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

care systems and ramping up the upcoming vaccination process, while pharma companies step up new production lines for affordable vaccines. Technology and telecom: These two industries have played a very important role in responding to the challenges posed by the pandemic. Sectors such as e-commerce, fintech, food-tech, health-tech, and ed-tech have helped the country to deal with lockdowns, movement restrictions, and social distancing in ways that were unimaginable a few years back. From enabling virtual communication and manufacturing ventilators for use in hospitals and homes to bolstering cybersecurity for industries that are going digital, innovations by technology and broadband services companies have helped meet rapidly changing consumer and industry demand. Outlook: Rising demand for digitization, automation and artificial intelligence, virtual communication, and reliable internet services will likely result in the robust growth of these industries. 2021 and beyond: Looking through the macroeconomic forecasting lens As India continues to grapple with the pandemic stepping into the new year, the question is where the economy is on the path to recovery. Recent high-frequency data suggests India may have turned toward the road to recovery. As discussed in our earlier article, we expect double-digit growth in FY2022 in the light of our best-case scenario.8 Lower infection and fatality rates, and the possibility of widespread vaccine deployment are expected to improve consumer and business confidence. Pent-up demand for more elastic discretionary goods, especially among the top 10 income percentile of the population that could not spend because of mobility restrictions, may spur private investment that has been contracting for five consecutive quarters now. The lagged buoyancy impact of government spending and reforms and liquidity measures by the Reserve Bank of India (RBI) may further boost the economic recovery. Nevertheless, the path to recovery may have a few challenges. High inflation, job losses, poor wage growth, and low asset values may impact the consumer’s purchasing power, especially among the low- and middle-income class. The RBI may not be able to reduce policy rates in the near term amid inflation concerns. As a result, MSMEs and the informal sector will likely continue to face high borrowing interest rates on working capital. Low demand and credit availability will likely impact investment spending. Despite a quicker rebound next year, the output levels are likely to remain much below the pre-pandemic GDP levels and the potential output levels during our entire forecast period, which is until FY2023. In short, there is likely to be pain in the short term but the outlook in the medium term may improve significantly with a reduced number of infections. 101 CU IDOL SELF LEARNING MATERIAL (SLM)

All eyes are on union budget 2021–22: What to expect While the availability of vaccines, reduced infections, and increased mobility will be key to economic and industrial revival, it is becoming obvious that different industries will likely see different rebound paths until the pandemic is over. The role of government policy measures and their effectiveness will, therefore, be important in determining the strength and pace of the revival. We expect the budget to be socially inclusive and growth-augmenting and the primary focus will likely be to: Boost health and social care and defense resources: This pandemic is unlikely to be the last one India may witness and the government has to ensure better preparedness and resilience in times of emergencies and beyond. The government will likely increase budget allocation for building resilient health systems and infrastructure from the current 3.5% of GDP to at least 5% this year and target to reach the world average of 10% over the next 10 years.10 Besides, the government may also allocate spending for procurements and upgrading of defense resources to support operational capacities amid geopolitical tensions. Provide targeted support to select industries: A few industries and sectors have suffered more than the others with delayed prospects for recovery, such as hospitality, and can play a significant role in creating direct and indirect jobs, such as infrastructure. The budget may announce policies and schemes targeted toward these industries and allocate more resources to support their revival. For instance, some of the measures could be to provide support to enterprises, create jobs, and boost wages for industries such as hospitality and fashion; offer targeted credit line support to stressed MSMEs and industries supporting MSMEs, such as automotive; and spending on the health and economic well-being of workers in stressed industries. Improve the ease of doing business environment: The government will have to focus on improving the business ecosystems and attracting foreign investment to realize its vision of self-reliance. To ensure a consistent reform framework for policy certainty over the long term, the government can consider:  Rationalizing the tax structure, with changes to the GST rate structure and easier compliances  Allocating resources for investment in transport and logistics planning with the objectives of enhancing manufacturing and trade competitiveness  Investing in economic corridors after a careful assessment of comparative advantages and identification of sectors and value chains  Allocating resources to ensure social and health protection to workers, inclusion, and fair value to landowners while implementing labour and land laws 102 CU IDOL SELF LEARNING MATERIAL (SLM)

 Focusing on skill development as India steps into a new digitized and technologically advanced regime that will generate less repetitive and more intellectual jobs requiring cognitive skills. Support domestic demand and create jobs: The government will likely allocate higher resources on infrastructure spending and agriculture schemes to support jobs and income for low- and semi-skilled workers and create demand for goods produced by MSMEs. The high multiplier effects of these sectors will boost domestic demand sustainably. Spending is also likely to increase toward infrastructure-focused skill development opportunities and for teachers and medical staff with a focus on upskilling and reskilling talent. Tax cuts (for both personal and corporate income) are likely to be introduced albeit for those that have been most hit by the pandemic. Generate resources to fund government expenses: The government will have to find ways to fund the allocated budget and manage fiscal balance. External borrowing, strategic disinvestments, and public-private participation could be a few options that the government may explore. The good news is the government has already initiated several of these measures.11 What will be important is to keep the foot on the pedal and prioritize spending on productive projects while de-risking them. The budget allocation should build on forward-looking initiatives by focusing on digitization and identifying areas and strengths for indigenous production, and ensuring that no one is left behind. [source:https://www2.deloitte.com/u s/en/insights/economy/a sia -pacific/india-economic-outlook.html by Dr. Rumki Majumdar] 4.7 SUMMARY  Globalization has changed the perspective of business and redefine the dimension of economy. Countries were focussed on self-development earlier and presently countries are working on building global image in economic activities, environment protection initiatives, extending help in difficult situation.  International business has digitized the World Economy and brought the World closer. The growth opportunities have increased and it is important way of earning the foreign exchange for any country and accelerating economic development. There are various global trends that has changed the perspective of Global busines, viz. increasing privatization, technological revolution, international arbitration, regional and economic bloc and so on.  Foreign capital, MNCs and globalization are closely linked. There are different factors that creates the necessity of foreign capital like development of necessary infrastructure, to bridge the foreign exchange gap, to improve the balance of payment, etc. Foreign capital consists of two main forms: (i) private foreign investment and (ii) 103 CU IDOL SELF LEARNING MATERIAL (SLM)

foreign aid. Private foreign investment can be either (a) direct foreign investment, or (b) indirect foreign investment. Foreign aid consists of loans and grants. Even other forms of foreign investment are popular nowadays like ADR, GDR and FCCB. Several significant measures were announced by the Government since 1991 to attract the inflow of foreign capital. In 2004, the Government has constituted the Investment Commission, which is to interact with industry groups/houses in India and large companies abroad with a view to promote investments in the country.  “Foreign collaboration includes ongoing business activities of sharing information related to financing, technology, engineering, management consultancy, logistics, marketing, etc., which are generally, offered by a non-resident (foreign) entity to a resident (domestic or native) entity in exchange of cheap skilled and semi-skilled labour, inexpensive high-quality raw-materials, low cost hi-tech infrastructure facilities, strategic (favourable) geographic location, and so on, with an approval (permission) from a governmental authority like the ministry of finance of a resident country.” Different forms of foreign collaboration offers different advantage and thus helps corporates to develop competitive edge in their Industry. New economic trends have proved that World is all set to design the path of development for human race and India is an emerging economy. 4.8 KEYWORDS  Foreign Direct Investment (FDI): FDI is an investment made by a company or individual who us an entity in one country, in the form of controlling ownership in business interests in another country  Foreign Portfolio Investment (FPI): Foreign Portfolio Investment (FPI) is an investment by foreign entities and non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.  Foreign institutional investor: A foreign institutional investor (FII) is an investor or investment fund investing in a country outside of the one in which it is registered or headquartered.  Global Depository Receipts: A Global Depositary Receipt (GDR) is a financial instrument used by private markets to raise capital denominated in either US dollars or euros.  American Depository Receipts: ADRs represent ownership in the shares of a non- US company and trades in US financial markets. 4.9 LEARNING ACTIVITY 1. Why Global Business is dominated by Developed Countries? _________________________________________________________________________ 104 CU IDOL SELF LEARNING MATERIAL (SLM)

_________________________________________________________________________ 2. Compare FDI and FII _________________________________________________________________________ _________________________________________________________________________ 4.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Explain the term Globalization and Global Business. 2. What are the important types of Foreign Capital? 3. State the criteria for the issuing of FCCB. 4. Discuss the types of Foreign Collaboration 5. What is the important role of Investment Commission? Long Questions 1. Discuss the advantage of Indian Corporation to opt for Globalization 2. Highlight the Common Global Trends 3. What are the other forms of Foreign Capital and explain their contribution in the economic development? 4. Highlight the important Economic Trends in India 5. Why it is beneficial for Indian companies to raise the money through ADR and GDR? Provide the comparison of ADR and GDR. B. Multiple Choice Questions: 1. Foreign investment in Indian private sector banks has been raised to ______ percent a. 74 b. 85 c. 91 d. 63 2. ___________ is such an alliance of domestic (native) and abroad (non-native) entities like individuals, firms, companies, organizations, governments, etc., that come together with an intention to finalize a contract on some tasks or jobs or projects a. FDI b. Foreign Capital 105 CU IDOL SELF LEARNING MATERIAL (SLM)

c. Foreign Collaboration d. FII 3. __________________is the agreement between the foreign and the domestic company where the company agrees to provide managerial skills and expertise to the domestic company. a. Financial collaboration b. Technical collaboration c. Marketing collaboration d. Consultancy collaboration 4. Whatrepresents a given number of underlying equity shares? a. GDR b. ADR c. Debenture d. Option 5. ____________means giving permission to the new party of the foreign country in order to produce and sell goods under your trademarks, patents or copyrights in exchange of some fee is also the way to enter into the international business. a. Licensing b. Franchising c. Foreign Investment d. Dumping Answers 1- a; 2 - c; 3 -d; 4 – a; 5 - b 4.11 SUGGESTED READINGS Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House], 106 CU IDOL SELF LEARNING MATERIAL (SLM)

