CU-BBA-SEM-V-Business environment-Second Draft

 International Journal of Scientific and Research Publications, Volume 2, Issue 12, December 2012  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 151 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 7: POLITICAL ENVIRONMENT STRUCTURE 7.0 Learning Objectives 7. 1 Introduction 7.2 Political Environment 7.2.1 Meaning 7.2.2 Factors 7.3Indian Political Institutions 7.4 Impact of Political Environment 7.5 Political Risks 7.6 Changing role of government in business environment 7.7 Summary 7.8 Keywords 7.9 Learning Activity 7.10 Unit End Questions 7.11References 7.0 LEARNING OBJECTIVES After studying this unit, Students will be able to:  Explain the concept of Political Environment  Describe the factors of Political Environment  Differentiate between Indian Political Institutions i.e., legislature, executive and judiciary  Outline the Changing role of government in business environment 7.1 INTRODUCTION The economic and political systems of a country are mutually dependent, one reflecting the ideologies of the other. Political environment includes country's political system, law & order, government policies towards business - particularly those related to taxation, industrial relations and foreign trade regulations. 152 CU IDOL SELF LEARNING MATERIAL (SLM)

Corporate taxes, labour laws, foreign policies have direct implications for any business entity. It becomes utmost important for Business leaders and managers to be up breast of political changes in the country. Political environment is very unpredictable and its effects on business will vary as per the changes in the public policy is approved. Business needs to be agile to accommodate such types of political changes that can be anticipated with environment scanning process and maintaining proper involvement in different types of government initiatives related to specific industry or general programme for commerce sector. 7.2 POLITICAL ENVIRONMENT 7.2.1 Concept A political system has been defined by Dahl (1976) as a \"persistent pattern of human relationship that involves, to a significant extent, control, influence, power, or authority.\" There is different government approach followed in different countries one side is people elected government which is popularly known as Democratic form and other is Communism form where all form of economic activities are under the control of community. There are different forms between these two main forms. In domestic environment, business is concerned with one form of government but has to deal with different levels of it. For global business, business need to deal with different structure of government and so thus, the complexity is increased. Different forms of Political system. The political structure, its framework, regulation system followed and the formation of the government constitutes Political System which is composite and immense. Political system administers whole set of directives, ordinance, governing bodies and perception. The difference of political forms lies in the way segregation of priorities are define like business, people, legal system, international treaties and trade and so on. Country’s political system affects the economical aspect of the country which is directly related to the changes introduced in the business environment. Almost 13 different types of political forms are followed by different countries across the world with some modifications. On the one side of extremity is the political ideology of anarchism where whole control of economics and politics lies in the hand of individual and government is not at all necessary aspect for the country. On the other hand, extreme approach is totalitarianism where complete control is in the hand of central government. Practicality is very different as neither of these two extreme approaches are followed in pure form. Infact, most of the countries have adopted blend of both the political form. We can trace the impact of such combination on the history, customs and traditions of the country. This blended form is termed as pluralism, where balance is strike between public and private sector for efficient working of such form. 153 CU IDOL SELF LEARNING MATERIAL (SLM)

Daily life of people is controlled by government in some countries Another form of political system is authoritarian. One strong leader or small group of leaders will enjoy the power to control the lives of people in the country. There is no common election is conducted for electing the leader nor such leaders have no accountability in terms of social, economic and political for the people. The leader uses power or fear to control the system like dictator. When the leader of authoritarian political form is motivated by the principle of communism, then another form of politics comes into existence i.e., Totalitarianism. The approach is to control the people. The most popular and adopted political form is Democracy. Direct referendum (called a direct democracy) or when the representatives are elected from the voting of people (a representative of democracy) provides power to the Central democratic government. There are also numerous different forms of democracy are practiced across different countries and even in some form citizens enjoy more freedom while some has better framework for representation, Political Stability and Change The political forms lay down the scope of government and its functioning. The import-export policy, the encouragement of specific sector based on the circumstance (For instance, a special package of investment is allocated to pharmaceutical Industry during COVID-19 pandemic). There are many implications and changes introduced by political priority in the business environment. The different aspects of business that will experience the change in environment are as:  Training and academic degrees of workforce,  Health policy and program related to the health of people and  Quality Infrastructure projects implemented. Indian democracy form is the biggest in the World and it has adopted federal republic approach India is the biggest democracy in the World. There are different personal laws for major religion like Hindu, Muslim and Christians. There are reservation quotas for backward segment of the society. The Indian form is based on the English common law. There is provision in our Constitution and system by which different Acts can be changed or modified as per need and the changes. It accepts compulsory ICJ jurisdiction. 7.2.2 Factors in Political Environment The major factors in political environment are: 154 CU IDOL SELF LEARNING MATERIAL (SLM)

Taxation Policy Factors of Privatization Political Deregulation Environment International Trade Regulation Fig 7.1: Factors in Political Environment Taxation policy Direct and Indirect Tax system is the main source of income for our Government. Indian Government comprises of three different federal levels viz., Central Government, State Government and Local/Rural Government. The provisions of Constitution have given authority to three levels of Government to impose and collect the taxes. There are different types of taxes levied for different economical sector like there is Custom duties – for imported goods; Income Tax for people who are engaged and earning income, Central and State GST for availing the benefits of services, professional tax for offering professional services. Direct Tax Indirect Tax Income Value Tax Added Tax Wealth Octroi Tax tax Service Gift Tax Tax Capital Custom Gain Tax Duty 155 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig: 7.2: Tax System of India: Direct tax is imposed on individual and corporate bodies. Direct taxes are higher for high income individual. Income tax is based on the earning of an individual or business. Property Tax is charged on Individual or Corporate’s building, home and land. Capital Gain tax is collected when an individual earns income by selling stock, property or a business. Gift tax is the form of transfer tax which is collected when wealth is transferred from one individual or business to other in the form of gift or prize money for any event. The taxes which are imposed indirectly on the public for goods and services are termed as Indirect Taxes. Goods and services tax is a collective form of taxes, which is divided into different slabs by GST council. Service tax include taxes on using telephone, maintenance service, health centre, etc. When the goods are sold in the state, Value added tax is collected and the rates are decided by the government. Octroi tax are collected when goods are being transferred from one state to other and the rates are decided by the State Government. Custom Duty is collected for imported goods, the goods procure from other countries to India. Privatization When Government transfers the business ownership or rights to manage the public sector in the hands of private players is termed as ‘Privatization’. There are numerous reasons of privatization like to decrease the weight of public sectors from government, improve the efficiency and quality of workforce, fully utilization of the public enterprise capacity, Government can channelize the funds in infrastructure development. helps in reducing the political interface in the management of enterprises, leading to improved efficiency and productivity. Privatization improves competitiveness of the industry and adopts different technology to sustain and succeed. It improves overall business segment of the country and helps to Deregulation The Industrial Development and Regulation Act (IDRA), 1951 has imposed strict restrictions on the Private Enterprises in forms of license, quota system, etc. The private players have never got proper opportunity to develop their business and as country, India suffered slow economic development and disorganized industry. Since, 1991 as per the New Economy Policy De-regulation was adopted as major economic reform. Most of the business need to apply under Industrial Entrepreneur Memorandum and license is more essential to commence the business except few industries like liquor, chemical and so on. International trade regulations This regulation helps to administer the trade and business with foreign countries. It helps to build diplomatic relations with neighboring countries. It also provides motivation for improving industry competitiveness and innovation. Country gain global recognition in the international markets and during border unrest or war situations foreign trade buddies plays 156 CU IDOL SELF LEARNING MATERIAL (SLM)

an important role. All countries have diverse resources and advantages so such trade is beneficial for whole World. Trade regulations helps to monitor such business activities which are carried out cross borders and maintain harmony. For formulating and implementing import – export policies, India has become member of International Trade Associated like WTO (World Trade Organization), the South Asian Association for Regional Cooperation (SAARC), etc. 7.3 INDIAN POLITICAL INSTITUTIONS (LEGISLATURE; EXECUTIVE OR GOVERNMENT; JUDICIARY) The Government in India or the central or the union government is divided into three main sections namely the executive, legislature and the judiciary shown as under. The responsibility of each section of the government is also mentioned along. Fig 7.3: Indian Political Institution 157 Source: http://www.india-pride.com/government-of-india/ CU IDOL SELF LEARNING MATERIAL (SLM)

