E-LESSON-3,

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M.B.A 2 All right are reserved with CU-IDOL BUSINESS ENVIRONMENT AND REGULATORY FRAMEWORK Course Code: MBA605 Semester: First SLM UNITS : 3 E- LESSON NO : 2 www.cuidol.in Unit-2 (MBA605)

ECONOMIC POLICIES OBJECTIVES INTRODUCTION 33 Student will be able to : The Monetary and Fiscal policies have an Understand the Monetary, Fiscal and Current impact on the whole economy affecting the Economic polices of the land price level, balance of payments Comprehend Global Trends in Business and While the monetary policy influences economic Management trends, especially investment through the cost and availability of credit, fiscal policy directly affects the financial resources and purchasing power in the hands of the public Get an insight into the relevance of Foreign The economic liberalization across the world Capital and Collaboration has set in and strengthened important trends in global business Study about the Trends in Indian Industry The liberalizations have led to a surge in foreign capital flows and collaborations www.cuidol.in Unit-2 (MBA605) INSTIATlUl TrEigOhFt DarISeTrAeNsCeErvAeNdDwOitNhLCINUE-ILDEOALRNING

TOPICS TO BE COVERED 4 > Monetary Policy > Fiscal policy > Current Economic Policy > Global Trends in Business and Management > Foreign Capital and Collaboration > Trends in Indian Industry www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

MONETARY POLICY 5 All right are reserved with CU-IDOL ❖ The Monetary Policy of a country is a regulatory policy which enables the central bank or monetary authority of the country to control the supply of money, availability of bank credit, and the cost of money (or rate of interest). ❖ That includes credit, cash, checks, and money market mutual funds. The most important of these forms of money is credit. It includes loans, bonds, and mortgages. ❖ Monetary policy increases liquidity to create economic growth. It reduces liquidity to prevent inflation. Central banks use interest rates, bank reserve requirements, and the amount of government bonds that banks must hold. All these tools affect how much banks can lend. The volume of loans affects the money supply. Unit-2 (MBA605) www.cuidol.in

MONETARY POLICY 6 ❖ In the words of D.C. Rowan, “The monetary policy is defined as discretionary act undertaken by the authorities designed to influence (a) the supply of money, (b) cost of money or rate of interest, and (c) the availability of money for achieving specific objective.” www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

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MONETARY POLICY Key Takeaways 8 ❖ The central bank uses monetary policy to manage economic growth, unemployment, and inflation ❖ ❖ It does this to influence production, prices, demand, and employment ❖ Expansionary monetary policy increases the growth of the economy, while contractionary policy slows economic growth ❖ The three objectives of monetary policy are controlling inflation, managing employment levels, and maintaining long term interest rates ❖ Monetary policy is implemented through open market operations, reserve requirements, discount rates, the RBI funds rate, and inflation targeting www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

MONETARY POLICY 9 Main elements of the Monetary Policy of India: i. It regulates the stocks and the growth rate of money supply. ii. It regulates the entire banking system of the economy. iii. It determines the allocation of loans among different sectors. iv. It provides incentives to promote savings and to raise the savings-income ratio. v. It ensures adequate availability of credit for growth and tries to achieve price stability. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

MONETARY POLICY 10 Objectives of Monetary Policy of India i. To Regulate Money Supply in the Economy ii. To Attain Price Stability iii. To promote Economic Growth iv. To Promote saving and Investment v. To Control Business Cycles: vi. To Promote Exports and Substitute Imports vii. To Manage Aggregate Demand viii. To Ensure more Credit for Priority Sector: ix. To Promote Employment x. To Develop Infrastructure xi. To Regulate and Expand Banking www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

FISCAL POLICY 11 All right are reserved with CU-IDOL ❖ Fiscal policy in India is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly. ❖ In recent times, the importance of fiscal policy has been increasing to achieve economic growth swiftly, both in India and across the world. Attaining rapid economic growth is one of the key goals of fiscal policy formulated by the Government of India. ❖ Fiscal policy, along with monetary policy, plays a crucial role in managing a country’s economy. www.cuidol.in Unit-2 (MBA605)