 T R Jain, Mukesh Trehan and Ranju Trehan, Indian Business Environment– VK Enterprise  C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment, Financial Times/ Prentice Hall. Reference Books:  Engineering Economic-Dr. Rajan Mishra by University Science Press  The Gazette of India, Ministry of Law and Justice, New Delhi. No.311, June’16, 2006.  Morrison J, The International Business Environment, Palgrave  MISHRA AND PURI, Indian Economy, Himalaya Publishing House, New Delhi  Business Environment Raj Aggarwal Excel Books, Delhi  Strategic Planning for Corporate Ramaswamy V McMillan, New Delhi  Dahl Modern political analysis. Englewood Cliffs, N.J: Prentice-Hall. Open Text Source:  Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  International Journal of Scientific and Research Publications, Volume 2, Issue 12, December 2012  https://courses.lumenlearning.com/ 107 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 5: POLICIES AND BUSINESS LAWS Structure 5.0 Learning Objective 5.1 Introduction 5.2 Political Environment 5.2.1 Concept 5.2.2 Factors in Political Environment 5.2.3 The Importance of Observing the Political Environment 5.2.4 Political Risk 5.3 Impact of Political Environment on Business 5.4 Constitutional Provisions Affecting Business 5.4.1 Constitution of India 5.4.2 Economic Importance Highlighted by The Preamble 5.5 Constitutional Provisions Regarding Trade, Commerce and Intercourse Within the Territory of India 5.6 Summary 5.7 Keywords 5.8 Learning Activity 5.9 Unit End Questions 5.10 Suggested Readings 5.0 LEARNING OBJECTIVE After studying this unit, Students will be able to:  Explain the concept of Political Environment  Describe the factors of Political Environment  Outline the Changing role of government in business environment 5.1 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. 108 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. 5.2 POLITICAL ENVIRONMENT 5.2.1 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. 109 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. 5.2.2 Factors in Political Environment The major factors in political environment are: 110 CU IDOL SELF LEARNING MATERIAL (SLM)

Taxation Policy Factors of Privatization Political Deregulation Environment International Trade Regulation Fig 5.1: Factors in Political Environment 1. 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 111 CU IDOL SELF LEARNING MATERIAL (SLM)

Fig: 5.2: 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. 2. 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 3. 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. 4. 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 112 CU IDOL SELF LEARNING MATERIAL (SLM)

improving industry competitiveness and innovation. Country gain global recognition in the international markets and during border unrest or war situations foreign trade buddies plays 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. 5.2.3 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. 5.2.4 Political Risk Forecasting Political Risk 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 113 CU IDOL SELF LEARNING MATERIAL (SLM)

 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 5.3 IMPACT OF POLITICAL ENVIRONMENT ON BUSINESS 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. 114 CU IDOL SELF LEARNING MATERIAL (SLM)

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 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. 5.4 CONSTITUTIONAL PROVISIONS AFFECTING BUSINESS 5.4.1 Constitution of India Constitution means a set of fundamental principles, basic rules and established precedents (means standards/instances). It identifies, defines and regulates various aspects of the State and the structure, powers and functions of the major institutions under the three organs of the Government – the executive, the legislature and the judiciary. It also provides for rights and freedoms of citizens and spells out the relationships between individual citizen and the State and government. It is the supreme and ultimate authority. Any decision or action which is not in accordance with it will be unconstitutional and unlawful. A Constitution also lays down limits on the power of the government to avoid abuse of authority. Moreover, it is not a static but a living document, because it needs to be amended as and when required to keep it updated. Its flexibility enables it to change according to changing aspirations of the people, the needs of the time and the changes taking place in society. 115 CU IDOL SELF LEARNING MATERIAL (SLM)

Values and the Salient Features of the Constitution The discussion on the Preamble embodying constitutional values clearly demonstrates that these are important for the successful functioning of Indian democracy. Your understanding of these values will be further reinforced, when you will find in the following discussion that constitutional values permeate all the salient features of Indian Constitution. The main features of the Constitution as shown in the illustration are as follows: 1. Written Constitution: As has been stated earlier, the Constitution of India is the longest written constitution. It contains a Preamble, 395 Articles in 22 Parts, 12 Schedules and 5 Appendices. It is a document of fundamental laws that define the nature of the political system and the structure and functioning of organs of the government. It expresses the vision of India as a democratic nation. It also identifies the fundamental rights and fundamental duties of citizens. While doing so, it also reflects core constitutional values. 2. A Unique Blend of Rigidity and Flexibility: In our day-to-day life, we find that it is not easy to bring about changes in a written document. As regards Constitutions, generally written constitutions are rigid. It is not easy to bring about changes in them frequently. The Constitution lays down special procedure for constitutional amendments. In the unwritten constitution like the British Constitution amendments are made through ordinary law-making procedure. The British Constitution is a flexible constitution. In the written constitution like the US Constitution, it is very difficult to make amendments. The US Constitution, therefore, is a rigid constitution. However, the Indian Constitution is neither as flexible as the British Constitution nor as rigid as the US Constitution. It reflects the value of continuity and change. There are three ways of amending the Constitution of India. Some of its provisions can be amended by the simple majority in the Parliament, and some by special majority, while some amendments require special majority in the parliament and approval of States as well. 3. Fundamental Rights and Duties: You must be familiar with the term fundamental rights. We quite often find it in newspapers or while watching television. The Constitution of India includes these rights in a separate Chapter which has often been referred to as the ‘conscience’ of the Constitution. Fundamental Rights protect citizens against the arbitrary and absolute exercise of power by the State. The Constitution guarantees the rights to individuals against the State as well as against other individuals. The Constitution also guarantees the rights of minorities against the majority. Besides these rights, the Constitution has provisions identifying fundamental duties, though these are not enforceable as the fundamental rights are. These duties reflect some of the basic values embodied in the Constitution. 116 CU IDOL SELF LEARNING MATERIAL (SLM)

4. Directive Principles of State Policy: In addition to Fundamental Rights, the Constitution also has a section called Directive Principles of State Policy. It is a unique feature of the Constitution. It is aimed at ensuring greater social and economic reforms and serving as a guide to the State to institute laws and policies that help reduce the poverty of the masses and eliminate social discrimination. In fact, as you will study in the lesson on “India-A Welfare State”, these provisions are directed towards establishment of a welfare state. 5. Integrated Judicial System: Unlike the judicial systems of federal countries like the United States of America, the Indian Constitution has established an integrated judicial system. Although the Supreme Court is at the national level, High Courts at the state level and Subordinate Courts at the district and lower level, there is a single hierarchy of Courts. At the top of the hierarchy is the Supreme Court. This unified judicial system is aimed at promoting and ensuring justice to all the citizens in uniform manner. Moreover, the constitutional provisions ensure the independence of Indian judiciary which is free from the influence of the executive and the legislature. 6. Single Citizenship: Indian Constitution has provision for single citizenship. Do you know what does it mean? It means that every Indian is a citizen of India, irrespective of the place of his/her residence or birth in the country. This is unlike the United States of America where there is the system of double citizenship. A person is a citizen of a State where he/she lives as well as he/she is a citizen of U.S.A. This provision in the Indian Constitution definitely reinforces the values of equality, unity and integrity. 7. Universal Adult Franchise: The values of equality and justice are reflected in yet another salient feature of the Constitution. Every Indian after attaining certain age (at present 18 years) has a right to vote. No discrimination can be made on the basis of religion, race, caste, sex, descent, and place of birth or residence. This right is known as universal adult franchise. 8. Federal System and Parliamentary Form of Government: Another salient feature of the Indian Constitution is that it provides for a federal system of state and parliamentary form of government. We shall discuss these below in detail. But it is necessary to note here that the federal system reflects the constitutional value of unity and integrity of the nation, and more importantly the value of decentralization of power. The parliamentary form of government reflects the values of responsibility and sovereignty vested in the people. The core principle of a parliamentary government is the responsibility of the executive to the legislature consisting of the representatives of the people. 117 CU IDOL SELF LEARNING MATERIAL (SLM)

5.4.2 Economic Importance Highlighted by The Preamble The constitutional values are reflected in the entire Constitution of India, but its Preamble embodies ‘the fundamental values and the philosophy on which the Constitution is based’. The Preamble to any Constitution is a brief introductory statement that conveys the guiding principles of the document. The Preamble to the Indian Constitution also does so. The values expressed in the Preamble are expressed as objectives of the Constitution. These are: sovereignty, socialism, secularism, democracy, republican character of Indian State, justice, liberty, equality, fraternity, human dignity and the unity and integrity of the Nation. Let us discuss the economic importance of the constitutional values: A. Fundamental Rights and Business: These rights are fundamental because of two reasons. First, these are mentioned in the Constitution which guarantees them and the second, these are justifiable, i.e. enforceable through courts. Being justifiable means that in case of violation, the individual can approach court for their protection if a government enacts a law that restricts any of these rights, it will be declared invalid by courts. Such rights are provided in Part III of the Indian Constitution. Right to Equality Right to equality is very important in a society like ours. The purpose of this right is to establish the rule of law where all the citizens should be treated equal before the law. It has five provisions (Articles 14-18) to provide for equality before law or for the protection of law to all the persons in India and also to prohibit discrimination on the grounds of religion, race, caste, sex or place of birth. (i) Equality before Law: The Constitution guarantees that all citizens will be equal before law. It means that everyone will be equally protected by the laws of the country. No person is above law. It means that if two persons commit the same crime, both of them will get the same punishment without any discrimination. (ii) No Discrimination on the basis of Religion, Race, Caste, Sex or Place of Birth: The State cannot discriminate against a citizen on the basis of religion, race, caste, sex or place of birth, as this is necessary to bring about social equality. Every citizen of India has equal access to shops, restaurants, and places of public entertainment or in the use of wells, tanks or roads without any discrimination. However, the State can make special provisions or concessions for women and children. (iii) Equality of Opportunity to all Citizens in matter of Public Employment: The State cannot discriminate against anyone in the matter of public employment. All citizens can apply and become employees of the State. Merits and qualifications will be the basis of employment. However, there are some exceptions to this right. There is a special provision for the reservation of posts for citizens belonging to Scheduled Castes, Scheduled Tribes and Other 118 CU IDOL SELF LEARNING MATERIAL (SLM)