As mentioned in the constitution of India: The titular head of the Executive branch of the government is the President, who is the Head of State and exercises his authority through his Cabinet which consists of group of ministers headed by Prime Minister, who is the real head of the government for all practical purposes. The Legislature is entrusted with the duty of making policies for the country. The Parliament which represents the elected representatives of the people is the seat for making such policies. Parliament of India consists of two houses, the Lok Sabha (\"House of the People\") or the lower house, and the Rajya Sabha (\"Council of States\") which is the upper house. Members to the Lok Sabha are directly elected and have 552-members. The Rajya Sabha consists of 250-members who are indirectly elected and nominated. The Parliament enjoys parliamentary supremacy. All the members of the Council of Ministers as well as the Prime Minister are members of Parliament. If they are not, they must be elected within a period of six months from the time they assume their respective office. The Prime Minister and the Council of Ministers are responsible to the Lok-Sabha collectively. Judiciary in India is unified and divided into three tiers with the Supreme Court at its apex followed by 21 High Courts in the States, and Lower courts at the district level which are first level for seeking justice in civil or criminal cases. The Constitution of India is the highest legal document from which all other laws are derived or interpreted. Aiding that, there are different Codes for guiding Civil and Criminal Procedures in the country. These are Civil Procedure Code, the Indian Penal Code, and the Criminal Procedure Code. India is also signatory of and so accepts the rules and regulations of International Court of Justice. All the state has their own set up of legislature, executive and judiciary. By the Constitutional 73rd and 74th Amendment Acts, a third level of local self-government or the Panchayati Raj has been set up. 7.4 IMPACT OF THE POLITICAL ENVIRONMENT ON BUSINESS/SERVICE SECTORS Impact on Economy The political situation of a country affects its economic setting. The economic environment affects the business performance. For example, there are major differences in Democratic and Republican policies in the US. This influences factors like taxes and government spending, which ultimately affect the economy. A greater level of government spending often stimulates the economy. 158 CU IDOL SELF LEARNING MATERIAL (SLM)

Changes In Regulation Governments could alter their rules and regulations. This could in turn have an effect on a business. After the accounting scandals of the early 21st century, the US SEC became more attentive on corporate compliance. The government introduced the Sarbanes-Oxley compliance regulations of 2002. This was a reaction to the social environment. The social environment urged a change to make public companies more liable. Political Stability Lack of political stability in a country effects business operation. This is especially true for the companies which operate internationally. For example, an aggressive takeover could overthrow a government. This could lead to riots, looting and general disorder in the environment. These disrupt business operations. Sri Lanka was in a similar state during a civil war. Egypt and Syria faced disturbances too. The Importance of Observing the Political Environment Firms should track their political environment. Change in the political factors can affect business strategy because of the following reasons: The stability of a political system can affect the appeal of a particular local market. Governments view business organizations as a critical vehicle for social reform. Governments pass legislation, which impacts the relationship between the firm and its customers, suppliers, and other companies. The government is liable for protecting the public interest. Government actions influence the economic environment. Government is a major consumer of goods and services. Example: How Political Factors Affect Nike Studies show that Nike has earned high profits from the growth orientated policies of US government. The policies maintained low-interest rates. Currency exchange stability and internationally competitive tax arrangements were also maintained. The company has also benefited from government initiatives in terms of transparency in the global value chain. One example of this is in membership of the Clinton administration’s 1997 Apparel Industry Partnership. Nike enjoyed changes in the political factors in many ways. However, political pressures had a negative impact on Nike’s employment practices. 7.5 POLITICAL RISK Forecasting Political Risk 159 CU IDOL SELF LEARNING MATERIAL (SLM)

Firms can use quantitative or qualitative methods to assess political risk. Political risk assessment helps in deciding about risk insurance, data gathering and intelligence networking, development of contingency planning, establishment of early warning system. Types of Political Risk  Confiscation (take-over without reimbursement)  Restriction  Price Controls  Labor Policy  Expropriation (takeover/unwilling sale with full or partial payment)  Domestication (local ownership, management, material inputs)  Nationalization (government ownership of industry) Avoiding Political Risk  Refrain from political activity  Maintain a low profile in the foreign market  Integrate the firm into the economy/society  View net contribution to the host country  Use joint ventures  Expand investment base (use several investors including locals)  Licensing  Control of global marketing & distribution  Planned domestication  Development of local suppliers  Adopt a low-key reactive style rather than an aggressive management style in the foreign market  Develop and maintain a global image  Resist pressure to pay bribes and or take sides in political contests  Keep an eye on the local environment 160 CU IDOL SELF LEARNING MATERIAL (SLM)

7.6 CHANGING ROLES OF GOVERNMENT IN BUSINESS ENVIRONMENT There are four different roles played by Government with regards to Business Environment as follow: • Focus on •Development Economic & Support and Commercial Government Activities as a Government Promoter of as Regulator Business Government Government as the as an Planner Entrpreneur • Budgets and • Execution • Public Sector and PPP Fig 7.4: Role of Government in Business Environment It is utmost important to create healthy and perfect competition among businesses in an industry. For this, a central authority with broader framework of administration is necessary to monitor, regulate and control various industries which are important backbone of any country’s economic growth and development. Hence, Government shoulders this important responsibility with proper planning and execution. Government has to assume different roles for different functions. 1. Government as a Regulator: As a regulator, Government Defines scope for economic and commercial activities in the form of different Acts and Industrial Policies. Designs budgets for allocation of resource. Regulates trade and position in international market through different Trade Policies and maintaining membership in Global Trade Bodies. Public sector growth is stabilized and promoted to maintain perfect competition and economic stability. 161 CU IDOL SELF LEARNING MATERIAL (SLM)

Regulates functioning of stock market and investment in the country. 2. Government: as a Promoter Provides and develop infrastructure that aids in development and growth of industries as well as specific regions and states of Countries Providing different Finance option at lucrative interest rates. Implement different incentive plans, offers training and sets up special economic zones. Provides subsidies and tax holidays to ensure industrial growth in backward or underdeveloped regions thus maintaining the balance of regional growth. 3. Government as an Entrepreneur: Established successful Public Sectors in different Industries Revive sick industries. Signed International Trade Treaties to accelerate the industrial development and increase foreign exchange. Adapted Public Private Partnership to foster technological advancements and quality in operations Increased employment opportunities by encouraging new start-ups. 4. Government: as a Planner Different socio-economic objectives are prioritized in every Five-Year Planning program. Budgets are designed to ensure equal treatment of different sectors. Administration and execution at lower level of Plans are ensured by different departments. 7.6.1 Why Do Governments Intervene in Trade? Governments intervene in trade for a combination of political, economic, social, and cultural reasons. Politically, a country’s government may seek to protect jobs or specific industries. Some industries may be considered essential for national security purposes, such as defense, telecommunications, and infrastructure—for example, a government may be concerned about who owns the ports within its country. National security issues can impact both the import and exports of a country, as some governments may not want advanced technological information to be sold to unfriendly foreign interests. Some governments use trade as a retaliatory measure if another country is politically or economically unfair. On the other 162 CU IDOL SELF LEARNING MATERIAL (SLM)

hand, governments may influence trade to reward a country for political support on global matters. Governments are also motivated by economic factors to intervene in trade. They may want to protect young industries or to preserve access to local consumer markets for domestic firms. Cultural and social factors might also impact a government’s intervention in trade. For example, some countries’ governments have tried to limit the influence of American culture on local markets by limiting or denying the entry of American companies operating in the media, food, and music industries. 7.6.2 How Do Governments Intervene in Trade? While the past century has seen a major shift toward free trade, many governments continue to intervene in trade. Governments have several key policy areas that can be used to create rules and regulations to control and manage trade. Tariffs Tariffs are taxes imposed on imports. Two kinds of tariffs exist—specific tariffs, which are levied as a fixed charge, and ad valorem tariffs, which are calculated as a percentage of the value. Many governments still charge ad valorem tariffs as a way to regulate imports and raise revenues for their coffers. Subsidies A subsidy is a form of government payment to a producer. Types of subsidies include tax breaks or low-interest loans; both of which are common. Subsidies can also be cash grants and government-equity participation, which are less common because they require a direct use of government resources. Import quotas and VER Import quotas and voluntary export restraints (VER) are two strategies to limit the amount of imports into a country. The importing government directs import quotas, while VER are imposed at the discretion of the exporting nation in conjunction with the importing one. Currency controls Governments may limit the convertibility of one currency (usually its own) into others, usually in an effort to limit imports. Additionally, some governments will manage the exchange rate at a high level to create an import disincentive. Local content requirements Many countries continue to require that a certain percentage of a product or an item be manufactured or “assembled” locally. Some countries specify that a local firm must be used as the domestic partner to conduct business. Antidumping rules 163 CU IDOL SELF LEARNING MATERIAL (SLM)

