standard of living.  Entrepreneurship growth: It encourages the growth of entrepreneurial ventures by providing necessary financial resources.  Intermediary Functions: The intermediary functions of a financial markets include the following:  Transfer of Resources: It facilitate the transfer of real economic resources from lenders to ultimate borrowers.  Increased income: It allows the lenders to earn interest or dividend on their surplus invisible funds, which increase individual and the overall nation’s income.  Productive usage: Financial markets allow the productive use of the funds borrowed.  Capital Formation: It provides a channel through which new savings flow to aid capital formation of a country.  Price determination: It helps to determine the price of the traded financial assets through the buyers and sellers’ interactions. It provides a mechanism called price discovery process which indicates a sign for allocation of the funds based on the demand and supply.  Sale Mechanism: It provides a mechanism for marketability and liquidity of a financial asset.  Information: The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the market which helps to reduce the cost of transaction of financial assets. Financial Functions  It promotes savings  It promotes investment  Provides the borrower with funds that help them to carry out their investment plans.  Provides the lenders with earning assets which help them to earn wealth by deploying the assets in production debentures.  Provides liquidity in the market that facilitates trading of funds.  It provides liquidity to commercial bank  It facilitates credit creation 188 CU IDOL SELF LEARNING MATERIAL (SLM)

 It facilitates balance economic growth  It improves trading floors 8.3.3 Classification The Indian financial market is classified into as follows: Credit Market Money Market Indian Financial Capital Market Market Foriegn Exchange Market Debt Market Derivatives Fig 8.1: Classification of Indian Financial Market CREDIT MARKET: Indian credit market is developing predominant source of finance and firms or economic entities depend largely on financial intermediaries for their financial requirements. One of the important aspects of Credit market is its term structure i.e. it provides short-term, medium- term and long-term credit. It is broadly categorised into institutional and non-institutional market. 189 CU IDOL SELF LEARNING MATERIAL (SLM)

The institutional source of credit market includes banks and non-banking financial institutions and the non-institutional source includes money-lenders, indigenous bankers and sellers of trade credit. While banks and non-banking financial companies (NBFCs) generally caters to the short term funds requirements while Financial Institutions (FIs) caters mostly medium and long term funds requirements. CAPITAL MARKET: It is an organized market that refers to the facilities and institutional arrangements which provides long term finance for businesses. It is categorized into three groups viz.  Industrial/ Corporate Securities Market: It is very sensitive and active financial market. Corporate securities are equity and preference shares, debentures and bonds of companies. It is further classified into primary and secondary market.  Primary/New Issue Market is a market for new issue of securities, which are issued to the public for the first time.  Secondary/Stock Marketis a market for sale of secondary securities which facilitates buying and selling of securities.  Government Securities Market: It is also called as Gilt-Edged Securities Market where government securities in the form of bonds and credit notes are traded that can be of short term or long term. The buyers of such securities are Banks, Insurance Companies, Provident Funds, RBI and individuals.  Long Term Loans Market: It is divided into three categories as  Term Loans Market: Banks and Financial Institutions provide term loans to companies for a period of one year.  Mortgages Market- It provides loans against securities of immovable assets like land and buildings.  Financial Guarantees Market: Financial institutions and banks provide financial guarantees on behalf of their clients to the third parties. MONEY MARKET:It is the market for short term funds i.e. for a period up to one year. The money market is further classified into two categories i.e. Unorganized and Organized Money Market. Unorganized Market:It includes  MoneyLenders: Who lends money to individuals at a high rate of interest.  Indigenous Bankers: Who operate like money lenders and also accept deposits from the public  Chit Funds: Collects funds from members and provide loans to members and others. Organized Market: It works as per the rules and regulations of the RBI. It consists of 190 CU IDOL SELF LEARNING MATERIAL (SLM)