Backward Classes (OBCs) (iv)Abolition of Untouchability: Practicing untouchability in any form has been made a punishable offence under the law. This provision is an effort to uplift the social status of millions of Indians who had been looked down upon and kept at a distance because of either their caste or the nature of their profession. But, it is really very unfortunate that despite constitutional provisions, this social evil continues even today. Can you find any difference when you see a nurse cleaning a patient, a mother cleaning her child and a lady cleaning a toilet in the illustration? Why do people consider the cleaning of a toilet in a derogatory manner? (v) Abolition of Titles: All the British titles like Sir (Knighthood) or Rai Bahadur which were given to the British loyalists during the British rule, have been abolished because they created distinctions of artificial nature. However, the President of India can confer civil and military awards to those who have rendered meritorious service to the nation in different fields. The civil awards such as Bharat Ratna, Padma Vibhushan, Padma Bhushan and Padma Shri and the military awards like Veer Chakra, Paramveer Chakra, Ashok Chakra are conferred. Right to Freedom You will agree that the freedom is the most cherished desire of every living being. Human beings definitely want and need freedom. You also want to have freedom. The Constitution of India provides Right to Freedom to all its citizens. This Right is stipulated under Articles 19-22. The following are the four categories of Rights to Freedom: I. Six Freedoms: Article 19 of the Constitution provides for the following six freedoms: (a) Freedom of speech and expression (b) Freedom to assemble peacefully and without arms(c) Freedom to form Associations and Unions (d) Freedom to move freely throughout the territory of India (e) Freedom to reside and settle in any part of India (f) Freedom to practice any profession or to carry on any occupation, trade or business The purpose of providing these freedoms is to build and maintain an environment for proper functioning of democracy. However, the Constitution has authorized the State to impose certain reasonable restrictions on each of them: 1. Restrictions may be put on the Right to Freedom of speech and expression in the interests of the sovereignty, integrity and security of India, friendly relations with foreign States, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence. 2. Right to assemble peacefully and without arms may be restricted in the interests of the sovereignty and integrity of India or public order. 119 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Right to form associations or unions may have restrictions in the interests of the sovereignty and integrity of India, public order or morality. 4. Right to move freely throughout the territory of India and to reside and settle in any part of India may also be restricted in the interest of the general public or for the protection of the interests of any Scheduled Tribe. 5. Right to practice any profession or to carry on any occupation, trade or business may have restrictions in the interests of the general public. TheState is also permitted to lay down the professional or technical qualifications necessary for practicing any profession or carrying on any occupation, trade or business. II. Protection in respect of conviction for offences: Article 20 of the Constitution provides for the protection in respect of conviction for offences. No one can be convicted for an act that was not an offence at the time of its commission, and no one can be given punishment greater than what was provided in the law prevalent at the time of its commission. Also, no one can be prosecuted and punished for the same offence more than once and can be forced to give witness against his or her own self. III. Protection of life and personal liberty: As provided in Article 21, no one can be deprived of his or her life or personal liberty except according to the procedure established by law. IV. Protection against arrest and detention in certain cases: It is provided in Article 22 that whenever a person is arrested, he or she should be informed, as soon as it is possible, of the grounds for arrest and should be allowed to consult and to be defended by a legal practitioner of his or her choice. Moreover, the arrested person must be produced before the nearest magistrate within 24 hours of such an arrest excepting a person who has been arrested under preventive detention law. The case of the person arrested under preventive detention law has also to be referred to an Advisory Board within a period of three months of his or her arrest. Right against Exploitation Have you ever thought how many ways exploitations take place in our society? You might have seen a small child working in a tea shop or a poor and illiterate person being forced to work in the household of a rich person. Traditionally, the Indian society has been hierarchical that has encouraged exploitation in many forms. Which is why, the Constitution makes provisions against exploitation. The citizens have been guaranteed the right against exploitation through Articles 23 and 24 of the Constitution. These two provisions are: 1. Prohibition of traffic in human beings and forced labour: Traffic in human beings and beggar and other similar forms of forced labour are prohibited and any breach of this provision shall be an offence punishable in accordance with law. 120 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Prohibition of employment of children in factories, etc.: As the Constitution provides, no child below the age of fourteen years shall be employed to work in any factory or mine or engaged in any other hazardous employment. This right aims at eliminating one of the most serious problems, child labour, that India has been facing since ages. Children are assets of the society. It is their basic right to enjoy a happy childhood and get education. But as shown in the illustration and as you also may have observed, in spite of this constitutional provision, the problem of child labour is still continuing at many places. This malice can be eliminated by creating public opinion against it. Economic Importance: The economic importance of right against exploitation is (i) The government takes necessary steps to remove bonded labour. (ii) The Factories Act help to prevent exploitation of women and children’s employees. (iii) The owner of the factories are guided to make provision for safety and welfare of the workers and they compulsorily appoint a labour welfare officer, it in the factory 500 01 more workers are employed. Right to Freedom of Religion As you know, one of the objectives declared in the Preamble is “to secure to all its citizens liberty of belief, faith and worship”. Since India is a multi-religion country, where Hindus, Muslims, Sikhs, Christians and many other communities live together, the Constitution declares India as a ‘secular state’. It means that Indian State has no religion of its own. But it allows full freedom to all the citizens to have faith in any religion and to worship, the way they like. But this should not interfere with the religious beliefs and ways of worship of other fellow beings. This freedom is available to the foreigners as well. In respect of the Right to freedom the Constitution makes the following four provisions under Articles 25-28: 1. Freedom of conscience and free profession, practice and propagation of religion: All persons are equally entitled to freedom of conscience and the right to profess, practice and propagate religion freely. However, it does not mean that one can force another person to convert his/her religion by force or allurement. Also, certain inhuman, illegal and superstitious practices have been banned. Religious practices like sacrificing animals or human beings, for offering to gods and goddesses or to some supernatural forces are not- permissible. Similarly, the law does not permit a widow to get cremated live with her dead husband (voluntarily or forcibly) in the name of Sati Pratha. Forcing the widowed woman not to marry for a second time or to shave her head or to make her wear white clothes are some other social evils being practiced in the name of religion. Besides the above stated restrictions, the State also has the power to regulate any economic, financial, political or other secular activities related to religion. The State can also impose restrictions on this right on the grounds of public order, morality and health 121 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Freedom to manage religious affairs: Subject to public order, morality and health, every religious group or any section thereof shall have the right (a) to establish and maintain institutions for religious and charitable purposes; (b) to manage its own affairs in matters of religion; (c) to own and acquire movable and immovable property; and (d) to administer such property in accordance with law. 3. Freedom as to the payment of taxes for promotion of any particular religion: No person shall be compelled to pay any tax, the proceeds of which are specifically used in payment of expenses the incurred on the promotion or maintenance of any particular religion or religious sect. 4. Freedom as to attendance at religious instruction or religious worship in certain educational institutions: No religious instruction shall be provided in any educational institution wholly maintained out of State funds. However, it will not apply to an educational institution which is administered by the State but has been established under any trust which requires that religious instruction shall be imparted in such an institution. But no person attending such an institution shall be compelled to take part in any religious instruction that may be imparted there or attend any religious worship that may be conducted there. In case of a minor, the consent of his/her guardian is essential for attending such activities. Economic Importance: The Economic importance of the right to freedom of religion is (i) The government cannot spend tax money for the development of any religion. (ii) Nobody can be compelled to pay tax for the welfare of any specific religion. (iii) No one shall be forced to transfer of property or any agreement of a business nature in the name of a particular religion. Cultural and Educational Rights India is the largest democracy in the world having diversity of culture, scripts, languages and religions. As we know the democracy is a rule of the majority. But the minorities are also equally important for its successful working. Therefore, protection of language, culture and religion of the minorities becomes essential so that the minorities may not feel neglected or undermined under the impact of the majority rule. Since people take pride in their own culture and language, a special right known as Cultural and Educational Right has been included in the Chapter on Fundamental Rights. In Articles 29-30 two major provisions have been made: 1. Protection of interests of minorities: Any minority group having a distinct language, script or culture of its own shall have the right to conserve the same. No citizen shall be denied 122 CU IDOL SELF LEARNING MATERIAL (SLM)

admission into any educational institution maintained by the State or receiving aid out of State funds on grounds only of religion, race, caste, language or any of them. 2. Right of minorities to establish and administer educational institutions: All Minorities, whether based on religion or language, have the right to establish and administer educational institutions of their choice. In making any law providing for the compulsory acquisition of any property of educational institutions established and administered by a minority, the State shall ensure that the amount fixed by or determined under such law for the acquisition of such property would not restrict or abrogate the right guaranteed under that clause. The State shall not, in granting aid to educational institutions, discriminate against any educational institution on the ground that it is under the management of a minority, whether based on religion or language. Economic Importance: The economic importance of cultural and educational rights is: (i) The state does not discriminate to give economic assistance to the minority institutions. (ii) The aided institution cannot refuse admission to any of the citizens on the ground that he belongs to a particular caste, religion, language or region. Right to Constitutional Remedies: Since Fundamental Rights are justifiable, they are just like guarantees. They are enforceable, as every individual has the right to seek the help from courts, if they are violated. But in reality it is not so. Encroachment or violation of Fundamental Right in our day to day life is a matter of great concern. Which is why, our Constitution does not permit the legislature and the executive to curb these rights. It provides legal remedies for the protection of our Fundamental Rights. This is called the Right to Constitutional Remedies stipulated in Article 32. When any of our rights are violated, we can seek justice through courts. We can directly approach the Supreme Court that can issue directions, orders or writs for the enforcement of Fundamental Rights. Right to Education (RTE): The Right to Education is added by introducing a new Article 21A in the Chapter on Fundamental Rights in 2002 by the 86th Constitutional Amendment. It was a long standing demand so that all children in the age group of 6-14 years (and their parents) can claim compulsory and free education as a Fundamental Right. It is a major step forward in making the country free of illiteracy. But this addition remained meaningless, as it could not be enforced until 2009 when the Parliament passed the Right to Education Act, 2009. It is this Act which aims at ensuring that every child who is between 6-14 years of age and is out of the school in India, goes to school and receives quality education, that is his/her right. Directive Principles of State Policy 123 CU IDOL SELF LEARNING MATERIAL (SLM)