Dumping occurs when a company sells product below market price often in order to win market share and weaken a competitor. Export financing Governments provide financing to domestic companies to promote exports. Free-trade zone Many countries designate certain geographic areas as free-trade zones. These areas enjoy reduced tariffs, taxes, customs, procedures, or restrictions in an effort to promote trade with other countries. Administrative policies These are the bureaucratic policies and procedures governments may use to deter imports by making entry or operations more difficult and time consuming. 7.7 SUMMARY The three pillars of the government are:  Judiciary  Executive  Legislature  The major factors in political environment are:  Taxation policy  Privatization  Deregulation  International trade regulations  Democratic governments derive their power from the people of the country either by direct referendum, called a direct democracy, or by means of elected representatives of the people, known as a representative democracy.  Capitalism is an economic system in which the means of production are owned and controlled privately. In contrast a planned economy is one in which the government or state directs and controls the economy.  Government-business trade relations are the relationships between national governments and global businesses. Governments intervene in trade to protect their nation’s economy and industry, as well as promote and preserve their social, cultural, political, and economic structures and philosophies. Governments have several key policy areas in which they can create rules and regulations in order to control and 164 CU IDOL SELF LEARNING MATERIAL (SLM)

manage trade, including tariffs, subsidies; import quotas and VER, currency controls, local content requirements, antidumping rules, export financing, free-trade zones, and administrative policies.  Every enterprise needs to obey the law of the land so an adequate knowledge of rules and regulations framed by the government is a pre-requisite for better business performance. 7.8 KEYWORDS  Antidumping: measure to rectify the situation arising out of the dumping of goods and its trade distortive effect.  Regulation: a rule or directive made and maintained by an authority.  Tariff: a tax or duty to be paid on a particular class of imports or exports.  Capitalism: an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.  Corruption: dishonest or fraudulent conduct by those in power, typically involving bribery. 7.9 LEARNING ACTIVITY 1. What is planned domestication? __________________________________________________________________________ __________________________________________________________________________ 2. State the advantages associated with free trade zone. __________________________________________________________________________ __________________________________________________________________________ 7.10 UNIT END QUESTIONS A. Descriptive Questions 165 Short Questions 1. Explain the concept of Political Environment. 2. State the types of political risks and strategies to avoid such risks. 3. Why it is important to consider Political dimension for carrying out business? 4. What factors contribute in constitution of Political Environment? 5. List the responsibilities of Indian Judiciary system CU IDOL SELF LEARNING MATERIAL (SLM)

Long Questions 1. Discuss the impact of Political factors on Business 2. How do Government intervene in Business operations? 3. Differentiate the three pillars of Indian Political Institution. 4. What are different Political Systems and explain their role in business operation? 5. What are the important aspects of Anti-Dumping Rules and how it is beneficial for Domestic Business? B. Multiple Choice Questions 1. Which of the following is not a three-tier federal structure for tax in India? a. The Urban &Rural Local Bodies b. The State Governments c. The Union Government d. The Central Government 2. Democratic governments derive their power from: a. The people b. The prime minister c. The president d. The Judiciary 3. __________ is entrusted with the duty of making policies for the country. a. Judiciary b. Executives c. Legislature d. Legal system 4. Lack of political stability affects: 166 a. Business Operations b. Law and order c. Elections CU IDOL SELF LEARNING MATERIAL (SLM)

d. Government 5. ------------ is the highest legal document from which all other laws are derived or interpreted in India. a. Legislature b. Contract c. Constitution d. Preamble Answers 1-c, 2-a, 3-c, 4-a, 5-c 7.11 REFERENCES Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House],  C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment, Financial Times/ Prentice Hall.  Justin Paul, “Business Environment”, Tata McGraw Hill Publications  P.K.Ghosh : “Business Environment”, Sultan Chand Publishers, New Delhi Reference Books:  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. 167 CU IDOL SELF LEARNING MATERIAL (SLM)

p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 168 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 8: LEGAL ENVIRONMENT I STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Company regulatory legislations in India 8.2.1 Public Policy 8.2.2 The Industries (Development and Regulation) Act, 1951 8.2.3 The SEBI Act 8.3 Foreign Exchange Management Act, 1999 8.4 Summary 8.5 Keywords 8.6 Learning Activity 8.7 Unit End Questions 8.8 References 8.0 LEARNING OBJECTIVES After studying this unit, Students will be able to:  Explain the concept of Legal Environment  Describe the Company regulatory legislations in India  Illustrate the importance of Public Policy  Outline the role of Foreign Exchange Management Act in Industrial Development. 8.1 INTRODUCTION Legal environment is an integration of different regulations and laws that are furnished by the different government authorities- centre, state or local. Every enterprise needs to obey the law of the land so an adequate knowledge of rules and regulations framed by the government is a pre-requisite for better business performance. Non-compliance of laws can land the business enterprise into legal problems. In India, a working knowledge of the following is important for doing business: Industries Act Foreign Exchange Management Act 169 CU IDOL SELF LEARNING MATERIAL (SLM)

The Imports and Exports Act Consumer Protection Act Competition Act What Are the Different Legal Systems? Let’s focus briefly on how the political and economic ideologies that define countries impact their legal systems. Generally, three main types of legal systems are followed in different countries —common law, civil law, and religious or theocratic law. Also, many countries implement combination of these legislations i.e., like hybrid legal systems. The most common prevailing legal system is Civil law that is based on a comprehensive element which are directed on the way they are co-related with the facts. The traditions and prevailing practices form the basis of Common law. In such system, whatever interpretation is rewarded by the judges in any of the legal proceedings and judicial rulings can set examples. Theocratic law is another name of Religious law that is founded on the underlying religious guidelines followed by the societies. Islamic law is one of the popular religious laws followed by different Islamic countries and communities across the World. Another well- known example of Islamic law are the Jewish Halacha and the Christian Canon system. The Christian Canon system is observed in the Vatican City. Global business accepts such framework and they strategize their products in such a way where they respect the feelings behind such religious law and at the same time earns descent profits. 8.2 COMPANY REGULATORY LEGISLATIONS IN INDIA 8.2.1 Public Policy Definition Government is always involved and engaged in carrying out various duties and responsibilities like enact or amend the laws, funding different economic sectors, building infrastructure, managing diplomatic relations with different countries with regards to politics, cross border harmony and trade. For all these functions, Government constantly needs financial support which relies mostly on the way funds are raised through taxes, cesses, levies and administrative charges. The framework that ensures Government smooth functioning is termed as Public Policy. Public Policy is all about what government does or does not do. Public Policy takes care of variety of issues like distribution of vaccines, setting up healthcare facilities, housing, employment, relief funds for calamities, inflation, recession, labour laws, development of backward regions, demonetization and so on. 170 CU IDOL SELF LEARNING MATERIAL (SLM)

There are number of key attributes of public policy as: In response to some sort of issue or problem, policy is made to address it. In the form of laws or regulations, policy can solve a particular issue or problem. Policy is framed on behalf of the \"public.\" Government is empowered to make the public policies, implements and monitors it. Public policy has an objective or desired result like raising funds for COVID-19 pandemic. There is no clear beginning or end, Public policy is made whenever situation or circumstances arise but it highlights the benefits and burdens associated with it. So, public policies are always regularly revisited, reassessed and revised. Need For Public Policy: 1. Economic management: State intervention has evolved as utmost critical approach to combat recession and depression. The welfare measures initiated and implemented by Government constitutes the major part of public policy. 2. Labour Management: Labour was treated as an element of production but this perspective was completely changed after Great Depression. Labour has evolved as very important management support function for driving successful business. Different countries such as Germany and Japan involve labour participation in managerial decisions. 3. Welfare state: It is the fundamental duty of government to provide good job, food, clothing and shelter to the citizen of the country. That’s why we always seen different measures designed and implemented in the direction to ensure the basic necessities is made available in the region. Like Free education scheme till the age of 14 years, prohibition of employing kids below the age of 16 years, etc. 4. Corporate sector: It is very important for business to manage the expectation of Stakeholder that if unmet can pressurize government and take the forms of public issue. It’s very important for nay business to understand the transformation of public issues into public policy. 171 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig 8.1: Impact of Environmental Forces and their elements on Business [Source: A. C. Fernando, Corporate Governance, Principles, Policies and Practices, New Delhi: Pearson Education, 2009] Public Policies and Business Various factors like Economic, political, social and technological forces plays an important role in shaping the public policies that affects businesses. Economic forces define framework for business to operate efficiently and competing fairly. Political forces provide ground for formulating and implementing various policies that affects directly or indirectly to businesses. The demand and supply of goods and services are influenced by the demographic factors that constitutes the social forces. The lifestyle pattern and preferences of consumers is also part of social forces that shapes the business strategy of growth. Technological forces help corporates to develop core competency and improve the quality of products and services. Role Of Public Policy in Business: To create and maintain a competitive environment: Public policies encourage perfect competition by controlling monopolies and provides fair grounds for enterprises to compete effectively and efficiently by managing their resources, market share and competitive advantage. To regulate foreign investment: Government regulates and control foreign investment flow in different sectors of economy by means of policies. Sometimes, Government set various 172 CU IDOL SELF LEARNING MATERIAL (SLM)