 Treasury Bills: To raise short term funds Government issues the treasury bills which are purchased by Commercial Banks. Currently, Government issues 91 days and 364 days treasury bills.  Commercial Paper (CP): It is issued by the companies who are listed on Stock Exchanges and having tangible net worth of at least 4 crores. CP is issued at discount value and repaid at face value. Its maturity period is from 7days to one year and they are issued in the multiple of 5 lakhs.  Certificate of Deposit (CD): CD’s are used by the Commercial Banks and Financial Institutions to raise funds from the market. Its maturity period is from 7days to one year which is issued at discount value (minimum of 25 lakhs) and repaid at face value.  Call Money Market: A loan which is taken or given for a very short period, which is for one day is called as Call Money Market. It involves lending and borrowing of money on a daily basis and no security is required.  Commercial Bill Market: It deals with the Bills of exchange. The drawer of the bill can get the bills discounted with Commercial Banks who get these bills rediscounted with Financial Institutions. FOREIGN EXCHANGE MARKET: It comprises of customers, authorized dealers (ADs) and The Reserve Bank. The Forex market has grown since 1990s as a result of the implementation of a number of recommendations of three important committees which are - High Level Committee on Balance of Payments (Chairman: Dr. C Rangarajan), - The report of the Expert Group on Foreign Exchange Markets in India (Chairman Shri O P Sodhani) and - The committee on Capital Account Convertibility (Chairman Shri S.S. Tarapore) Several measures have been introduced to develop the forex market after the unification of exchange rates since March 1993 is as follows: 1. Banks have been given the freedom to fix net overnight position limits and gap limits (whereas the limits are approved by the Reserve Bank formally), initiate trading position in the overseas markets and determine the interest rates of NRI deposits. 2. Inter- banking borrowings have been exempted from statutory pre-emptions. 3. Banks have been permitted the use of derivative products for asset-liability management 4. ADs have been allowed to borrow abroad to encourage the integration of overseas and domestic money market. 5. Corporates are allowed to manage their foreign exchange exposure. DERIVATIVE MARKET: 191 CU IDOL SELF LEARNING MATERIAL (SLM)

The derivatives market is the financial market for derivatives, financial instrument like futures contracts or options, which are derived from other forms of assets. Derivatives are meant to facilitate the hedging of price risks of inventory holdings or a financial / commercial transaction over a certain period. Derivatives serves as an instrument for risk management by locking in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors. It provides investors and issuers with a wider array of tools for managing risks and raising capital, lowers the cost of capital formation, improves the allocation of credit and shares risk in the global economy and stimulates economic growth. Derivatives have strengthened the important linkages between global market of trade and finance, increasing market liquidity and efficiency, and have facilitated the flow of trade and finance. India is one of the most successful developing countries in terms of a vibrant market for exchange-traded derivatives. This reiterates the strengths of the modern development in India’s securities markets, which are based on nationwide market access, anonymous electronic trading, and a predominantly retail market. There is an increasing sense that the equity derivatives market plays a major role in shaping price discovery. Recently, over the counter (OTC) as well as exchange traded derivatives have been introduced, making an important development in the financial markets in India. Forward contracts in the forex market have also been liberalised. DEBT MARKET: The debt market in India consists of two categories—the government securities or the g-sec markets comprising central government and state government securities, and the corporate bond market. In order to finance its fiscal deficit, the government floats fixed income instruments and borrows money by issuing g-sec that are sovereign securities issued by the Reserve Bank of India (RBI) on behalf of the Government of India. The corporate bond market (also known as the non- g-sec market) consists of financial institutions (FI) bonds, public sector units (PSU) bonds, and corporate bonds/ debentures. The G-secs are the most dominant category of debt markets and form a major part of the market in terms of outstanding issues, market capitalization, and trading value. It sets a benchmark for the rest of the market. The market for debt derivatives have not yet developed appreciably, although a market for OTC derivatives in interest rate products exists. [Reference: Business Environment Text and Cases –Francis Cherunilam &www.nseindia.com] 8.4 MONEY MARKET: 8.4.1 Meaning: A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year.It refers to the 192 CU IDOL SELF LEARNING MATERIAL (SLM)