The Directive Principles of State Policy contained in Part IV; Articles 36-51 of the Indian constitution constitute the most interesting and enchanting part of the constitution. The Directive Principles may be said to contain the philosophy of the constitution. The idea of directives being included in the constitution was borrowed from the constitution of Ireland. As the very term “Directives” indicate, the Directive principles are broad directives given to the state in accordance with which the legislative and executive powers of the state are to be exercised. The Directive Principles may be classified into 3 broad categories— 1. Socialistic 2. Gandhian and 3. Liberal-intellectual. (1) Socialistic Directives Principal among this category of directives are (a) securing welfare of the people (Art. 38) (b) securing proper distribution of material resources of the community as to best sub serve the common-good, equal pay for equal work, protection of childhood and youth against exploitation. etc. (Art.39), (c) curing right to work, education etc. Art. (41), (d) securing just and humane conditions of work and maternity relief (Art. 42) etc. (2) Gandhian Directives Such directives are spread over several Arts. Principal among such directives are (a) to organize village panchayats (Art. 40), (b) to secure living wage, decent standard of life, and to promote cottage industries (Art.43), (c) to provide free and compulsory education to all children up to 14 years of age (Art. 45), (d) to promote economic and educational interests of the weaker sections of the people, particularly, the scheduled castes and scheduled tribes, (e) to enforce prohibition of intoxicating drinks and cow-slaughter and to organize agriculture and animal husbandry on scientific lines (Arts. 46-48). (3) Liberal intellectual directives Principal among such directives is (a) to secure uniform civil code throughout the country (Art.44), (b) to separate the judiciary from the executive (Art.50), (c) to protect monuments of historic and national importance and (d) to promote international peace and security. Economic Importance: The economic importance of Directive Principles of State Policy is: 124 CU IDOL SELF LEARNING MATERIAL (SLM)

(i) To provide adequate means of livelihood for all the citizens. (ii) To secure equal pay for work to both men and women. (iii) To protect the workers, especially children. (iv) To regulate the economic system of the country that it does not lead to concentration of wealth and means of production. (v) To make provision for securing right to work, to education and to public assistance in cases of unemployment, old age, sickness and similar other cases. (vi) To ensure a decent standard of living and facilities of leisure for all workers. The main objective of the above noted directive principles is to enable the individual to lead a good and satisfying life. All the provisions of directive principles of state policy guide the government policies towards the business and other economic and social activities. The government also so far enacted a number of acts and laws, policies and rules keeping in view the directive principles, which are directly related with the business operations. The various Acts like FERA, Factories Act. MRTP Act, Minimum Wages Act, Industrial (Development and Regulation) Act, Industrial policy, etc., are based on the Directive Principles of the Constitution. The government, through these acts and regulations, protects the interests of working men, women and children, prevents concentration of economic power, and promotes and protects the interest of small and cottage industries. 5.5 CONSTITUTIONAL PROVISIONS REGARDING TRADE, COMMERCE ANDINTERCOURSE WITHIN THE TERRITORY OF INDIA: Freedom of Trade, Commerce &Intercourse: Article 301: Freedom of trade, commerce and intercourse: —Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. Article302: Power of Parliament to impose restrictions on trade, commerce and intercourse. —Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Article303: Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce:—(1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorizing the giving of, any preference to one State over another, or making, or authorizing the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorizing the giving of, any preference or 125 CU IDOL SELF LEARNING MATERIAL (SLM)

making, or authorizing the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. Article304: Restrictions on trade, commerce and intercourse among States:— Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law— (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Article305:Saving of existing laws and laws providing for State monopolies: —Nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise direct; and nothing in article 301 shall affect the operation of any law made before the commencement of the Constitution (Fourth Amendment) Act, 1955, in so far as it relates to, or prevent Parliament or the Legislature of a State from making any law relating to, any such matter as is referred to in sub-clause (ii) of clause (6) of article 19. 5.6 SUMMARY The major factors in political environment are:  Taxation policy  Privatization  Deregulation  International trade regulations 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 manage trade, including tariffs, subsidies; import quotas and VER, currency controls, local content requirements, antidumping rules, export financing, free-trade zones, and administrative policies. The Constitution of India is the supreme law of India. The Constitution follows parliamentary system of government and the executive is directly accountable to the legislature. The Constitution guarantees six fundamental rights to Indian citizens as follows:  Right to equality  Right to Freedom  Right against exploitation 126 CU IDOL SELF LEARNING MATERIAL (SLM)

 Right to freedom of religion  Cultural and educational rights,  Right to constitutional remedies.  The Directive principles are broad directives given to the state in accordance with which the legislative and executive powers of the state are to be exercised. Business needs to maintain harmonious and cordial relation with the legislation to maintain industry peace, ensure existence and flourish in the environment by contributing in the nation’s development 5.7 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.  Secularism: the principle of the separation of government institutions and persons mandated to represent the state from religious institutions and religious dignitaries.  Amendment: minor change or addition designed to improve a text, piece of legislation, etc. 5.8 LEARNING ACTIVITY 1. Explain the different forms of Political System. __________________________________________________________________________ __________________________________________________________________________ 2. State the importance of Article 304 __________________________________________________________________________ __________________________________________________________________________ 5.9 UNIT END QUESTIONS 127 A. Descriptive Questions 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. Why Constitution is a Unique Blend of Rigidity and Flexibility? 5. What is the economic importance of Right against Exploitation? 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. Discuss the Values and the Salient Features of the Constitution 4. Elaborate the economic importance of the Directive Principle of the State and its relation with the business. 5. Explain Constitutional Provisions Regarding Trade, Commerce and Intercourse within the Territory of India and how this provision will present opportunity and threat for any business. Highlight the strategy to deal with Strength and Weakness of the Constitutional Provision. A. Multiple Choice Questions: 1. Democratic governments derive their power from: a. The people b. The prime minister c. The president d. The Judiciary 2. Lack of political stability affects: a. Law and order b. Elections c. Business Operations d. Government 3. ------------ is the highest legal document from which all other laws are derived or interpreted in India. a. Legislature b. Contract c. Preamble d. Constitution 4. In the unwritten constitution like the _____________amendments are made through ordinary law-making procedure. 128 CU IDOL SELF LEARNING MATERIAL (SLM)

a. British Constitution b. Indian Constitution c. New Zealand Constitution d. Israel Constitution 5. The State shall not, in granting aid to educational institutions, discriminate against any educational institution on the ground that it is under the management of a minority, whether based on religion or language highlights ______________provision of Article 29-30. a. Right of minorities to establish and administer educational institutions: b. Protection of interests of minorities c. Freedom as to the payment of taxes for promotion of any particular religion: d. Freedom of conscience and free profession, practice and propagation of religion: Answers 1-a; 2-c; 3- d; 4 – b;5 – a; 5.10 SUGGESTED READINGS Text Books:  Francis Cherunilam , Business and Environment, Text and Cases, [Himalaya Publishing House],  C. Fernando, Business Environment Kindle Edition, Pearson  K.Aswathappa, Essentials Of Business Environment, Himalaya Publishing House  SHAIKH SALEEM, BUSINESS ENVIRONMENT, Pearson  Ian Worthington, Chris Britton, The Business Environment, Financial Times/ Prentice Hall.  M.V.Pylee ,Constitutional Government in India, S.Chand  K.K.Ghai, Indian Government and Politics , Kalyani Publication  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: 129 CU IDOL SELF LEARNING MATERIAL (SLM)

 Dhamija, Dr. Ashok (2009). Prevention of Corruption Act. LexisNexis India. p. 2049. ISBN 9788180385926.  Subrata K. Mitra and V.B. Singh. 1999. Democracy and Social Change in India: A Cross-Sectional Analysis of the National Electorate. New Delhi: Sage Publications. ISBN 81-7036-809-X (India HB) ISBN 0-7619-9344-4 (U.S. HB).  Bakshi; P M (2010). Constitution of India, 10/e. Universal Law Publishing Company Limited. pp. 48–.ISBN 978-81-7534-840-0.  https://courses.lumenlearning.com/ 130 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 6: LEGAL ENVIRONMENT-I 131 Structure 6.0 Learning Objective 6.1 Introduction 6.2 Legal environment 6.3 The MRTP ACT,1969 6.3.1 Objectives 6.3.2 Regulatory Provisions 6.4 The Competition Act, 2002 6.4.1 Objectives 6.4.2 Competition Commission of India: 6.4.3 Overall Scheme: 6.5 Industrial policy after 1991 6.5.1 Major Economic Reforms: 6.5.2 Impact of New Industrial Policy, 1991 on Indian Economy: 6.5.3 Impact of New Industrial Policy on Business: 6.5.4 New Small Sector Policy, 1991: 6.5.5 National Manufacturing Policy, 2011 6.5.6 Make in India Program 6.6 The Consumer Protection Act 1986 6.6.1 Jurisdiction and Objective 6.6.2 Consumer Protection Councils 6.6.3 Consumer Disputes Redressal Agencies 6.6.4 Consumer Complaints 6.6.5 Penalties 6.7 Summary 6.8 Keywords 6.9 Learning Activity 6. 10 Unit End Questions 6. 11 Suggested Readings CU IDOL SELF LEARNING MATERIAL (SLM)