slabs for investment in certain industries, while major share is allowed in certain industries depending upon the objectives of economic planning. For example: Digital news has a cap of 26 percent on equity that also needs government approval. E-commerce businesses that receive FDI can only opt for B2B business. Such measures are adopted to protect local industries, promotes healthy competition in market, manage demand and supply cycle and ensure Environment protection. 8.2.2 The Industries (Development and Regulation) Act, 1951 Several legislations have been enacted and amended in response to the changing environment to provide the Central Government with the means to implement its industrial policies, the most important of which is the Industries (Development and Regulation) Act, 1951 (IDRA), which was enacted in accordance with the Industrial Policy Resolution, 1948. The Act was drafted with the intention of fostering development. Objectives of the Act: The Important objectives are, (i) To Implement the Industrial Policy: The Act provides the necessary means to the Central Government in order to implement its industrial policy. (ii) Regulation and Development of Important Industries: The Act places the development and regulation of a number of important industries listed in the first schedule attached to the Act under the control of the Central Government because the activities of such industries will have an impact on the country as a whole and, as a result, the development of such important industries must be governed by economic factors of national importance. (iii) Planning and Future Development of New Undertakings: A system of licensing is introduced under the Act to regulate planning and future development of new undertaking on sound and balance lines and may be deemed expedient in the opinion of the Central Government. The Act confers on the Central Government power to make rules for the registration of existing undertakings for regulating the production and development of the industries specified in the schedule attached to the Act. The Act so provided for the constitution of the Central Advisory Council and Development Council. Scope of the Act: This Act covers the entire country of India, including the state of Jammu and Kashmir. Its provisions apply to any industrial undertaking that manufactures any of the items listed in the 173 CU IDOL SELF LEARNING MATERIAL (SLM)

first schedule. For the purposes of the Act, an industrial undertaking (sometimes known as a factory) is one that engages in the manufacturing process: (a) With the aid of power provided that fifty or more workers are working or were working on any day of the preceding twelve months; or (b) Without the aid of power provided that one hundred or more workers are working or were working on any day of the preceding twelve months. (c) The Act applies only on industrial undertakings. Trading houses and financial institutions are outside the purview of the Act. Main Provisions of the Act The main provisions of the IDRA, 1951 were a) All existing undertakings at the commencement of the Act, except those owned by the Central Government were compulsorily required to register with the designated authority. b) No one except the central Government would be permitted to set up any new industrial undertaking “except under and in accordance with a license issued in that behalf by the Central Government.” c) Such a license or permission prescribed a variety of conditions, such as, location, minimum standards in respect of size and techniques to be used, which the Central Government may approve. d) Such licenses and clearances were also required in cases of ‘substantial expansion’ of an existing industrial undertaking. Industrial Licensing Every existing industrial operation must apply for registration with the Central Government under Chapter III of the Act, which regulates scheduled industries. In addition, the Central Government has mandated that any new industrial endeavor seek a license. Furthermore, an industrial venture that is registered or licensed is prohibited from producing a new article unless a new article license has been obtained or a prior license has been changed to include the article, as the case may be. The rules regarding the granting of registration certificates and licenses are provided under “The Registration and Licensing of Industrial Undertaking Rules, 1952” and Notification 477(E) dated July 25, 1991, of the Department of Industrial Policy and Promotion. Presently, an industrial license is required for industries retained under compulsory licensing, the manufacturing of items reserved for the small-scale sector by larger units, and when the proposed location attracts restrictions. The industries requiring compulsory licensing are: 174 CU IDOL SELF LEARNING MATERIAL (SLM)

 Distillation and brewing of alcoholic drinks  Cigars and cigarettes of tobacco and manufactured tobacco substitutes  Electronics  Aerospace and defense equipment  Industrial explosives -including detonating fuses, safety fuses, gun powder, nitrocellulose and matches  Hazardous chemicals – including items hazardous to human safety and health and thus fall for mandatory licensing Certain commodities have been set aside for small-scale manufacturing by the government. Only after receiving an industrial license can non-small-scale units manufacture items reserved for the small-scale industry. In such instances, the non-small-scale unit is expected to commit to exporting 50 percent of the small-scale industry (SSI) reserved production. This has been done to protect indigenous manufacturers from competitive exotic substitutes so as to ensure a level playing field for domestic manufacturers. With regards to location limitations, industrial undertakings are free to select the location of their projects. Industrial licenses, however, are required if the proposed location is within 25 kilometers of the standard urban area limits of 23 Indian cities having a population of at least 1 million. The location restrictions, however, do not apply in the case of electronics, computer software and printing and any other industry which may be classified in the future as a “non-polluting industry.” The location of industrial units is subject to the applicable local zoning and land use regulations and environmental regulations so as to maintain ecological discipline. The application for registration has to be made to the Secretary of Industrial Assistance, Central Government. After due consideration, the government then issues the Certificate of Registration. Similarly, an application (Form IL-FC) for obtaining a license by a new undertaking has to be made to the Central Government along with the fee, after which the Ministry issues a license. Industrial licenses are granted by the Secretarial of Industrial Assistance (SIA) on the recommendation of the Licensing Committee. After an industrial undertaking has obtained a license or permission as above, it becomes eligible to the allotment of controlled commodities and for the issuance of an import license for goods required for the construction and operation of the industrial undertaking. De-licensed industries These are industries which do not require compulsory licensing, do not fall under location restrictions, and are not reserved for small-scale industries. There is no exhaustive list specified by the Department of Industrial Policy and Promotion. As a process of liberalization of industrial policy, many items have been exempted from compulsory licensing and 175 CU IDOL SELF LEARNING MATERIAL (SLM)

attention is reserved only for those which are vital for public health, safety and national security. Industries exempted from the provisions of industrial licensing are required to file an Industrial Entrepreneur’s Memorandum along with a fee. The government's liberalization and economic reforms programme strives for rapid and significant economic growth, as well as seamless integration with the global economy. Industrial policy reforms have decreased industrial license requirements, abolished investment and expansion barriers, and made foreign technology and foreign direct investment more accessible. [https://cleartax.in/] 8.2.3 SEBI Act SEBI is a statutory regulatory body established on the 12th of April, 1992. It administers and control the Indian stock market, also protects the interests of the investors formulating regulations and guidelines to be adhered to. Its head office is located in Bandra Kurla Complex, Mumbai. Structure of SEBI SEBI is divided into 20plus different departments and each department is supervised by department head. has a corporate framework comprising various departments each managed by a department head. The departments of SEBI are categorized as per different functions like corporation finance, economic and policy analysis, debt and hybrid securities, enforcement, human resources, investment management, commodity derivatives market regulation, legal affairs, and more. The organizational structure of SEBI has following members: The chairman of SEBI is nominated by the Union Government of India. Two officers from the Union Finance Ministry will be a part of this structure. One member will be appointed from the Reserve Bank of India. Five other members will be nominated by the Union Government of India. 176 CU IDOL SELF LEARNING MATERIAL (SLM)

Functions of SEBI: The SEBI's functions are as follows: It can be broken down into three sections: Objectives of Protection: a. Insider trading is prohibited: Insider trading is defined as the purchasing or selling of securities by firm insiders such as doctors, promoters, or workers who have access to confidential price or information that impacts stock prices. SEBI has prohibited listed company trusts and employee welfare plans from purchasing their own shares on secondary markets in order to prevent insider trading. It also keeps a close eye on insider trading and takes action when it occurs. b. Checks price rigging: Price rigging refers to securities-related malpractices with the goal of causing unnatural fluctuations in the price of securities by increasing or decreasing the market price of stocks leading to an increase or decrease in the market price of stocks leading to an increase or decrease in the market price of stocks leading to an increase or decrease in the market price of stocks leading to an increase or decrease in the market price of stocks leading to an increase or decrease in the market price to huge losses for investors or traders. SEBI keeps strict surveillance to prevent such price riggings. 177 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Encourages fair trade practices: By establishing laws and a code of conduct in the securities market, SEBI prohibits fraudulent and unfair trade practices and promotes fair trading of securities. d. Educate investors on financial matters: SEBI educates investors through online and offline seminars that provide information on the financial market and money management. Developmental Functions: The initiatives taken by SEBI under this category are as follows: a. By training the intermediaries of the securities market. b. Introducing electronic/ internet through registered stock brokers. c. Introducing the DEMAT format. d. By making the underwriting optional to reduce the cost of the issue. e. By the introduction of discount brokerage. Regulatory Functions: This refers to the establishments of regulations for financial intermediaries and corporates to make sure the market runs efficiently: a. SEBI has framed guidelines and code of conduct that are enforced to financial intermediaries and corporates. b. These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive. c. SEBI regulates the working of the mutual funds. d. Regulates takeovers of the companies. e. Conduct enquiries and audit of the stock exchanges. Authority and Power of SEBI 178 The SEBI has three main powers: CU IDOL SELF LEARNING MATERIAL (SLM)