whole networks of financial institutions dealing in short-term funds, which provides an outlet to lenders and a source of supply for such funds to borrowers.In other words, it meets the short-term requirements of the borrowers and provides liquidity of cash to the lenders.It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared. It is different from stock market. It is not a single market but a collection of markets for several instruments like call money market, Commercial bill market etc. The Reserve Bank of India is the most important constituent of Indian money market. Thus RBI describes money market as “the centre for dealings, mainly of a short-term character, in monetary assets, it meets the short-term requirements of borrowers and provides liquidity or cash to lenders”. The Reserve Bank of India (RBI) plays a key role of regulator and controller of money market. The intervention of RBI is varied – curbing crisis situations by reducing key policy rates or curbing inflationary situations by rising key policy rates such as Repo, Reverse Repo, CRR etc. In money market transactions of large amount and high volume take place. It is dominated by small number of large players. In money market the players are :-Government, RBI, DFHI (Discount and finance House of India) Banks, Mutual Funds, Corporate Investors, Provident Funds, PSUs (Public Sector Undertakings), NBFCs (Non-Banking Finance Companies) etc. 8.4.2 Features of Money Market: The developed money market is a well organised market which has the following main features: 1. A Central Bank: A developed money market consists of a central bank as the most powerful authority in monetary and banking matter at the top. It controls, regulates and guides the entire money market and also provides liquidity because it is the lender of the last resort to the various constituents of the money market. 2. Organised Banking System: An organised and integrated banking system is the second feature of a developed money market. In fact, it is the pivot around which the whole money market revolves. It is the commercial banks which supply short-term loans, discount bills of exchange and act as a link between the borrowers, brokers, discount houses and acceptance houses and the central bank in the money market. 3. Specialised Sub-Markets: A developed money market consists of a number of specialised sub-markets dealing in various types of credit instruments. There is the Treasury bill market, call loan market, the 193 CU IDOL SELF LEARNING MATERIAL (SLM)

bill market, the foreign exchange market, the collateral loan market and the acceptance market. If there are large numbers of sub-markets are present then money market is termed as developed one. Also, it is important that the various sub-markets should have a number of dealers and it should be integrated with each other. 4. Existence of Large Near-Money Assets: A developed money market has a large number of near-money assets of various types such a securities, bonds, bills of exchange, promissory notes, treasury bills, etc. 5. Integrated Interest-Rate Structure: An integrated interest-rate structure is another important characteristic of developed money market. The interest rates prevailing in the various sub-markets are integrated to each other. A change in the bank rate leads to proportional changes in the interest rate prevailing in the sub-markets. 6. Adequate Financial Resources: A developed money market has easy access to financial sources from both within and outside the country. In fact, such a market attracts adequate funds from both sources, like the London Money Market. 7. Remittance Facilities: A developed money market provides cash and cheap remittance facilities for transferring funds from one market to the other like The London Money Market provides such facilities. 8. Miscellaneous Factors: A developed money market is also highly influenced by factors such as restrictions on international transactions, political instability, crisis, boom, depression, war, etc. [Reference: http://www.yourarticlelibrary.com/] 8.4.3 Characteristics of Indian Money Market: 1.Dichotomy Structure: Indian money market has a simultaneous existence of both the organized money market as well as unorganized money markets. The organized money market consists of RBI, all scheduled commercial banks and other recognized financial institutions that is under the complete control of RBI. However, the unorganized money market comprises of domestic money lenders, indigenous bankers, trader, Chit Funds, Nidhis, etc.It is difficult for RBI to integrate the Organised and Unorganised Money Markets. Several segments are loosely connected with each other 2.Seasonal Nature: The demand for money in Indian market is of a seasonal nature. India being an agriculture predominant economy, the demand for money is generated from the agricultural operations i.e. between October and April more agricultural activities takes place. During this period there is high demand for money and money market suffers from Monetary 194 CU IDOL SELF LEARNING MATERIAL (SLM)