6.0 LEARNING OBJECTIVE After studying this unit, you will be able to  State the implications of Legal Environment on Business  Explain the implication of MRTP, Competition, Consumer Protection Act on Business.  Highlight the relation of strategy formulation with the new Industrial Policy.  Outline the provisions of laws aimed at protecting consumers  Discuss the jurisdiction of consumer courts established for redressal of consumer disputes 6.1 INTRODUCTION ‘To the people, by the people and for the people’ – the famous saying always used to highlight the democratic stature of India. To preserve the integrity and to ensure the continuous economic growth of the country rules, regulations and legislations are adhere to maintain stability. Like we always follow left lane on the road while walking or driving which is important traffic rule mentioned in our Constitution. Similarly, we have rules and legislations for how to pass a bill in Parliament House. We have different legislations and regulations to deal with home violence, industrial disputes, frauds and criminal activity. Such a broad framework being appreciated followed, implemented and amended regularly to ensure orderliness. Business being commercial and economic activity that also falls under the purview of political and legal framework of our country. In the wake of liberalization and privatization that was triggered in India in early nineties, a realization gathered momentum that the existing Monopolistic and Restrictive Trade Practices Act, 1969 (\"MRTP Act\") was not equipped adequately enough to tackle the competition aspect of the Indian economy. With starting of the globalization process, Indian enterprises started facing the heat of competition from domestic players as well as from global giants, which called for level playing field and investor-friendly environment. Hence, need arose with regard to competition laws to shift the focus from curbing monopolies to encouraging companies to invest and grow, thereby promoting competition while preventing any abuse of market power. Industrial policies act an intervention to fulfil certain pre-requisites require to achieve the objectives set by it. Some provisions are specific and some are general covering wide aspects of economy. Industrial policy which is categorized as horizontal and vertical based on the inclination of the measure implemented. If general aspect like imposing tax on capital gain or restricting credit are example of horizontal and providing subsidy to the export industries and increasing custom duties on imports of clothes to prevent textile industry is an example of vertical or specific Industrial Policies. 132 CU IDOL SELF LEARNING MATERIAL (SLM)

Consumer protection is a group of laws and organizations designed to ensure the rights of consumers as well as fair trade, competition and accurate information in the marketplace. The laws are designed to prevent businesses that engage in fraud or specified unfair practices from gaining an advantage over competitors 6.2 LEGAL ENVIRONMENT Legal environment includes various legislations issued by the government authorities- centre, state or local. Every enterprise needs to obey the law of the land so an adequate knowledge of rules and regulations framed by the government is a pre-requisite for better business performance. Non-compliance of laws can land the business enterprise into legal problems. In India, the working knowledge of the following Acts are important for doing business  Companies Act  Industries Act  Foreign Exchange Management Act  The Imports and Exports Act  Factories Act  Trade Union Act  Workmen’s Compensation Act  Industrial Disputes Act  Consumer Protection Act  Competition Act What Are the Different Legal Systems? Let’s focus briefly on how the political and economic ideologies that define countries impact their legal systems. In essence, there are three main kinds of legal systems—common law, civil law, and religious or theocratic law. Most countries actually have a combination of these systems, creating hybrid legal systems. Civil law is based on a detailed set of laws that constitute a code and focus on how the law is applied to the facts. It’s the most widespread legal system in the world. Common law is based on traditions and precedence. In common law systems, judges interpret the law and judicial rulings can set precedent. Religious law is also known as theocratic law and is based on religious guidelines. The most commonly known example of religious law is Islamic law, also known as Sharia. Islamic law governs a number of Islamic nations and communities around the world and is the most widely accepted religious law system. Two additional religious law systems are the Jewish 133 CU IDOL SELF LEARNING MATERIAL (SLM)

Halacha and the Christian Canon system, neither of which is practiced at the national level in a country. The Christian Canon system is observed in the Vatican City. The most direct impact on business can be observed in Islamic law—which is a moral, rather than a commercial, legal system. Sharia has clear guidelines for aspects of life. For example, in Islamic law, business is directly impacted by the concept of interest. According to Islamic law, banks cannot charge or benefit from interest. This provision has generated an entire set of financial products and strategies to simulate interest—or a gain—for an Islamic bank, while not technically being classified as interest. Some banks will charge a large up-front fee. Many are permitted to engage in sale-buyback or leaseback of an asset. For example, if a company wants to borrow money from an Islamic bank, it would sell its assets or product to the bank for a fixed price. At the same time, an agreement would be signed for the bank to sell back the assets to the company at a later date and at a higher price. The difference between the sale and buyback price functions as the interest. In the Persian Gulf region alone, there are twenty-two Sharia-compliant, Islamic banks, which in 2008 had approximately $300 billion in assets. Clearly, many global businesses and investment banks are finding creative ways to do business with these Islamic banks so that they can comply with Islamic law while earning a profit. 6.3 THE MRTP ACT,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 Commission was set up to investigate the effects of such practices, case by case, on the public interest and to recommend suitable corrective measures. 6.3.1 Objectives of Monopolistic and Restrictive Trade Practices (MRTP) Act, 1969: 1. Prevention of concentration of economic power to the common detriment. 2. Control of monopolies. 3. Prohibition of Monopolistic Trade Practices (MTP). 4. Prohibition of Restrictive Trade Practices (RTP). 5. Prohibition of Unfair Trade Practices (UTP). 6.3.2 Regulatory Provisions: Concentration of economic Power, Competition Law and Consumer Protection. The MRTP Act 1969 came up to ensure that there is no concentration of economic power at a single place. Besides it also checked the restrictive, monopolistic and restrictive trade practices. 134 CU IDOL SELF LEARNING MATERIAL (SLM)

The main body to monitor this act is MRTP Commission that has right to inquire into any complaint that is related to monopolistic trade practice and is also having right for recommending any concrete plans for making any action to the central government. The MRTP is the only body that has the right to inquire, cease or award compensation in case there are some restrictive and unfair trade practices being practiced. Companies under MRTP Act are normally required to obtain the approval of the Government in respect of: (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. The MRTP Commission normally considers all these sorts of proposals to justify its public interest. 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 has now totally scrapped the assets limit for MRTP companies. The definition of ‘inter-connected companies’ as adopted under the MRTP Act, was having some loopholes, which have helped some industrial houses to escape from the purview of the Act. It is also found difficult to establish inter-connection in certain cases. 6.4THE COMPETITION ACT, 2002: 6.4.1 Objectives Since the adoption of the economic reforms programme in 1991, corporates have been pressing for the scrapping of the MRTP Act. The argument is that the MRTP Act has lost its relevance in the new liberalized and global competitive scenario. In fact, it is said that only large companies can survive in the new competitive markets and therefore size should not be a constraint. Thus, there is a need to shift our focus from curbing monopolies to promoting competition. In view of this, the government appointed an expert committee headed by SVS Raghavan to examine the whole issue. The Raghavan Committee submitted its Report to the 135 CU IDOL SELF LEARNING MATERIAL (SLM)

Government on May 22, 2000 wherein it proposed the adoption of a new competition law and doing 63 away with the MRTP Act. Accordingly, the government decided to enact a law on competition. Competition Bill, 2001 was introduced in Parliament and passed in December 2002. The Act is called Competition Act, 2002. The Act was amended in September 2007. OBJECTIVES TO BE ACHIEVED I. To check anti-competitive practices II. To prohibit abuse of dominance III. Regulation of combinations. IV. To provide for the establishment of CCI, a quasi-judicial body to perform below mentioned duties:  Prevent practices having adverse impact on competition  Promote and sustain competition in the market  Protect consumer interests at large  Ensure freedom of trade carried on by other participants in the market  Look into matters connected therewith or incidental thereto. 6.4.2 Competition Commission of India: The Act provides for the establishment of the Competition Commission of India (CCI). According to Section 18, it shall be the duty of the Commission to eliminate practices having adverse effects on competition, to promote and sustain competition in markets in India, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in market in India. Some protagonists of private sector have argued that that there is no requirement of CCI because all that is required is removal of licensing requirements and knocking down of entry barriers. However, the fact of the matter is that the market does not always guarantee competition. There will always be unfair and restrictive business practices. Besides, mergers and acquisitions would need to be 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. 6.4.3 Overall Scheme: 136 Competition Act, 2002 is designed for the following purposes: (1) Prohibition of anticompetitive agreements, (2) Prohibition of abuse of dominant position, and CU IDOL SELF LEARNING MATERIAL (SLM)

(3) Regulation of combinations. Let us understand in detail: 1. Prohibition of Anti-Competitive Agreements: Section 3 of the Act makes provision for prohibition of anticompetitive agreements. According to Section 3(1) of the Act, \"no enterprise or association of enterprises or person or association of persons shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India.\" Section 3(2) states that any agreement entered into in contravention of the provisions contained in Section 3(1) shall be void. 2. Prohibition of Abuse of Dominant Position: Section 4(1) of the Act states that no enterprise shall abuse its dominant position It may be noted that 'dominant position' itself is not prohibited. What is prohibited is its misuse. Dominant position means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i) Operate independently of competitive forces prevailing in the relevant market; or (ii) Affect its competitors or consumers or the relevant market in its favour. 3. Regulation of Combinations: Section 5 of the Act defines combination while Section 6 is concerned with regulation of combinations. According to Section 5, the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be treated as 'combination' of such enterprises and persons or enterprises in the following cases: (a) Acquisition by large enterprises; (b) Acquisition by group; (c) Acquisition of enterprises having similar goods/services; (d) Acquiring enterprises having similar goods/services by a group; (e) Merger of enterprises; and (f) Merger in group company Section 6 of the Act relates to 'regulation of combinations.' According to Section 6 (1), no person or enterprise shall enter into a combination which causes is likely to cause an appreciable adverse effect on competition, within the relevant market in India and such a combination shall be void. The definition and heading of the section itself means that it is 'regulation of combination'. Thus, combination, in itself, is not prohibited. It will be held void only if adversely affects competition. Provisions of the Competition Act, 2002 137 CU IDOL SELF LEARNING MATERIAL (SLM)