i. Quasi-Judicial: To ensure impartiality, clarity and accountability in the securities market. SEBI has the authority to render judgements related to fraudulent practices in terms of the securities market. ii. Quasi-Executive: SEBI is authorized to implement the regulations and judgements made, to take legal action against the violators and audit Books of accounts and other documents in case of any violation iii. Quasi-Legislative: To safeguard the interests of the investors, SEBI reserves the right to frame rules and regulations like insider trading regulations, listing obligation, and disclosure requirements. Despite the powers, the results of SEBI’s functions still have to go through the Securities Appellate Tribunal and the Supreme Court of India. 8.3 FOREIGN EXCHANGE MANAGEMENT ACT, 1999 The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. In fact, it is the central legislation that deals with inbound investments into India and outbound investments from India and trade and business between India and the other countries. The FEMA provides: Free transactions on current account subject to reasonable restrictions that may be imposed RBI control over Capital Account Transactions Control over realization of export proceeds Dealings in Foreign Exchange through Authorized Person (e.g. Authorized Dealer/ Money Changer/ Off-shore Banking Unit) Adjudication of Offences Appeal provisions including Special Director (Appeals) and Appellate Tribunal Directorate of Enforcement 8.3.1 Provisions of Foreign Exchange Management Act! A provision of Foreign Exchange Management Act (FEMA) provides free transaction on current account subject to the guidelines by the RBI. Enforcement of Foreign Exchange Management Act (FEMA) is entrusted to a separate directorate, which undertakes investigations on contraventions of the Act. Provisions of FEMA are grouped under four heads. Important provisions under each of the four heads, having a bearing on promoting economic development through foreign investment with enabling provisions to ensure the curtailing of inflationary trends from such transactions, are outlined below. Regulation for Current Account Transaction: Any person can sell or draw foreign exchange to or from an authorised dealer (if such sale or withdrawal is a current account transaction) except for certain prohibited transactions like 179 CU IDOL SELF LEARNING MATERIAL (SLM)

remittance of lottery winnings, remittance of interest income on funds held in Non-Resident Special Rupee (NRSR) account scheme, etc. Besides these cases, there are certain other transactions, for which specific RBI approval will be required. For instance, Reserve Bank approval is required for importers availing of Supplier’s Credit beyond 180 days and Buyer’s Credit irrespective of the period of credit. Authorised dealers are permitted remittance of surplus freight/passage collections by shipping/airline companies or their agents, multimodal transport operators, etc. after verification of documentary evidence in support of the remittance. Regulations Relating to Capital Account Transactions: i. Foreign nationals are not allowed to invest in any company or partnership firm or proprietary concern, which is engaged in the business of Chit Fund or in Agricultural or Plantation activates or in Real Estate business (other than development of township, construction of residential/commercial premises, roads or bridges) or construction of farm houses or trading in Transferable Development Rights (TDRs). Listing of permissible classes of Capital account transaction for a person resident in India and also by a person resident outside India has been provided in the regulations. ii. Detailed rules and regulations are provided on borrowing and lending in Foreign Currency as well as India Rupee by a person resident in India form/to a person resident outside India either on non-repatriation or repatriation basis. iii. Authorised dealers are now permitted to grant rupee loans to NRIs against security of shares or immovable property in India, subject to certain terms and conditions. Authorised dealers or housing finance institutions approved by National Housing Bank can also grant rupee loans to NRIs for acquisition of residential accommodations subject to certain terms and conditions. iv. General permission has been granted to Indian company (including Non-Banking Finance Company) registered with Reserve Bank to accept deposits from NRIs on repatriation basis subject to the terms and conditions specified in the schedule. Indian proprietorship concern/firm or a company (including Non-Banking Finance Company) registered with Reserve Bank can also accept deposits from NRIs on non-repatriation basis subject to the terms and conditions specified in the schedule. Regulations relating to export of goods and services: Export proceeds are required to be realised within a period of 6 months from the date of shipment. In the case of exports to a warehouse established abroad with the approval of Reserve Bank, the proceeds have to be realised within 15 months from the date of shipment. 180 CU IDOL SELF LEARNING MATERIAL (SLM)

An enabling provision has been made in this regulation to delegate powers to authorised dealers to allow extension of time. Export of goods on elongated credit terms beyond six months requires prior approval of Reserve Bank. Other Regulations: i. A person resident in India to whom any foreign exchange is due or has accrued is obligated to take reasonable steps to realise and repatriate to India such foreign exchange unless an exemption has been provided in the Act or regulations made under the general or special permission of Reserve Bank. ii. Any foreign exchange due or accrued as remuneration for services rendered or in settlement of any lawful obligation or an income on assets held outside India or as inheritance, settlement or gift to a person resident in India should be sold to an authorised person within a period of seven days of its receipt and in all other cases within 90 days of its receipt. iii. Any person who has drawn exchange for any purpose but has not utilised it for the same or any other purpose permissible under the provisions of the Act should surrender such foreign exchange or un-utilised foreign exchange to an authorised person within a period of 60 days from the date of acquisition. Where, however, exchange was drawn for travel abroad, the un-utilised exchange in excess of the limit up to which foreign exchange is permitted to be retained, should be surrendered to an authorised person within 90 days from the date of return of the’ traveller to India if unspent exchange is in the form of travellers cheques. iv. The Reserve Bank has specified the limit for possession and retention of foreign currency by a person resident in India. There is no restriction on possession of foreign coins by any person. Any person resident in India is permitted to retain in aggregate foreign currency not exceeding US$ 2000 or its equivalent in the form of currency notes/bank notes or travellers’ cheques acquired by him from approved sources. v. The Reserve Bank has granted general permission to any person to receive any payment: (a) made in rupees by order or on behalf of a person resident outside India during his stay in India by converting the foreign exchange into rupees by sale to an authorised person; (b) made by means of a cheque drawn on a bank outside India or a bank draft or travellers cheques issued outside India or made in foreign currency notes directly, provided the cheques, drafts or foreign currency is sold to an authorised person within seven days of its receipt; (c) by means of a postal order or money order issued by a post office outside India. vi. Reserve bank has also granted general permission to a person resident in India to make payment in rupees; 181 CU IDOL SELF LEARNING MATERIAL (SLM)

(a) for extending hospitality’ to a person resident outside India; (b) to a person resident outside India for purchase of gold or silver imported by such person in accordance with the provisions of any order issued by Central Government under the Foreign Trade (Development and Regulation) Act, 1992 or under any law or rules or regulations in force. [yourarticlelibrary.com] 8.4 SUMMARY  Legal environment is an integration of different regulations and laws that are furnished by the different government authorities- centre, state or local.  The most common prevailing legal system is Civil law that is based on a comprehensive element which are directed on the way they are co-related with the facts.  The traditions and prevailing practices form the basis of Common law. In such system, whatever interpretation is rewarded by the judges in any of the legal proceedings and judicial rulings can set examples.  Theocratic law is another name of religious law that is founded on the underlying religious guidelines followed by the societies.  The framework that ensures Government smooth functioning is termed as Public Policy. Public Policy is all about what government does or does not do.  An industry is the production of goods or related services within an economy. The development and regulation have been discussed and dealt under the Industries (Development and Regulation) Act, (IDRA), came into force from 8th May 1952 under a notification of the Central Government published in the Gazette of India.  SEBI is a statutory regulatory body established on the 12th of April, 1992. It administers and control the Indian stock market, also protects the interests of the investors formulating regulations and guidelines to be adhered to.  The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. 8.5 KEYWORDS  Bank Notes- a piece of paper money, constituting a central bank's promissory note to pay a stated sum to the bearer on demand. 182 CU IDOL SELF LEARNING MATERIAL (SLM)

 Traveler's checks- are a form of payment issued by financial institutions such as American Express. These paper cheques are generally used by people when traveling to foreign countries. They are purchased for set amounts and can be used to buy goods or services or be exchanged for cash.  Accrued - to increase over a period of time  Obligation -a legal duty to pay or do something  Surrendered- to give something that is yours to someone else because you have been forced to do so or because it is necessary to do 8.6 LEARNING ACTIVITY 1. How Industries (Development & Regulation) Act, 1951 was beneficial for Government of India? ___________________________________________________________________________ ___________________________________________________________________________ 2. Why FERA was replaced by FEMA? ___________________________________________________________________________ ___________________________________________________________________________ 8.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Why public policies are always regularly revisited, reassessed and revised? 2. State the objectives of Industries (Development and Regulation) Act, 1951 3.Write a note on Industrial Licensing 4. Highlight the features of Regulations Relating to Capital Account Transactions as per FEMA. 5. Discuss Authority and Power of SEBI Long Questions 1. Why it is important to consider different elements of Environmental Forces while deciding the public policies? 2. Discuss the main provision of the Industries (Development and Regulation) Act, 1951. 3. Explain the main provision of FEMA. 4. State implications of the SEBI Act on the Corporation 183 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Explain the significance of Legal Environment for the Business firms. B. Multiple Choice Questions: 1. Public policies encourage perfect competition by ___________and provides fair grounds for enterprises to compete effectively and efficiently by managing their resources, market share and competitive advantage a. Controlling monopolies b. Controlling private enterprise production c. Controlling public enterprise production d. Controlling 2. What was constituted under the Industries (Development and Regulation) Act, 1951? a. SEBI and Development Council b. CCI c. CCI and SEBI d. Central Advisory Council and Development Council 3. Which Chapter of the Industries (Development and Regulation) Act, 1951 pertaining to the regulation of scheduled industries makes it mandatory for every existing industrial undertaking to seek registration with the Central Government? a. I b. II c. III d. IV 4. SEBI is a statutory regulatory body established on the ________ a. 13th of April, 1991 b. 12th of April, 1992 c. 15th of April, 1992 d. 11th April, 1991 184 CU IDOL SELF LEARNING MATERIAL (SLM)