FISCAL POLICY 12 All right are reserved with CU-IDOL Main objectives of Fiscal Policy in India: • Economic growth: Fiscal policy helps maintain the economy’s growth rate so that certain economic goals can be achieved. • Price stability: It controls the price level of the country so that when the inflation is too high, prices can be regulated. • Full employment: It aims to achieve full employment, or near full employment, as a tool to recover from low economic activity. • To maintain equilibrium in the Balance of Payments. • To promote the economic development of underdeveloped countries. www.cuidol.in Unit-2 (MBA605)

FISCAL POLICY • Importance of Fiscal Policy in India: 13 • In a country like India, fiscal policy plays a key role in elevating the rate of capital formation both in the public and private sectors. • Through taxation, the fiscal policy helps mobilize considerable amount of resources for financing its numerous projects. • Fiscal policy also helps in providing stimulus to elevate the savings rate. • The fiscal policy gives adequate incentives to the private sector to expand its activities. • Fiscal policy aims to minimize the imbalance in the dispersal of income and wealth. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Improving the Growth of Economy + Ensuring Social Justice 14 Development by effective Mobilisation of Resources through: a. Taxation: Through effective fiscal policies, the government aims to mobilise resources by way of direct taxes as well as indirect taxes because most important source of resource mobilisation in India is taxation. b. Public Savings: The resources can be mobilised through public savings by reducing government expenditure and increasing surpluses of public sector enterprises. c. Private Savings: Through effective fiscal measures such as tax benefits, the government can raise resources from private sector and households. Resources can be mobilised through government borrowings by ways of treasury bills, issuance of government bonds, etc., loans from domestic and foreign parties and by deficit financing. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Improving the Growth of Economy 15 + Ensuring Social Justice Development by Reduction in inequalities of Income and Wealth: 1. Price Stability and Control of Inflation 2. Employment Generation 3. Balanced Regional Development 4. Reducing the Deficit in the Balance of Payment 5. Increases National Income 6. Development of Infrastructure 7. Foreign Exchange Earnings www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Difference between Monetary and Fiscal Policy 16 ❖ Monetary policy involves changing the interest rate and influencing the money supply. ❖ Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. ❖ They are both used to pursue policies of higher economic growth or controlling inflation. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Current Economic Policies 17 Top 10 Economic Policies Followed in India (1) Industrial Policy (2) Trade Policy (3) Monetary Policy (4) Fiscal Policy (5) Indian Agricultural Policy (6) National Agricultural Policy (7) Industrial Policies (8) International Trade Policy (9) Exchange Rate Management Policy 10) EXIM Policy www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Current Economic Policies 18 Key policy decisions that affected the Indian economy in 2019 1. Corporation tax rate cut 2. Bank recapitalisation 3. Changes to FDI rules 4. The PM-KISAN scheme 5. Merger of banks 6. Privatisation of CPSEs 7. Angel tax exemption 8. Removal of income-tax surcharge on FPIs 9. Amendments to the IBC 10. The Supreme Court’s AGR ruling www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

MAJOR TRENDS AFFECTING GLOBAL 19 BUSINESS MANAGEMENT Many businesses are turning to international enterprise to drive profits: 1. Emerging Markets are Growing Quickly 2. Increased dependence on Data Analytics 3. Instant Access to More Product Information 4. Rapid Innovation 5. Global trends are creating ever-larger winners and losers 6. The center of economic gravity is shifting east and south 7. The pace of technological progress is accelerating 8. Developed regions are relying more on waning productivity and greater migration www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