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. 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 138 CU IDOL SELF LEARNING MATERIAL (SLM)

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. 6.5 INDUSTRIAL POLICY AFTER 1991 The year 1991 witnessed a drastic change in the industrial policy governing industrial development in the country since decades. This land mark change which in the economic history of India in the form of Industrial Policy of 1991 actually was entirely a new chapter which was to enforce totally open economic system as compared to the earlier mixed system. The country decided to follow the lines of capitalism. 6.5.1 Major Economic Reforms: Industrial licensing policy: - In a major move to liberalize the economy, the new industrial policy abolished all industrial licensing, irrespective of the level of investment, except for a short list of 18 industries related to the security and strategic concerns, social reasons, hazardous chemicals and over-riding environmental reasons and items of elitist consumption (list attached as Annex II). However, of these 18 industries, three industries (motor cars, white goods and raw hides and skins and leather) were delicensed in April 1993. In 1996, another industry was delicensed namely entertainment and electronic industry. Further, in July 1997, five other industries were delicensed (animal fats and oils, tanned or dressed fur skins, chamois leather, asbestos and asbestos- based products, plywood and other wood and paper and newsprint). In continuation with the process of delicensing, three other industries were included in this category in 1998-99 namely coal and lignite, petroleum products and sugar. Later on drugs and pharmaceuticals industries were also exempted from licensing. Thus, at present only 5 items of health, strategic and security considerations remain under the purview of industrial licensing – alcohol, cigarettes, hazardous chemicals, electronic, aerospace and all types of defense equipment. The exemption from licensing will apply to all substantial expansion of existing units. The projects where imported capital goods are required, automatic clearance will be given- In cases where foreign exchange availability is ensured through foreign equity; or if the CIF value of imported capital goods required is less than 25 percent of total value (net of taxes) of plant and equipment, upto a maximum value of Rs.2 crore. In view of the current difficult foreign exchange situation, this scheme, (i.e., (iii)b) will came into force from April, 1992. In other cases, imports of capital goods will require clearance from the Secretariat of Industrial Approvals (SIA) in the Department of Industrial Development according to availability of foreign exchange resources. 139 CU IDOL SELF LEARNING MATERIAL (SLM)

In respect of locations other than cities of more than 1 million population, the industrialists will not be required to obtain industrial approval from the Centre, except for industries subject to compulsory licensing. In the cities with population greater than 1 million, industries other than those of non- polluting nature such as electronics, computer software and printing will be allowed outside 25 km of the periphery, except in prior designated industrial areas. Major amendments were made in the industrial location policy during 1997-98. The requirement of obtaining industrial approvals from the central government (except for the industries under compulsory licensing) for establishing units at locations not falling within 25 kms the periphery of cities having a population of more than 1 million was dispensed with. However, notified industries of a non- polluting nature such as electronics, computer software and printing, may be located within 25 kms of the periphery of cities with more than 1 million population and other industries are permitted only if they are located in designated industrial area set up prior to July 25, 1991. Zoning and land use Regulations as well as Environment Legislation continues to regulate industrial locations. Policy on Public Sector: - The 1956 Resolution had reserved 17 industries for the public sector. The 1991 industrial policy reduced this number to 8 naming- Arms and ammunition; Atomic energy; Coal and lignite; Mineral oils; Mining of iron ore, manganese ore, chrome ore, gypsum, Sulphur, gold and diamond; Mining of copper, lead, zinc, tin, molybdenum and wolfram; Minerals specified in the schedule to the atomic energy (control of production and use order), 1953; and Rail transport. But later on five during these reserved industries under public sector were also de-reserved. On May 9, 2001, the government opened up arms and ammunition sector also to the private sector. Now there were only three industries left reserved exclusively for the public sector. The policy also suggested that those public enterprises which are chronically sick and which are unlikely to be turned around will, for the formation of revival/ rehabilitation schemes, be referred to the Board for Industrial and Financial Reconstruction (BIFR), or other similar high-level institutions created for the purpose, in order to protect the interests of workers likely to be affected by such rehabilitation package a social security mechanism will be created. The government has announced its intention to offer a part of government shareholding in the public sector enterprises to mutual funds, financial institutions, the general public and the workers. A beginning in this direction was made in 1991-92 themselves by diverting part of the equities of selected public sector enterprises. Monopolistic and Restrictive Trade Practice limit: - Under the Monopolistic and Restrictive Trade Practice Act, all firms with assets above a certain size (Rs.100 crore since 1985) were classified as MRTP firms. Such firms were 140 CU IDOL SELF LEARNING MATERIAL (SLM)

permitted to enter selected industries only and this also on a case by case approval basis. In addition to control through industrial licensing, separate approvals were required by such large firms for any investment proposals. The New Industrial Policy therefore remove the threshold limit in assets in respect of MRTP companies and dominant undertakings. This eliminates the requirements of prior approval of the Central Government in respect of the activities concerning expansion, new undertakings etc. The MRTP Act has been accordingly amended. In the now amended Act, emphasis has shifted to taking appropriate action against monopolistic, restrictive and unfair trade practices on the part of monopolies. These dominant undertakings or monopolies have now been identified as those who control over 25 percent share of the market. The New Industrial Policy has widened and strengthened the provisions of the MRTP Act, and their implementation through the Monopoly Commission. Policy on Foreign investment and Technology agreements:- In the case of both foreign technology agreements sought by the Indian firms as well as foreign investment, it was necessary to obtain specific prior approval from the government for each project. It was argued that this caused undue delays and government interference and also hampered business decision making. The New Industrial Policy, therefore, prepared a specified list of high technology and high investment priority industries, wherein automatic permission was to be made available for direct foreign investment up to 51 percent foreign equity. The industries in which automatic approval was granted included a wide range of industrial activities in the capital goods and metallurgical industries, entertainment electronic, food processing and the services sectors having significant export potential. Besides, these included a number of other industries which were important for the rapid growth of the economy. In January 1997, the government also announced the first ever guidelines for foreign direct investment for expeditious approval of foreign investment in areas not covered under automatic approval. Priority areas for foreign direct investment proposals as mentioned in the guidelines included infrastructure, export potential, large- scale employment potential particularly for rural areas, items with linkages with the farm sector, social sector projects like hospitals, health care and medicines, and proposals that led to induction of technology and infusion of capital. The list of industries eligible for foreign direct equity investment under the automatic approval route by Reserve Bank was further expanded in 1997-98 and 1998-99. In 1997-98, equity investment upto 100 percent by NRIs/ OCBs (Overseas Corporate Bodies) was permitted in high priority industries. These included 9 high priority industries in metallurgical and infrastructure sectors and 13 other priority industries, hitherto eligible for 74 percent and 51 percent equity investment respectively. Foreign equity investment in mining (3 categories of industries) was also allowed upto 100 percent for NRIs/ OBCs. During 1998-99, the scope of foreign direct equity investment under the automatic approval route of Reserve Bank was enhanced. In a major drive to simplify foreign direct investment procedures, Indian 141 CU IDOL SELF LEARNING MATERIAL (SLM)

companies were permitted to accept investment under automatic approval route without obtaining prior permission from Reserve Bank of India. Foreign equity up to 100 percent has been permitted in electricity generation, transmission and distribution (excluding atomic reactor power plants) and in construction and maintenance of roads, highways, vehicular bridges, toll roads, vehicular tunnels, parts and harbours. However, foreign equity in projects of these industries under the automatic approval route was not to exceed Rs.1, 500 crore. During 1991-2000, the government decided to pull all items under the automatic route for foreign direct investment/ NRI & OCB investment except for a small negative list, which includes all proposals requiring industrial license under the Industries (Development and Regulation) Act, 1951; cases having foreign investment more than 24 percent in the equity capital of units manufacturing items reserved for the small- scale sector; and for all its requiring industrial license in terms of the location policy notified under the New Industrial Policy, 1991. In order to licensed foreign direct investment policy further, the government took some important decisions such as: 100 percent foreign direct investment allowed in Special Economic Zones (SEZs) for all manufacturing activities; 100 percent foreign direct investment permitted for Business to Business commerce; Removal of cap on investment in the power sector; 100 percent foreign direct investment permitted in oil refining; 100 percent foreign direct investment allowed in telecom sector for certain activities with some conditions; Off shore Venture Capital Funds/ Companies allowed to invest in domestic venture capital undertakings as well as other companies through the automatic route, subject to only SEBI (Securities and Exchange Board of India) regulations and sector specific caps on foreign direct investment; Existing companies with foreign direct investment are eligible for automatic route to undertake additional activities covered under automatic route; Foreign direct investment upto 26 percent is eligible under automatic route in the Insurance sector, as prescribed in the Insurance Act, 1991, subject to obtaining a license from the Insurance Regulatory and Development Authority (IRDA); and Automatic route is available to proposals in the Information Technology sector, even when the applicant company has a previous joint venture or technology transfer agreement in the same field, etc. On May 9, 2001, the government announced a number of concessions and incentives to foreign direct investment (FDI). The main incentives given by the government are as follows:  In the pharmaceutical sector, 100 percent Foreign Direct Investment has been allowed through the automatic route (earlier on, the limit was 74 percent);  100 percent Foreign Direct Investment has been allowed in airports against the prevailing 74 percent;  For the hotels and tourism industry the Foreign Direct Investment limit has been raised to 100 percent through the automatic route from the prevailing 51 percent;  100 percent Foreign Direct Investment has also been allowed in two fresh areas- Courier services and Mass Rapid Transport System (MRTS); 142 CU IDOL SELF LEARNING MATERIAL (SLM)