5. According to FEMA, Authorised dealers are now permitted to grant rupee loans to NRIs against___________________, subject to certain terms and conditions a. Saving Accounts in India b. Fixed Deposits in India c. Security of shares or immovable property in India d. Movable property in India Answers 1-a, 2-d, 3-c, 4-b, 5-c 8.8 REFERENCES Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House],  C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment, Financial Times/ Prentice Hall.  Justin Paul, “Business Environment”, Tata McGraw Hill Publications  P.K.Ghosh : “Business Environment”, Sultan Chand Publishers, New Delhi Reference Books:  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A 185 CU IDOL SELF LEARNING MATERIAL (SLM)

Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution Of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  www.yourarticlelibrary.com  https://courses.lumenlearning.com/ 186 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 9: LEGAL ENVIRONMENT-II STRUCTURE 9.0 Learning Objective 9.1 Introduction 9.2Company Regulatory Legislations in India 9.2.1 Importance 9.2.2: The Monopolies and Restrictive Trade Practices (MRTP) Act In 1969: 9.2.3 The Competition Act, 2002: 9.3 EXIM/ Foreign Trade Policy 9.3.1 Introduction and Objective 9.3.2 EXIM POLICY/ FOREIGN TRADE POLICY, 2009-14 9.3.3 EXIM BANK OF INDIA 9.4 Summary 9.5 Keywords 9.6 Learning Activity 9.7 Unit End Questions 9.8References 9.0 LEARNING OBJECTIVES After studying this unit, you will be able to  State the implications of Legal Environment on Business  Explain different dimensions of Legal Environment  Outline the need to effectively manage Legal Environment  Explain the impact of Company regulatory legislations in India like FEMA, EXIM Understand the Company regulatory legislations in India. 9.1 INTRODUCTION ‘To the people, by the people and for the people’ – the famous saying always used to highlight the democratic stature of India. To preserve the integrity and to ensure the continuous economic growth of the country rules, regulations and legislations are adhere to maintain stability. Like we always follow left lane on the road while walking or driving 187 CU IDOL SELF LEARNING MATERIAL (SLM)

which is important traffic rule mentioned in our Constitution. Similarly, we have rules and legislations for how to pass a bill in Parliament House. We have different legislations and regulations to deal with home violence, industrial disputes, frauds and criminal activity. Such a broad framework being appreciated followed, implemented and amended regularly to ensure orderliness. Business being commercial and economic activity that also falls under the purview of political and legal framework of our country. Because India is a democratic country, the primary goal is to reduce wealth concentration in a few hands. To prevent this, the government has passed special legislation that a firm must follow. It is critical for businesses to comprehend the legal environment and function in accordance with it. The legal environment refers to the government's rules and regulations that govern how a firm should operate. The government sets laws to ensure that businesses run smoothly and to protect the interests of consumers and workers. These laws have an impact on all aspects of business, from the beginning to the end. 9.2 COMPANY REGULATORY LEGISLATIONS IN INDIA 9.2.1 Importance: Reducing Risk, Greater Efficiency and Increased Reputation. Compliance work often involves identifying and analyzing. It regulates effective action to be taken which is ensured through monitoring. Corporate affairs require efficiency and hence, Regulatory compliances are one of the modes to attain the same via revising, checking, looking and correcting the work numerous times by guaranteeing efficiency and reduces the risk. It, in turn, results in increased reputation. Challenges of Regulatory Compliance: Staying aware of the regulatory changes Organizations that do not comprehend or keep track of revisions ignore compliance work, which has a detrimental impact on the business's consistency and efficiency. To be informed of ongoing regulations, changes in compliance rules and regulations necessitate modifications in the compliance plan and business strategy. As a result, it can occasionally lead to overburdening, which leads to noncompliance. Transparency and Accountability Transparency and accountability are the most important tasks for every organisation to maintain in order to gain confidence and accountability. As a result, various frameworks of connections are created within a firm to maintain consistency and govern proper setups, procedures, and controls. Educational Barriers 188 CU IDOL SELF LEARNING MATERIAL (SLM)

In compliance work, it is critical to hire adequately trained and knowledgeable employees; nevertheless, in many cases, a lack of training and experience leads to a lack of understanding of the working style, which leads to non-compliance. Data protection and cyberattacks Cyberattacks disrupt the entire framework of work, resulting in the complete breakdown of information and severe damage to the organisation. Fraud, monetary misrepresentation, and data loss, among other things, are major concerns for businesses. 9.2.2: The Monopolies and Restrictive Trade Practices (MRTP) Act in 1969 The Government adopted the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969 and accordingly the MRTP Commission was set up in 1970. The main purpose of the Commission was to inspect the application of such actions and advise remedial. Objectives of Monopolistic and Restrictive Trade Practices (MRTP) Act, 1969: Prevention of concentration of economic power to the common detriment. Control of monopolies. Prohibition of Monopolistic Trade Practices (MTP). Prohibition of Restrictive Trade Practices (RTP). Prohibition of Unfair Trade Practices (UTP). Regulatory Provisions Salient features of this Act are as follows: Under this Act, the firms with assets exceeding Rs. 20 crores need to obtain prior approval from Central Government for any kind of structural modifications like takeover, merger or expansion. Such firms need to obtain the approval of the Government under following conditions: (a) Substantial expansion of production capacity, (b) Diversification of existing activities, (c) Establishment of inter-connected undertakings, (d) Amalgamation or merger with any other undertakings; and (e) Takeover of the entire or part of other undertakings. Monopolistic Trade Practices (MTPs) are the practices adopted by the Large Companies wherein they take advantage of their reputation and money to influence the competition in the market or creates difficulties for small businesses to operate effectively. Chapter IV of this Act includes such kind of MTPs. 189 CU IDOL SELF LEARNING MATERIAL (SLM)

Restrictive Trade Practices (RTPs) are the practices followed by some of the corporates to obstruct the flow of capital or profits in the market or control the manufacturing of some products or limits it delivery. One of the objectives of MRTP Act is to protect the market from such restrictive trade practices. Unfair Trade Practices are the activities followed by some of the organization in misrepresenting, misleading, deceiving or twist the facts related to goods and services. Under Section 36 (A) such practices are prohibited. Till the end of March 1990, 1,854 undertakings were registered under the MRTP Act. Out of these, 1,787 undertakings were belonging to large industrial houses and the remaining 67 undertakings were dominant undertakings. Again, the Industrial Policy, 1991 had completely scrapped the assets limit for MRTP companies. 9.2.3 The Competition Act, 2002 The provisions of the MRTP Act are not sufficient to cope up the changes that are adopted in the new liberalized and global competitive scenario. Economic reforms of 1991 have shifted the industry focus on entering into global market and encourage healthy competition. A committee was appointed by the Government headed by SVS Raghavan to examine the whole issue. On May 22, 2000 the Raghavan Committee handed over their Report and proposed the adoption of a new competition law and scrapping away the MRTP Act. Competition Bill, 2001 was introduced in Parliament and passed in December 2002. The Act is called Competition Act, 2002. The Act was amended in September 2007. Objectives to Be Achieved I. To check anti-competitive practices II. To prohibit abuse of dominance III. Regulation of combinations. IV. To provide for the establishment of CCI, a quasi-judicial body to perform below mentioned duties: Prevent practices having adverse impact on competition Promote and sustain competition in the market Protect consumer interests at large Ensure freedom of trade carried on by other participants in the market Look into matters connected therewith or incidental thereto. Competition Commission of India: 190 CU IDOL SELF LEARNING MATERIAL (SLM)

The Act provides for the establishment of the Competition Commission of India (CCI). According to Section 18, it shall be the duty of the Commission to eliminate practices having adverse effects on competition, to promote and sustain competition in markets in India, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in market in India. Some protagonists of private sector have argued that that there is no requirement of CCI because all that is required is removal of licensing requirements and knocking down of entry barriers. However, the fact of the matter is that the market does not always guarantee competition. There will always be unfair and restrictive business practices. Besides, mergers and acquisitions would need to be scrutinized. It is on account of this reason that most countries have competition or free trade commissions. This explains the rationale of CCI in India. Overall Scheme: Competition Act, 2002 is designed for the following purposes: (1) Prohibition of anticompetitive agreements, (2) Prohibition of abuse of dominant position, and (3) Regulation of combinations. Let us understand in detail: Anti-Competitive Agreements In simple words, Anti-Competitive agreements are agreements that are made by two or more companies competing in the same market to fix prices or reduce stocks etc, so as to manipulate the market favourably for them. This has the effect of the companies reducing the competition in the market which adversely affects the end consumer. The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where it states, “No enterprise or association of enterprises or individuals or association of individuals may enter into an agreement regarding production, supply, distribution, storage, acquisition or control of goods or provision of services which may adversely affect the competition in the Indian market”. Such agreements are termed as AAEC agreement, which means the Appreciable Adverse Effect on agreements. The Act expressly states that such an agreement shall be void. An AAEC agreement is classified as any agreements that result in: Directly affects purchase or sale prices. Indirectly affects purchase or sale prices. Limits production. Limits supply. Limits technical development. 191 CU IDOL SELF LEARNING MATERIAL (SLM)