Shortage resulting in high rate of interest. During slack season, rate of interest falls and as there are plenty of funds available. RBI has taken steps to reduce the seasonal fluctuations, but still the variations exist. 3. Variation in Interest Rates: In Indian money market, we have many levels of interest rates. They differ in organized and unorganized segment. Also, it differs from bank to bank, from period to period and even from borrower to borrower. Although wide differences have been narrowed down, yet the existing differences do hamper the efficiency of money market. 4. Lack of Organized Bill Market:A bill market refers to a mechanism or a system where bills of exchange are purchased and discounted by banks in India and it provides short term funds to businessmen. Bill market is very essential for linking various credit agreements with the RBI in an effective manner. In India, Treasury bill market exist but the commercial bill market has not been fully developed. Through the RBI tried to introduce the Bill Market Scheme (1952) and then New Bill Market Scheme in 1970 under which RBI rediscounts genuine trade bills, still there is no properly organized bill market in India. 5.Absence of Integration: The money market of India consists of several segments which are loosely connected to each other. Each part of the money market i.e., financial institution such as the SBI and its subsidiaries, the foreign exchange banks, the co-operative banks and indigenous banks – carry on a particular type of banking business or provide a specific type of financial service i.e., acts as an independent entity. There is a lack of coordination among different components of the money market. RBI has full control over the component of organized sector but it cannot control the component of in the unorganized segment. 6. High Volatility in Call Money Market: The call money market is a market for very short term money and is demanded at the call rate. Call money rate is the borrowing rate in the market which is determined by the forces of demand and supply in the market. The demand for call money or short-term funds originates from all types of banks-- nationalized, private and foreign that acts as both either borrowers and lenders. In the market, the major portion of funds is supplied by non-banking financial institutions or term-lending institutions such as IDBI, LIC and GIC and Banks supply the balance amount of funds. This institutionsuffers huge fluctuations and thus makes money market volatile. 7. Limited Instruments: The supply of various instruments such as the Treasury Bills, Commercial Bills, Certificate of Deposits, Commercial Papers, etc. is very limited in Indian money market. In order to encourage the savings and meet the varied requirements of borrowers and lenders, it is necessary to develop numerous instruments. 195 CU IDOL SELF LEARNING MATERIAL (SLM)

8.4.4 Instruments of Money Market: INDIAN MONEY MARKET Organised Un-Organised Submarkets Banking Sector Banking Sector Call Money Bill 360 days Certificates Commercial Market Market Bill Market of Deposits Papers Commercia Treasury l Bills Bills (90 days) Fig 8.2 Classification of Instruments of Money Market Source: Business Environment Text and Cases –Francis Cherunilam The money market in India comprises of following instruments: Call/Notice Money Markets:The market for extremely short-period where funds are transacted on overnight basis is referred as call money market. In this market the rate at which funds are borrowed and lent is called the call money rate which is determined by the demand and supply of short-term funds. In call money market the main participants are commercial banks, co-operative banks and primary dealers that participate as borrowers and lenders. As mostly banks participate in this market it is also called as Inter-Bank Money Market. Under a notice, money market funds are transacted for 2 days and 14 days period. The lender issues a notice to the borrower 2 to 3 days before the funds need to be paid. On receipt of notice, borrowers have to repay the funds. This market acts as an indicator of liquidity position of money market. RBI intervenes in call money market as there is close link between the call money market and other segments of money market. Discount and Finance House of India (DFHI), Non-banking financial institutions like LIC, GIC, UTI, and NABARD etc. are allowed to participate in call money market as lenders. Call money markets are located in cities like Mumbai, Kolkata, Chennai, Delhi etc. that are big commercial centres for India. 196 CU IDOL SELF LEARNING MATERIAL (SLM)