 100 percent Foreign Direct Investment has been allowed in township development; In the telecom sector, Foreign Direct Investment limit has been raised to 74 percent from the existing 49 percent for Internal Service Providers (ISPs); Subject to Reserve Bank guidelines, the foreign investment limit in the banking sector has been hiked from 20 percent to 49 percent; and Foreign Direct Investment upto 267 percent has been allowed in defence production. Abolition of Phased Manufacturing Programmes for New Projects: - In order to force the pace of indigenization in manufacturing sector, Phased Manufacturing Programmes have been in force in a number of engineering and electronic industries. The new policy abolished such programmes for future. Removal of Mandatory Convertible Clause: - Since large part of industrial investment in India is finance by loans from banks and financial institutions, these institutions followed a mandatory practice of including a convertibility clause in their lending operations for new projects which provide them adoption of converting part of their loans into equity of felt necessary by their management. This has been interpreted as an unwarranted threat to the private firms to be taken over by the financial institutions. Hence, the new industrial policy provided that financial institutions will not impose this mandatory convertible clause. 6.5.2 Impact of New Industrial Policy, 1991 On Indian Economy: Improvement in Performance of the Economy– National Product The economy’s performance in the post reform era has been quite impressive. The reforms started in year 1991 and if one leaves out 1991-92, which was exceptionally a bad year, the average annual growth rate between 1992-93 and 1999-2000 was 6.3%. Gross National Product in India increased to 99965.15 INR Billion in 2013 from 89328.92 INR Billion in 2012. Gross National Product in India averaged 13945.09 INR Billion from 1950 until 2013, reaching an all-time high of 99965.15 INR Billion in 2013 and a record low of 103.60 INR Billion in 1951. Gross National Product in India is reported by the Ministry of Statistics and Programme Implementation (MOSPI). The Gross Domestic Product (GDP) in India expanded 1.50 percent in the third quarter of 2014 over the previous quarter. GDP Growth Rate in India averaged 1.61 percent from 1996 until 2014, reaching an all-time high of 5.80 percent in the fourth quarter of 2003 and a record low of -1.90 percent in the first quarter of 2009. Wide Choice of Consumer Goods and Services Economic reforms have resulted in a sea-change in the standards of living and life-styles of people. The benefits that have already accrued are enormous. Today, one has variety of 143 CU IDOL SELF LEARNING MATERIAL (SLM)

choices to choose from with regard to many of the consumer durables like fridges, televisions, music systems, DVDs, cars etc. Foreign brands of many of the consumer durables are easily available. Due to cutthroat competition, the prices of consumer durables have either come down or remained static. The T.V. viewers today enjoy 24-hour news channels. These 24-hour news channels and other channels depend heavily on the advertising industry, which in turn, depends on India’s increasing transformation into a consumerist society. Easy Availability of Bank Loans In the pre-reforms era, getting loan from a bank was unthinkable for a common man. The scenario has completely changed today. The reforms carried out in the banking sector have led to easy availability of loans. Banks are running after customers today requesting them to take loans. Lending rates have fallen. Computerization and installation of ATMs have brought sea change in the services being rendered by banks. Indian banks have started giving “European” look. The day is not far off when Indian banks may be preferred when compared to foreign banks. Growth in Employment Opportunities and Better Emoluments Employment opportunities have tremendously increased due to coming up of many new domestic private companies as well as multinational companies (MNCs). Many of the foreign companies are now outsourcing their jobs to India thereby increasing the job opportunities available in the country. In 1991, many Indians were terrified that globalization would cost us millions of jobs. Today, American politicians are terrified that millions of their jobs will be outsourced to India. The latest business to be outsourced to India by the US is mathematics coaching. Health services such as pathological and radiological tests are also being outsourced to India by some countries now. The jobs that have come up in computer software and call centres could not have been predicted ten years ago. The economic reforms have not only increased the job opportunities in India, but have also raised pay packages in many of the sectors benefiting the youngsters from the middle-class. This scenario has come up because the MNCs, which have set up their plants / units in India, pay much higher emoluments than the domestic companies. One important sector, which has vastly expanded and has generated vast employment opportunities in the country after liberalization, is the ‘Information Technology’. Other notable sectors in this connection are the telecom, automobiles, civil aviation and electronics. Large Reserves of Foreign Exchange In the pre reforms era, the country did not have large reserves of foreign exchange and therefore, was not easily available for a person traveling abroad. The procedure for getting foreign exchange was very cumbersome and one had to run from pillar to post to get even a small amount of foreign exchange. There were widespread illegal transactions in foreign exchange. The situation has changed and today foreign exchange is easily available in any 144 CU IDOL SELF LEARNING MATERIAL (SLM)

amount for persons traveling abroad. The removal of restrictions has also helped in eliminating “black money” generated as a result of illegal transactions in foreign exchange. This is mainly because of the tremendous increase in foreign exchange reserves of the country. Foreign Exchange Reserves in India decreased to 337793 USD Million in the week ended March 7th, 2015 from 338079 USD Million in the previous week. Foreign Exchange Reserves in India averaged 181145.53 USD Million from 1998 until 2015, reaching an all- time high of 383643 USD Million in December of 2009 and a record low of 29048 USD Million in September of 1998. Vast Expansion in Telecommunications A notable revolution has occurred in the telecom sector. In the pre reforms era, this was entirely in the hands of the central government and due to lack of competition, the call charges were quite high. Further, due to lack of funds with the government, the government could never meet the demand for telephones. In fact, a person seeking a telephone connection had to wait for years before he could get a telephone connection. The service rendered by the government monopoly was also very poor. Wrong billing, telephones lying dead for many days continuously due to slackness on the part of the telecom staff to attend to complaints, cross connections due to faulty / ill maintained telephone lines, obsolete instruments and machinery in the telephone department were the order of the day in the pre reforms era. Today, there are many players in the telecom sector. The ultimate beneficiary has been the consumer. Prices of services in this sector have fallen drastically. Telephone connections are today affordable to everyone and are also easily available. Gone are the days, when one had to wait for years to get a telephone connection. The number of telephone connections which was only 2.15 million (fixed lines) in 1981 increased to 5.07 million (fixed lines) in 1991. The total number of telephones in the country stands at 957.61 million, while the overall tele- density has increased to 76.75% as of 30 September 2014 and the total numbers of mobile phone subscribers have reached 930.20 million as of September 2014.[1] The mobile tele- density had increased to 74.55% in September 2014. In the wireless segment, 5.88 million subscribers were added in September 2014. The wire line segment subscriber base stood at 27.41 million. \"Private operators hold 90.05 per cent of the wireless subscriber market share whereas BSNL and MTNL, the two PSU operators hold only 9.95 per cent market share,\" Trai said India has the fastest growing telecom network in the world with its high population and development potential. Airtel, Vodafone, Idea, Uninor, Reliance, Tata DoCoMo, BSNL, Aircel, Tata Indicom and MTNL are the major operators in India. However, rural India still lacks strong infrastructure. India's public sector telecom company BSNL is the 7th largest telecom company in world 145 CU IDOL SELF LEARNING MATERIAL (SLM)

Civil Aviation – Growth in Air Travel: The civil aviation industry in India has witnessed a new era of expansion driven by factors such as low-cost carriers (LCC), modern airports, foreign direct investments (FDI) in domestic airlines, cutting edge information technology (IT) interventions and a growing emphasis on regional connectivity. Simply going by the market size, the Indian civil aviation industry is amongst the top 10 in the world with a size of around US$ 16 billion. Domestic air passenger traffic in India has posted double-digit growth which is a growth of about 16.3 percent in October 2014, according to data released by International Air Transport Association (IATA). Domestic airlines flew 5.92 million passengers in October 2014 as compared to 5.01million passengers during the same period in 2013. The number of passengers carried by domestic airlines during the January-October 2014 period was 55.06 million as against 50.7 million in the year-ago period, according to data released by Directorate General of Civil Aviation (DGCA). Aircraft movements, passengers and freight at all Indian airports are expected to grow at a rate of 4.2 per cent, 5.3 per cent and 5 per cent, respectively, for the next five years, according to estimates by Airports Authority of India (AAI). FDI inflows in air transport (including air freight) during April 2000 to November 2014 stood at US$ 542.55 million, as per data released by Department of Industrial Policy and Promotion (DIPP). Easier Access to Foreign Technology One of the greatest benefits of economic reforms has been the free flow of global technology. A case in point is the cell phone technology, which came into India after liberalization. Had there been no reforms, this technology would have taken much more time to make entry into India. Due to easy accessibility to latest foreign technology, many of the private companies are adopting latest technology in their production processes to increase production and productivity, as well as to lower production costs to benefit the consumer. Significant fall in Poverty Ratio There has been a spectacular achievement in the sphere of poverty alleviation. The poverty ratio decreased from 36% in 1993 - 94 to 26.1% in 1999 – 2000 – a fall that was steeper than that in the 1970s or 1980s. Over the six-year period 1977-1978 to 1983, the poverty ratio fell from 51.3 to 44.5 percent; the decline between 1987-1988 and 1993-94 was from 38.9% to 36%. Indeed, while from the mid-1980s to early 1990s, the absolute number of the poor continued to hover around 320 million, the number registered a significant fall at 260 million by 1999-2000. Over the last decade, poverty has witnessed a consistent decline with the levels dropping from 37.2% in 2004-05 to 29.8% in 200-10. The number of poor is now estimated at 269.3 million, of which 216.5 million reside in rural India. 146 CU IDOL SELF LEARNING MATERIAL (SLM)