MAJOR TRENDS AFFECTING GLOBAL 20 BUSINESS MANAGEMENT Many businesses are turning to international enterprise to drive profits: 9. The gulf between those embracing change and those falling behind is growing 10. Technology adoption is uneven across sectors, companies, and countries 11. Automation and AI adoption will bring occupational and skill shifts 12. The Increasing Availability Of Big Data 13. Advances In Mobile Internet 14. Advances In Cloud Technology 15. Expansion Of Education 16. Advances In New Energy Supplies 17. Expansion Of The Middle Class 18. E-Commerce Grows At A Torrid Pace www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Foreign Capital & Collaborations 21 • A country needs natural resources, adequate levels of savings, latest technical know how, skilled human resources etc. for economic development. • Compared to developed countries, developing countries are deficit of these resources. Lack of resources and skilled labor forces may prompt them to seek assistance from economically well developed countries. • Assistance may be in the form of either technical knowledge or investments and very often, both. • It may be through collaborations with foreign countries or private companies. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Foreign Capital & Collaborations 22 • In India, such collaborations have always been predominant from the time of independence itself. • Government has always welcomed such foreign investments with some restrictions giving new paths of co-operation. • Also, its policy has undergone several changes since independence. • Foreign investment policy has a direct impact on inflow of foreign money, skills and knowledge. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Merits of Foreign Capital • Some natural resources may go unnoticed or unexploited 23 in the absence of technology. Thus, welcoming new ideas can help in the effective use of resources and preventing their wastage • New technologies can help in upgrading present techniques and consequently save man power, money and time • With the advent of new technologies, employment opportunities are created, particularly newer professionals with fresher approach. • They can supply domestic savings and capital formation thereby accelerating the investment rate for the economic development of the country • New technologies can bring new markets and marketing experts, thus helping to sell Indian goods in international markets for good prices • Backbone of development of a country, of course, is agriculture and industry. Foreign capital can provide infrastructure for both www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Trends in Indian Industry 24 GOODS AND SERVICES TAX The Goods and Services Tax (GST) is a uniform indirect tax levied on goods and services across the country. GST, as an umbrella tax, replaced central taxes like central excise, service tax, additional duties of excise & customs, special additional duty of customs, besides cesses and surcharges, on supply of goods and services. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Trends in Indian Industry 25 Central GST and State GST CGST is levied on intrastate supplies by the central government and SGST is levied on intrastate supplies by respective state governments. Integrated GST IGST is levied on interstate supplies by the Centre (equal to CGST + SGST combined on supplies made within the state). www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Goods & Services Tax Key features of GST 26 ✓ GST envisages all transactions and processes to be done only through the electronic mode, to achieve a non-intrusive administration. This minimises the taxpayer's physical interaction with tax officials. ✓ GST provides for the facility of auto-populated monthly returns and annual return. ✓ It facilitates taxpayers by prescribing grant of refund within 60 days, and provisional release of 90 per cent refund to exporters within 7 days. ✓ Further facilitation measures include interest payment if refund is not sanctioned in time, and refund to be directly credited to bank accounts. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Goods & Services Tax 27 Key features of GST ✓ Anti-profiteering provisions for protection of consumer rights: Any benefit by way of reduction in rate of tax or increase in input tax credit arising due to introduction of GST are passed on to customers (through reduction in sale price) by way of commensurate reduction in prices. ✓ Under the GST regime, exports are zero-rated in entirety, unlike the earlier system where refund of some of the taxes did not take place due to fragmented nature of indirect taxes between the Centre and states. ✓ GST is largely technology-driven and reduces the human interface to a great extent ✓ GST is believed to have improved ease of doing business in India. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Foreign Direct Investment ✓ Foreign direct investment (FDI) is when a company takes 28 controlling ownership in a business entity in another country. ✓ With FDI, foreign companies are directly involved with day-to-day operations in the other country. ✓ FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. ✓ Foreign Direct Investments are commonly made in open economies that have skilled workforce and growth prospect. ✓ FDIs not only bring money with them but also skills, technology and knowledge. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Foreign Direct Investment 29 FDI is an important monetary source for India's economic development. Economic liberalisation started in India in the wake of the 1991 crisis and since then, FDI has steadily increased in the country. India, today is a part of top 100-club on Ease of Doing Business (EoDB) and globally ranks number 1 in the greenfield FDI ranking. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Foreign Direct Investment 30 Routes through which India gets FDI ❖ Automatic route: ✓ The non-resident or Indian company does not require prior nod of the RBI or government of India for FDI. ❖ Government route: ✓ The government's approval is mandatory. The company will have to file an application through Foreign Investment Facilitation Portal, which facilitates single-window clearance. The application is then forwarded to the respective ministry, which will approve/reject the application in consultation with the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce. DPIIT will issue the Standard Operating Procedure (SOP) for processing of applications under the existing FDI policy. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Trends in Indian Industry 31 1. Infrastructure 3. Medical 4. Pension: 49% 5. Petroleum 6. Power Company in the Devices: up to Refining (By Exchanges: 2. Insurance: up PSUs): 49% Securities to 49% 100% 49% Market: 49% Sectors which come under up to 100% Automatic Route' category are: www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Trends in Indian Industry 32 2. Broadcasting 3. Core Investment 4. Food Products 5. Mining & Minerals Content Services: Company: 100% Retail Trading: separations of 100% titanium bearing 1. Banking & Public 49% sector: 20% minerals and ores: 100% Sectors which come under the 'up to 100% Government Route' category are: www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