 Term Money Market: In India, term money market is not developed. Selected financial institution like IDBI, ICICI, IFCI, IIBI, SIDBI, EXIM Bank, NABARD, IDFC and NHB are permitted to borrow from the term money market for 3-6 months maturity, within stipulated limits for each institution.  Repos: Repo or repurchase option is a means of short-term borrowing, wherein banks sell approved government securities to RBI and get funds in exchange. In other words, in a repo transaction, RBI repurchases government securities from banks, depending on the level of money supply it decides to maintain in the country's monetary system. Repo rate is the discount rate at which banks borrow from RBI. Increase in repo rate will make bank borrowings from RBI more expensive while reduction in repo rate will help banks to get money at a cheaper rate. Reverse repo rate is the rate at which RBI borrows money from banks that is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities form RBI and lend money to the banking regulator to earn an interest. Thus, repo rate is always higher than the reverse repo rate. Commercial Paper: Commercial Paper is the short term unsecured promissory note issued by corporates and financial institutions at a discounted value on face value and they are actively traded in secondary market. They have fixed maturity period ranging from 1 day to 270 days. This main purpose of these instrument is to provide financing of accounts receivables, inventories and meeting short term liabilities. The return on commercial papers is higher as compared to T-Bills as the risk involved and security is higher. Certificates of Deposit: Certificate of Deposit is like a promissory note issued by a bank in form of a certificate entitling the bearer to receive interest. It is similar to bank term deposit account. The certificate bears the maturity date, fixed rate of interest and the value. These certificates are available in the tenure of 3 months to 5 years. The returns on certificate of deposits are higher than T-Bills because as they carry higher level of risk.  Commercial Bills Market:Commercial bills are short term, negotiable and self- liquidating money market instruments with low risk. A bill of exchange is drawn by a seller on the buyer to make payment within a certain period of time. Generally, the maturity period is of three months. Commercial bill can be resold a number of times during the usance period of bill. The commercial bills are purchased and discounted by commercial banks and are rediscounted by financial institutions like EXIM banks, SIDBI, IDBI etc. In India, the commercial bill market is very much underdeveloped. RBI is trying to develop this bill market and for that RBI have introduced an innovative instrument known as “Derivative Usance Promissory Notes, to eliminate movement of papers and facilitate multiple rediscounting. 197 CU IDOL SELF LEARNING MATERIAL (SLM)

 Money Market Mutual Funds: Money market mutual funds offer a convenient parking place for cash reserves when an investor is not quite ready to make an investment or is anticipating a near-term cash outlay for a non-investment purpose. It offers ultimate safety and liquidity which assures the investors that they will have an expected sum of cash at the very moment when they need it. An investor is always interested to transfer assets from one fund to another when it has basket of mutual funds from a single fund company. Then, at the appropriate time, the investor may exchange his or her money market mutual fund holdings for shares of the other funds in the fund family. To benefit their clients, brokerage firms regularly use money market mutual funds to provide cash management services. Putting a client's dormant cash into money market mutual funds will earn the client an extra percentage point (or two) in annual returns above those earned by other possible investments.  Treasury Bills: They are promissory notes issued by the Central Government to raise short term funds to bridge mismatches between receipts and expenditures of short term. The RBI who issues the Treasury Bills on behalf of the government does not purchase them before maturity but investors can sell them in the secondary market through the DFHI or get it rediscounted. They are zero-risk instruments, and hence returns are not that attractive. T-Bills are circulated by both primary as well as the secondary markets. They come with the maturities of 3-month, 6-month and 1-year. The Central Government issues T-Bills at a price less than their face value and the difference between the buy price and the maturity value is the interest earned by the buyer of the instrument. The buy value of the T-Bill is determined by the bidding process through auctions. At present, the Government of India issues three types of treasury bills through auctions viz. 91-day, 182-day and 364-day.  Banker's Acceptance: Banker's Acceptance is like a short term investment plan created by non-financial firm, backed by a guarantee from the bank. It's like a bill of exchange stating a buyer's promise to pay to the seller a certain specified amount at a certain date whereas the bank guarantees that the buyer will pay the seller at a future date. Firm with strong credit rating can draw such bill. These securities come with the maturities between 30 and 180 days and the most common term for these instruments is 90 days. Companies use these negotiable time drafts to finance imports, exports and other trade. 8.5 CAPITAL MARKET 198 CU IDOL SELF LEARNING MATERIAL (SLM)