Better Performance after Privatization Many public sector companies have been privatized after 1991. It has been reported that productivity and production in all these companies have gone up very high after privatization. The liberalized economic policy freed entrepreneurs to enable them to innovate and go in for modernization of their plants. The Bharat Aluminium Company Ltd. introduced VRS for its employees after privatization and went in for computerization in a big way. The plant was also modernized. All this has led to increased efficiency and significant increase in production. Remarkable Growth in Foreign Trade Post-independence, India witnessed marginal increase in the volume of trade. It took a leap after 1992 when the country ushered into liberalization regime; but this too couldn't contribute remarkable share in the world's total trade. India's share in world trade was 1.78 percent in 1950, which further declined to 0.6 percent in 1995. Only two financial years 1972-73 and 1976-77 witnessed surplus trade of Rs 1,040 million and 680 million respectively. However, India's share in merchandise exports witnessed a constant rise, from 0.8 percent in 2003 and 2004 and 1.0 percent in 2005 to 1.1 percent in 2006 and 2007. Trade policy 2004-09 had set a target of 1.5 percent in world trade by 2009. World Trade Report 2011, released by WTO, states that India has improved its rank both in merchandise and service trade during 2010. In merchandise trade, it is placed at 20th rank, while in service trade its rank is 10th The country's export witnessed major compositional changes in last one decade with 10 percentage point fall in shares of manufactures, a 12.6 percentage point growth in shares of petroleum crude and products, and 3.3 percentage point fall in shares of primary products. The composition of import also saw changes in last one decade. The share of food and allied products which fell to 2.1 percent in 2008- 09 from 3.3 percent in 2000-01, increased to 3.7 percent in 2009-10 and fell to 3.2 percent in first half of 2010- 11, with slight fall in import share of edible oils and pulses. The share of fuel import remained at 33 percent. The remarkable change can be seen in the growth of capital goods import from 10.5 percent in 2000-01 to 15 percent in 2009-10 and then again fall to 13.1 percent in first half of 2010- 11. The share of gold, silver and electronic goods underwent down in first half of 2010- 11 compared to last two corresponding financial years. The share of pearls, precious and semi- precious stones witnessed a see-saw movement in last one decade. India's export cover over 7500 commodities to 190 countries, while over 6000 commodities are imported from about 140 countries. During first half of 2011- 12, exports grew by 52.1 percent to USD 160 billion and import witnessed 32.4 percent increase by USD 233.5 billion, leaving a trade gap of USD 73.5 billion. The foreign trade in India trend showed an upward movement with 15 trading partners contributing to 60 percent of India's total trade in 2007- 08. The trend however was constant till first half of 2011- 12. USA which was at first position in 2007-08, relegated to 147 CU IDOL SELF LEARNING MATERIAL (SLM)

third position in 2008- 09. UAE replaced USA and China was placed at second position. The trend continued till first half of 2010-11. UAE replaced USA only because of exports and imports of gems and jewellery items. India had bilateral trade surplus with five countries- UAE, USA, Singapore, UK and Hong Kong in 2009-10 and continued till first half of 2010- 11. Regulated Capital Market There was a “free for all” atmosphere in the stock market prior to the introduction of regulation of capital market. There were many “scandals” in the stock market, which pauperized small investors. The setting up of SEBI (Stock Exchange Board of India) has greatly helped the government to keep an eye on the stock market and regulate it to protect small investors. Trading in shares has become very easy, quick and transparent. Stock Exchange brokers can no more take small investors for a ride. Due to dematerialization of shares, the investors have been freed from botheration of getting delivery of shares and sending the same to the concerned companies for transfer of names etc. Further, delays in transfer of shares, loss/pilferage of share certificates, the need to keep shares in safe custody by the investors have become a thing of the past. Increasing Foreign Direct Investment According to a recent report by global credit rating agency Moody’s, FDI inflows have increased significantly in India in the current fiscal. This, according to Moody’s, is due to India’s current pro-growth policies. Net FDI inflows totalled US$ 14.1 billion in the first five months of 2014-15, representing a 33.5 per cent increase from the same period in 2013-14. Total FDI inflows into India in the period April 2000–November 2014 touched US$ 350,963 million. Total FDI inflows into India during the period April–November FY15 was US$ 18,884 million. Mauritius is again emerging as the largest source of FDI in India, accounting for an inflow of US$ 83,730 million in the April 2000-November 2014 period. According to official data, the inflow of foreign investment from Singapore amounted to US$ 29,193 million, followed by the UK at US$ 21,761 million and Japan at US$ 17,557 million during April 2000-November 2014. Investments The government has announced that foreign investors can put in as much as Rs 90,300 crore (US$ 14.65 billion) in India’s rail infrastructure through the FDI route, according to a list of projects released by the Ministry of Railways. The Rs 63,000 crore (US$ 10.22 billion) Mumbai-Ahmedabad high-speed corridor project is the single largest. The other big ones include the Rs 14,000 crore (US$ 2.27 billion) CSTM-Panvel suburban corridor, to be implemented in public-private partnership (PPP), and the Rs 1,200 crore (US$ 194.79 million) Kachrapara rail coach factory, besides multiple freight line, electrification and signalling projects. 148 CU IDOL SELF LEARNING MATERIAL (SLM)

Israel-based world's seventh largest agrochemicals firm ADAMA Agrochemicals, formerly known as Makhteshim Agan Industries, plans to invest at least US$ 50 million over the next three years. ADAMA's global president and Chief Executive Chen Lichtenstein said the idea was to expand both manufacturing and research and development facilities in India aimed at growing better than the average industry growth. Apple - world's most admired electronics brand - that sells devices such as the iPhone, iPad tablet and iPod media player – is planning to open 500 'iOS' stores in India in its first major push that will include moving into smaller towns and cities. The Department of Industrial Policy and Promotion (DIPP) has moved a Cabinet note to allow 100 per cent FDI in medical devices as part of a strategy to not only reduce imports but also promote local manufacturing for the global market, which will be worth over US$ 400 billion next year. Real estate private equity FDI is set to double after the Indian government ended the three-year lock-in and has introduced 100 per cent FDI for completed assets, according to JLL India. With India now allowing 100 per cent FDI in the construction sector, real estate private equity investment could double – and boost demand from overseas property buyers, according to sector experts. FDI real estate private equity, which is currently estimated at around US$ 1billion - US$ 1.5 billion per annum, could reach to up to US$ 3 billion in the next few years, according to leading agency, JLL India. The Ministry of Finance has announced that it has cleared 15 FDI applications, including that of Panacea Biotech and Sanofi-Synthelabo (India), and recommended HDFC Bank's proposal to hike foreign holding to the Cabinet for consideration. Expanding Tourism Economic reforms have brought prosperity in every sector and the tourism industry is no exception. The expansion in civil aviation sector seems to have made a very big positive impact on the tourism industry. The number of foreign tourists increased from 1279210 in 1981 to 1677508 in 1991 and to 2537282 in 2001. The flow of foreign tourists during 1991 to 2001 has, thus, been more than double the flow during 1981 to 1991. Tourist Arrivals in India decreased to 761000 in February of 2015 from 790000 in January of 2015. Tourist Arrivals in India averaged 396744.61 from 2000 until 2015, reaching an all-time high of 877000 in December of 2014 and a record low of 129286 in May of 2001. Substantial Growth in Corporate Sector One of the greatest gains due to economic reforms is the huge expansion in the corporate sector. With easy flow of foreign investment and increase in domestic private investment, the number of industries in the corporate sector has gone up very high. Industrial Production in India increased 2.60 percent in January of 2015 over the same month in the previous year. Manufacturing rose 3.3 percent and electricity production expanded 2.7 percent while mining output shrank 2.8 percent. Industrial Production in India averaged 6.54 percent from 1994 until 2015, reaching an all-time high of 20 percent in November of 2006 149 CU IDOL SELF LEARNING MATERIAL (SLM)

and a record low of -7.20 percent in February of 2009. Industrial Production in India is reported by the Ministry of Statistics and Programme Implementation (MOSPI). Growth in Tax Revenue of Central Government When investments in industrial and other sectors expand, the benefits of such investments would also accrue to the central government in the form of more taxes. The tax revenue of the central government registered a sharp increase of Rs.85293.2 crore during 2000-01 to 1990- 91 whereas the corresponding figure during 1980-81 to 1990-91 was only Rs. 33620 crore. Despite a general slowdown in the Indian Economy, Government is able to maintain a healthy growth in collection of revenue through better monitoring and strict enforcement to deter tax evasion. Revenue collections are as follows: Year Revenue Collection Growth Rate (%) (Rs. In crores) 2006-07 19,217, 15.66 2007-08 19,952 03.83 2008-09 22,570 13.12 2009-10 24,819 9.96 2010-11 31,117 25.37 2011-12 39,545 27.09 2012-13 47,885 21.09 Comfortable Position of Balance of Payments on Current Account One of the remarkable achievements of economic reforms has been the comfortable position with regard to balance of payments on current account. The balance of payments, which was adverse in the pre reforms era, made a turn around after reforms were ushered in. In the year 1980-81, there was a deficit of Rs.2213.5 crore and this increased to Rs. 17366 crores in 1990-91, whereas in the year 2002-03, the balance of payments on current account was favourable with net earnings of Rs.19987 crore.  India’s current account deficit (CAD) narrowed sharply to US$ 7.8 billion (1.7 per cent of GDP) in Q1 of 2014-15 from US$ 21.8 billion (4.8 per cent of GDP) in Q1 of 2013-14. However, it was higher than US$ 1.2 billion (0.2 per cent of GDP) in Q4 of 2013-14. The lower CAD was primarily on account of a contraction in the trade deficit contributed by both a rise in exports and a decline in imports.  On a BoP basis, merchandise exports at US$ 81.7 billion increased by 10.6 per cent in Q1 of 2014-15 as against a decline of 1.5 per cent in Q1 of 2013-14. 150 CU IDOL SELF LEARNING MATERIAL (SLM)