Trends in Indian Industry 33 6. Print Media 8. Satellite (Establishment 9. Print Media (publishing (publications/ printing of and operations): 100% of newspaper, periodicals scientific and technical 7. Multi-Brand Retail and Indian editions of magazines/ specialty Trading: 51% foreign magazines dealing journals/ periodicals and facsimile edition of foreign with news & current affairs): 26% newspapers): 100% Sectors which come under the 'up to 100% Government Route' category are: www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

FDI Prohibition 34 There are a few industries where FDI is strictly prohibited under any route. These industries are • Atomic Energy Generation • Any Gambling or Betting businesses • Lotteries (online, private, government, etc) • Investment in Chit Funds • Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc) • Housing and Real Estate (except townships, commercial projects, etc) • Trading in TDR’s • Cigars, Cigarettes, or any related tobacco industry www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

SUMMARY 35 ❖The Monetary Policy of a country is a regulatory policy which enables the central bank or monetary authority of the country to control the supply of money, availability of bank credit, and the cost of money (or rate of interest) ❖The Fiscal policy in India is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly. ❖Improving the Growth of Economy + Ensuring Social Justice through effective mobilisation of resources and reduction in inequalities of income and wealth ❖Economic policies followed in India cover Industrial Policy, Trade Policy, Monetary Policy, Fiscal Policy, Indian Agricultural Policy, National Agricultural Policy, Industrial Policies, International Trade Policy, Exchange Rate Management Policy, EXIM Policy ❖Many businesses are turning to international enterprise to drive profits as emerging markets are growing quickly, there is increased dependence on data analytics, there is information explosion, vast advances in technology and AI and rapid innovation www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

MULTIPLE CHOICE QUESTIONS 1. The central bank uses monetary policy to manage 36 A) Economic growth C) Inflation B) Unemployment D) All of the above 2. Objective of Monetary Policy of India is C) To Attain Price Stability A) To Regulate Money Supply in the Economy D) All of the above B) To promote Economic Growth 3. Main objectives of Fiscal Policy in India: C) Full employment A) Economic growth D) All of the above B) Price stability 4. Sectors which come under the 'up to 100% Automatic Route' category are: A) Banking & Public sector: 20% C) Broadcasting Content Services: 49% B) Medical Devices:upto 100% D) Core Investment Company: 100% 5. Few industries where FDI is strictly prohibited under any route are: A) Atomic Energy Generation C) Lotteries (online, private, government, etc) B) All of the above D) Investment in Chit Funds Answers: 1. (d) , 2. (d) , 3. (d) , 4. (b) , 5. (b) www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

FREQUENTLY ASKED QUESTIONS Q 1. What is the difference between Monetary Policy and Fiscal policy? 37 Ans. Monetary policy involves changing the interest rate and influencing the money supply. Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. They are both used to pursue policies of higher economic growth or controlling inflation. For further detail Refer to SLM . Q 2. What do you understand by FDI? Ans. Foreign direct investment (FDI) is when a company takes controlling ownership in a business entity in another country. With FDI, foreign companies are directly involved with day-to-day operations in the other country. FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company. Foreign Direct Investments are commonly made in open economies that have skilled workforce and growth prospect. FDIs not only bring money with them but also skills, technology and knowledge. For further detail Refer to SLM www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

REFERENCES 38 ❖ Baumel, W.J.,A.S. Blinder and W.M.Scarth (1985), Economics:Principles and Policy, Academic Press Canada, Toronto, Chapters-26, 34, 38, 40 and 41. ❖ Planning Commission, (1997) Approach paper to the Ninth Five Year Plan, Government of India, New Delhi Chapter-1. ❖ Swamy, D.S. (1994), The Political Economy of Industrialization, Sage Publications, New Delhi, Introduction, Chapter-1, and Conclusion. ❖ Dasgupta, A and Sengupta, N.K. 1989 Government and Business, Vikas Pulishing House, New Delhi. ❖ Nadkarni, M.V., A.S. Seetharamu and Abdul Aziz, 1991, India – The Emerging Challlenges, Sage India. ❖ Krishna, Sumi, 1996, Environmental Politics, Sage India. www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL

39 THANK YOU For queries Email: [email protected] www.cuidol.in Unit-2 (MBA605) All right are reserved with CU-IDOL