The Capital market is a market for financial investments which has long or indefinite maturity that are direct or indirect claims to capital. It comprises of complex institutions and mechanisms through which intermediate term funds and long-term funds are pooled and made available to the borrowers and it is also wider than the Securities Market. It include the process by which securities already outstanding are transferred and embraces all forms of lending and borrowing, whether or not evidenced by the creation of a negotiable financial instrument 8.5.1 Meaning A capital market is one in which individuals and institutions trade financial securities i.e. i.e. long term debt instruments. It channels the money provided by savers and depository institutions (banks, credit unions, insurance companies, etc.) to borrowers and investees through a variety of financial instruments (bonds, notes, shares) called securities. In order to raise funds, organizations and institutions in the public and private sectors also often sell securities through the capital market. It comprises of financial institutions like IDBI, UTI, LIC, etc. that play the role of lenders and Business units, corporates are the borrowers. Thus, this type of market is composed of both the primary and secondary markets. Any government or corporation requires capital (funds) to finance its operations and to engage in its own long-term investments. For example, a company may issue an IPO (Initial Public Offering) while government may issue a bond in order to conduct a new or expand an existing activity. 8.5.2 Importance Capital market is very important for capital formation which is necessary for a speedy economic development. The importance of capital market is as follows: 1.Mobilization of Savings and Acceleration of Capital Formation:- In developing countries like India the importance of capital market is self-evident. In this market, various types of securities help to mobilize savings from various sectors of population. It activates the ideal monetary resources and put them in the productive channel of economy. It offers twin feature of reasonable return and liquidity in stock exchange that are definite incentives for those who wants to invest in securities. This mechanism accelerates the capital formation in the country. 2. Helps to Raise the Long - Term Capital:- The existence of a stock exchange enables companies to raise permanent capital. But, the investors cannot commit their funds for a permanent period, so the stock exchange offers an opportunity to investors to buy or sell their securities. Also, companies requires funds permanently that remain unaffected with the help of the stock exchange. 199 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Promotion of Industrial Growth:- The stock exchange is a central market through which resources are transferred to the industrial sector i.e. through corporate securities of the economy. The existence of such an institution encourages people to invest in productive channels. As it makes funds available for longer period it helps to fulfil the financial requirement of business units that encourages employment generation, advancement of Research and Development, infrastructure development and thus contributes for the overall industrial growth and economic development of the country. 4. Convenient Market:- The stock exchange provides a central ready place where buyers and sellers can easily purchase and sell securities. As compared to other assets, investment in security provides more liquidity because of easy marketability. 5. Technical Assistance and Reliable Guide: In a developing countries, entrepreneurs faces problem in technical assistance. The financial intermediaries in capital market offers various advisory services related identify growth potential, prepare feasibility reports and train entrepreneurs in project management. Capital market is treated as a reliable guide to the performance and financial position of corporates that promotes efficiency. 6.Proper Channelization of Funds:- The guiding factors for the people to channelize their funds in a particular company is the prevailing market price of a security and relative yield which ensures effective utilisation of funds in the public interest. 7. Variety of Services:- The financial institutions functioning in the capital market provide a variety of services such as assistance in promotion of companies, grant of long term and medium term loans to entrepreneurs, giving expert advice, provision of underwriting facilities, participation in equity capital, etc. 8. Contribute in the Development of Backward Areas:- Capital Markets provide Long term funds for development projects in backward and rural areas that facilitates economic development of those areas. 9. Attracts Foreign Capital:- As government of India has liberalised Foreign Direct Investment (FDI) in the country, so Capital markets can easily attracts funds from overseas markets by way of bonds and other securities. This will not only increase the foreign capital but also provides a channel for transfer of foreign technology in our country that will finally contribute to the economic development and growth of the country. 200 CU IDOL SELF LEARNING MATERIAL (SLM)