Limits service provision in the market. Leads to the rigging of bids. Leads to collusive bidding. Abuse of Dominant Position The abuse of the dominant position is prohibited by Section 4 of the Competition Act. Abuse of dominant position is defined under the second part of the same Section. According to the act dominant position means any enterprise that enjoys the position and power in the Indian market which enables it to: Operate independently of competitive forces in the relevant market. Affect its competition, consumer or the relevant market in its favor. For example, predatory pricing is a practice that is seen to be an abuse of the dominant position. In simple words when a dominant enterprise engages in AAEC acts, it is considered an abuse of the dominant position. The difference between the definition of anti-competitive agreements and abuse of dominant position is that in anti-competitive agreements there have to be two or more parties and it can be between any enterprise or firm and doesn’t require there to be a dominant firm involved. In abuse of dominant position, it can be done by a single party but the party has to be in a dominant position in the relevant market. Remedies Remedies against AAEC agreements and abuse of dominant position are provided by the Competition Commission of India. Upon a review and enquiry into the alleged practices the Competition Commission may pass the following orders: Direct the discontinuance of such practices. Impose a penalty that is less than 10% or the turnover of the preceding three financial years; in the case of a cartel, the penalty shall be 10% or three times the turnover of every financial year and shall continue for the period of continuance of such practices. Direct the modification of such an agreement or abuse so as to curtail its adverse effect upon the competition of the market. Pass any order that it may so deem fit. Regulation of Combination The term combination has a broad definition under the Act, it includes: Any acquisition of shares, voting rights, control of assets, and 192 CU IDOL SELF LEARNING MATERIAL (SLM)

party to merger or amalgamation of enterprises. Any person/enterprise shall not enter into a combination that is likely to have an adverse effect on the competition and such a combination will be void. If any person/enterprise proposes to enter into a combination he shall intimate the Competition Commission of India within 30 days of: Approval of the proposal relating to mergers and amalgamation by the Board of Directors of the enterprises involved in the process. Execution of any agreement pertaining to acquiring control. Provisions of the Competition Act, 2002 As per the provisions of the Competition policy, the Government of India enacted a legislation called the Competition Act, 2002. The Act aimed at promoting competition through prohibition of anti-competitive practices, abuse of dominance by an enterprise and regulation of combinations such as mergers and acquisitions. The Act repealed the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 and thus dissolved the Monopolies and Restrictive Trade Practices Commission (MRTPC) which was set up to inquire into the provisions of the MRTP Act. Moreover, in the era of liberalization, privatization and globalization, it was felt that the existing MRTP Act, 1969 had become obsolete in certain respects and there is a need to shift the focus from curbing monopolies to promoting competition. The new competition law, the Competition Act, 2002 provides for a modern framework of competition. The main objectives of the Act are:- To provide for the establishment of a commission to prevent practices having adverse effect on competition To promote and sustain competition in markets in India To protect the interests of consumers To ensure freedom of trade carried on by the participants in the markets in India and for related matters. The Competition Act, 2002 has been amended by the Competition (Amendment) Act, 2007. In order to enforce the provisions of the Competition Act, an autonomous body called Competition Commission of India (CCI) was set up with regulatory and quasi-judicial powers. Certain Behaviors Prohibited by the Act Under this act following are restricted practice and these practices are stopped by this act. 1. Price fixing:- If two or more supplier fixes the same price for supply the goods then it will be restricted practice. 193 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Bid ragging: - If two or more supplier exchange sensitive information of bid, then it will also be restricted practice and against competition 3. Re-sale price fixation: - If a producer sells the goods to the distributors on the condition that he will not sell any other price which is not fixed by producer 4. Exclusive dealing: - This is also restricted practice. If a distributor purchases the goods on the condition that supplier will not supply the goods any other distributor. Above all activities promote monopoly so under competition act these are void and action of competition commission will not entertain by civil court. CCI, entrusted with eliminating prohibited practices, is a body corporate and independent entity possessing a common seal with the power to enter into contracts and to sue in its name. It is to consist of a chairperson, who is to be assisted by a minimum of two, and a maximum of ten, other members. Business Perspective In India, business operations demand a thorough understanding of the different rules and regulations, as well as their application. Market competition is a significant concern that must be carefully addressed. Businesses must understand that, while competition provides riches, flourishing and striving must be a constant effort. The many considerations that should be kept in mind by: Markets are prone to cartel formation, which increases the probability of monopoly development. It is critical to be aware that such relationships are prohibited under the Competition Act of 2002. When dealing with competitors, it's important to keep track of what's going on. Any meetings in which a subject is discussed that raises difficulties under the Competition Law shall be avoided. It is advisable to avoid discussions pertaining to price and the actual cost to the company. Appointment of an Ombudsman for advice on the Competition Law so as to prevent any legal issues may be done. Communication aspects although seem trivial may leave an impact when it comes to abuse of dominant position issues. Any statements made shall be weighed carefully. 194 CU IDOL SELF LEARNING MATERIAL (SLM)

9.3 EXIM POLICY/ FOREIGN TRADE POLICY: 9.3.1 Introduction and Objectives Exim Policy, also known as Foreign Trade Policy, is a set of broad framework and instructions issued by the DGFT (Directorate General of Foreign Trade) in regards to goods imports and exports in India. India's foreign trade is governed by the Indian government's Export Import Policy, or EXIM Policy, and controlled by the Foreign Trade Development and Regulation Act, 1992. In terms of EXIM Policy, the DGFT is the major governing authority. The Imports and Exports (Control) Act of 1947 has been replaced by the Foreign Trade Act. Indian EXIM policy encompasses a wide range of policy decisions made by the government in the area of foreign trade, including imports and exports from the country, as well as export promotion initiatives, strategies, and programmes. In the year 1962, the Government of India appointed a special EXIM policy Committee to review the government previous export import policies. The committee was later on approved by the Government of India. Mr. V.P Singh, then the commerce minister had announced the EXIM policy on the 12th April, 1985. Initially the EXIM Policy was introduced for the period of three years with main objective to boost the export business in India. Foreign Trade Policy helps in increasing the revenue of a nation by improving on the exports, which in turn help in improving the Balance of Payment. The policy lays the guidelines to help the trader’s trade efficiently and make the maximum. The policy laid down by the government is in the interest of the stakeholders with the sole motive to provide them with an ideal platform for trade. Objectives The main objective of the Foreign Trade Policy is 1. To strengthen the base for, export production for promoting exports. 2. To create sound and favorable situation for export promotion through diversification. 3. To facilitate technological upgradation of domestic production which will make Indian goods globally competitive. 4. To reduce imports through import substitution and encouragement to indigenous production. 5. To simplify and streamline import export procedures. 6. To enable exporters to draw long term export plans and strategies. 7. To provide necessary institutional support for encouraging export initiatives by exporters / export oriented units. 195 CU IDOL SELF LEARNING MATERIAL (SLM)

8. To provide liberal import facilities to promote exports. 9. To offer different types of export incentives, concessions and facilities so as to encourage manufacturers and exporters to take more initiative in export promotion. Exports are made attractive / profitable through such export incentives. 10. To facilitate availability of necessary imported inputs for sustaining industrial growth. 11. To impart continuity and stability of foreign trade policy. 12. To establish the framework for globalization of India’s foreign trade. 13. To place special emphasis on exports to generate high foreign exchange. 14. To encourage the attainment of high and internationally accepted standards of quality and thereby enhance the image of India’s product abroad. 15. To act as an effective instrument of economic growth by giving thrust to employment generation, especially in semi-urban and rural areas. 9.3.2 Exim Policy/ Foreign Trade Policy, 2009-14: The year 2009 needs no introduction of its own as we know that the world was going through the period of global recession due to the sub-prime crisis and the back-to-backdowngrading of the US credit rating by the largest credit rating firm S & P. Countries across the world had been affected in varying degrees and all major economic indicators of industrial production – trade, capital flows, unemployment, per capita investment and consumption have taken a hit. The WTO estimated the global trade to decline by 9% in volume terms and the IMF estimated a decline of over 11%. It was also estimated by World Bank that 53 million more people would fall into the poverty net that year and over a billion people would go chronically hungry. India was not affected to the same extent as compared to the other economies of the world, yet the exports suffered a decline, due to a contraction in demand in the traditional markets of India’s exports. In the grim economic climate it was indeed a daunting task to formulate the foreign trade policy due to declining demand in the developed world. In order to maintain fruitful trade practices in the coming five years it is needed that motion strategies and policy measures are set in such a manner that it will catalyse the growth of exports and then the Foreign Trade Policy, 2009-14 came into the picture. Aim in General: The policy aims at developing export potential, improving export performance, boosting foreign trade and earning valuable foreign exchange. FTP assumes great significance this year as India’s exports have been battered by the global recession. A fall in exports has led to the closure of several small- and medium-scale export-oriented units, resulting in large-scale unemployment. Targets: Export Target: $ 200 Billion for 2010-11 196 CU IDOL SELF LEARNING MATERIAL (SLM)

Export Growth Target: 15 % for next two year and 25 % thereafter. The short term objective of the policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. The policy is empowered with objective of achieving an annual export growth of 15% with an annual export target of US$ 200 billion by March 2011. In the remaining three years of this Foreign Trade Policy i.e. upto 2014, the country should be able to come back on the high export growth path of around 25% per annum. By 2014, policy expects to double India’s exports of goods and services. The long term objective of policy for the Government is to double India’s share in global trade by 2020. In order to meet these objectives, the Government would follow a mix of policy measures including fiscal incentives, institutional changes, procedural rationalization, and enhanced market access across the world and diversification of export markets. Improvement in infrastructure related to exports; bringing down transaction costs, and providing full refund of all indirect taxes and levies, would be the three pillars, which will support us to achieve this target. Endeavour will be made to see that the Goods and Services Tax rebates all indirect taxes and levies on exports. Main Features of Ftp 2009-14: The new Foreign Trade Policy (FTP) takes an integrated view of the overall development of India’s foreign trade and goes beyond the traditional focus on pure exports. This would be clear from the following statement in the policy document, “Trade is not an end in itself, but a means to economic growth and rational development. The primary purpose is not the mere earning of foreign exchange, but the stimulation of greater economic activity.” The government unveiled a mix of procedural measures and fiscal incentives to trade with non- traditional destinations to bolster export order books drying out in two top regional markets-the US and the European Union. New emerging markets have been given a special focus to enable exports to be competitive. Incentive schemes are being rationalized to identify leading products which would catalyze the next phase of export growth. The government plans to introduce a nation-wide uniform GST from next year that would subsume the complex web of indirect taxes imposed by state governments. The introduction of zero duty capital goods scheme will add to expansion and modernization of production base at a time when investment is drying up in export industries. Other important features of the policy include: (i) $ 200 billion or Rs 98,000 crore is the export target for 2010-11. (ii) 100% growth of India’s export of goods and services by 2014. (iii) 15% growth target for next two years; 25% thereafter. 197 CU IDOL SELF LEARNING MATERIAL (SLM)

(iv) 3.28% targeted India’s share of global trade by 2020 double from the current 1.64%. (v) Jaipur, Srinagar Anantnag, Kanpur, Dewas and Ambur identified as towns of export excellence. (vi) 26 new markets added to focus market scheme. (vii) Provision for state-run banks to provide dollar credits. (viii) Duty entitlement passbook scheme extended till Dec. 2010. (ix) Tax sops for export-oriented and software export units extended till March 2011. (x) New directorate of trade remedy measures to be set up. (xi) Plan for diamond bourses. (xii) New facility to allow import of cut and polished diamonds for grading and certification. (xiii) Export units are allowed to sell 90% of goods in domestic market. (xiv) Export oriented instant tea companies can sell up to 50% produce in domestic market. (xv) Single-window scheme for farm exports. (xvi) Number of duty-free samples for exporters rose to 50 pieces. (xvii) Value limits of personal carriage increased to $5 million (Rs 24.5 core) for participation in overseas exhibitions. Highlights of EXIM Policy (2015-2020): The Foreign Trade Policy (FTP) 2015-20 was unveiled by Ms Nirmala Sitharaman, Minister of State for Commerce & Industry (Independent Charge), Government of India on April 1, 2015. Following are the highlights of the FTP: FTP 2015-20 provides a framework for increasing exports of goods and services as well as generation of employment and increasing value addition in the country, in line with the ‘Make in India’ programme. The Policy aims to enable India to respond to the challenges of the external environment, keeping in step with a rapidly evolving international trading architecture and make trade a major contributor to the country’s economic growth and development. FTP 2015-20 introduces two new schemes, namely ‘Merchandise Exports from India Scheme (MEIS)’ for export of specified goods to specified markets and ‘Services Exports from India Scheme (SEIS)’ for increasing exports of notified services. Duty credit scrips issued under MEIS and SEIS and the goods imported against these scrips are fully transferable. 198 CU IDOL SELF LEARNING MATERIAL (SLM)

For grant of rewards under MEIS, the countries have been categorized into 3 Groups, whereas the rates of rewards under MEIS range from 2 per cent to 5 per cent. Under SEIS the selected Services would be rewarded at the rates of 3 per cent and 5 per cent. Measures have been adopted to nudge procurement of capital goods from indigenous manufacturers under the EPCG scheme by reducing specific export obligation to 75per cent of the normal export obligation. Measures have been taken to give a boost to exports of defence and hi-tech items. E-Commerce exports of handloom products, books/periodicals, leather footwear, toys and customised fashion garments through courier or foreign post office would also be able to get benefit of MEIS (for values up to INR 25,000). Manufacturers, who are also status holders, will now be able to self-certify their manufactured goods in phases, as originating from India with a view to qualifying for preferential treatment under various forms of bilateral and regional trade agreements. This ‘Approved Exporter System’ will help manufacturer exporters considerably in getting fast access to international markets. A number of steps have been taken for encouraging manufacturing and exports under 100 per cent EOU/EHTP/STPI/BTP Schemes. The steps include a fast track clearance facility for these units, permitting them to share infrastructure facilities, permitting inter unit transfer of goods and services, permitting them to set up warehouses near the port of export and to use duty free equipment for training purposes. 108 MSME clusters have been identified for focused interventions to boost exports. Accordingly, ‘Niryat Bandhu Scheme’ has been galvanised and repositioned to achieve the objectives of ‘Skill India’. Trade facilitation and enhancing the ease of doing business are the other major focus areas in this new FTP. One of the major objectives of new FTP is to move towards paperless working in 24x7 environment. Other Features: Merchandise Exports from India Scheme (MEIS):- Earlier there were five different schemes for rewarding merchandise exports. To make it simple, all five schemes have been merged into a single scheme, MEIS. Rewards for export of notified goods to notified markets under MEIS shall be payable as percentage of realized FOB value. In order to avail this benefit, all exporters are advised to declare on all shipping bills that “We intent to claim rewards under Merchandise Exports from India Scheme (MEIS)” Service Exports from India Scheme (SEIS):- Served from India Scheme (SFIS) has been replaced with Service from India Scheme (SEIS). SEIS shall apply to ‘Service Providers located in India’ instead of ‘Indian Service Providers’. Thus, SEIS provides for rewards to all service providers of notified services from India, regardless of the constitution or profile of 199 CU IDOL SELF LEARNING MATERIAL (SLM)

the service provider. The rate of reward under SEIS would be based on net foreign exchange earned. Scrips issued under Export from India Scheme can be used for the payment of the Custom duty, Excise duty and service tax. 9.3.3 EXIM BANK OF INDIA Effective January 1, 1982, the Exim Bank was established to take responsibility of the business of global finance branch of the IDBI (Industrial Development Bank of India) and to deliver monetary support to importers and exporters and to serve as a chief financial foundation for collaborating the functioning of other organizations involved in the financing of imports and exports of products and services. The sanctioned wealth of Exim Bank is Rs. 200 crores and the paid-up asset is Rs. 100 crores completely endorsed by the Central Government. Organization and Management The Export-Import Bank is administered by a Board comprising of a Chairman, the Managing Director along with 17 Directors signifying distinct areas. They are the Commerce Secretary, Secretary to Banking, Secretary to the Department of Industrial Board, Finance Secretary, Secretary IDBI, Secretary RBI, Secretary ECGC, 3 directors depicting additional scheduled commercial banks, 4 Directors elected from the export society, and three additional symbolizing departments and ministries. Functions of Exim Bank The Exim bank performs the following crucial responsibilities: 1. The bank offers immediate monetary help to exporters of the plant, equipment, and corresponding services by means of medium-term credit. 2. To guarantee the issue of stocks, bonds, shares, and debentures of any organization involved in exports. 3. The bank put forward rediscount of export bills for a duration no longer than 90 days against short period usage export invoices depreciated by commercial banks. 4. It also provides foreign buyers a credit to overseas importers for import of Indian industrial products and concerning services. 5. To create and fund export-oriented enterprises. 6. To accumulate and assemble the market and credit particulars about foreign trade. 9.4 SUMMARY To achieve complete and effective regulatory compliance, it is critical to have adequate coordination among the employees working together in a business. As a result, becoming 200 CU IDOL SELF LEARNING MATERIAL (SLM)