Module 1: Nature and Scope of Business

Meaning of Business:Business is the organized effort of an enterprise to earn profits. Business may be big or small, but irrespective of the size they all aim at making profits.

Scope of Business:The various activities from the organization of raw materials to the manufacture of the end product. Constitute the scope of the business, The activities involved in this scope of business are:

1) Production2) Trading3) Banking4) Insurance5) Marketing6) Advertising7) Packing etc.

Business as a system:There are four sequential stages in the business as a system:

1) Input2) Conversion3) Output4) Feedback

Objectives of business:1) Profits: Excess of income over expenditure is known as profits. It is reward for

taking risk. Making profits is the primary goal of any organization. It is the main incentive, motivate, indicator of production basis for growth expansion and survival. There are many organizations which don’t work for profits, their basic objective is to provide services to the society.

2) Growth: The overall development of business in all directions is known as growth, the strategies adopted to achieve growth are:

a) Add new products to the marketsb) Diversify new productsc) Minimize cost, increase the productivityd) Increase the market sharee) Mergers and Acquisitions

3) Power: Business organizations have huge resources in the form of money, material human resources and knowledge these resources provide economic and political powers to the business owners and the managers of the organization.

4) Employee satisfaction and development: Business is men caring for employees satisfaction and providing for their development is one of the most important objective of enlightened business organization.

5) Quality product and service: This is the most important objective. Economically and morally those who give importance to this objective survive in the competition and stay ahead in the market.

6) Persistent Quality: Persistent quality of products earn brand loyalty and consumer satisfaction. E.g. the products of Hindustan Lever are used in every house hold of the country. To maintain the quality of the product there is requirement of R&D department and high degree of management professionals.

7) Market Leadership: To earn market leadership the main requirement is innovation the main requirement is innovation and diversification and diversification. E.g.: Pepsi retains the market leadership by introducing diet Pepsi.

8) Service to Society: Business is part of society and it has several obligations towards it. Some of them are:

a) Providing safe and quality goods at reasonable prices.b) Providing Employment.c) Supporting weaker sections of the society.

9) Good Corporate Citizenship: This implies that business should follow the rules,

pay the taxes regularly to the government, Care for its employees and customers. If good corporate governance is not maintained, it hampers the growth of the country.

Forms of Business Organization:

1) Public Sector Enterprises: When government is the owner or the manager of certain business units it is said to be under public sector. Under this we have:

a) Ministry: In this an undertaking is managed by whole ministry of government such as railways. Railways are managed by the ministry of railways and it’s accountable to the parliament.

b) Departmental Undertaking: These undertakings are directly subordinate to the ministry but they have their own management responsible for activities. E.g. Post, Telegraph, Production units etc.

c) Statutory Corporations: A corporate created by separate law, independently financed and vested with the power of independent management is known as Statutory Corporation. E.g. LIC, RBI, Industrial, Finance Commission etc.

d) Central Boards: Central boards are charged with the responsibility of executing have projects which require huge capital investment, they are jointly set up by central & State Government. E.g. River Valley Projects.

e) Companies: An enterprise becomes a government company when it has the following characteristics.

1) Have all the features of private limited company.2) 51% of share capital is owned by government.3) Majority of directors are appointed by the government.4) It is registered under the company’s act 1956.

2) Private Sector Companies: When the organization is controlled and managed by the private sector it is said to be under private sector enterprise. Private organizations can be categorized under the following heads:

a) Proprietary: When the enterprise is controlled and managed by a single person it is known as proprietary.

b) Partnership: When two or more people control the business activities it is known as partnership. Under this type of system all profits, losses and goodwill is shared by the partners.

c) Co-Operatives: These are formed by the individuals to help themselves. Consumer Co-Operative societies are normally formed by the residents of the locality.

d) Limited Companies: All limited companies are formed when it is registered under the companies’ act 1956. Share Holders are the owners of the company. Day t day management of the company is looked after by a group of people known as the board of directors.

Business and environment interface:All internal and external forces that influence the business are known as business

environment. Business environment is the present era is Liberalization, Privatization, & Globalization.

Business environment is a multi layered structure and these layers and these exhibit different characteristics. If one layer produces any effect, it is transferred to the other layers may be in a limited manner and over a long period of time.

The various layers of business environment are:1) International Environment: This layer of business environment concerns

all business firms weather they are part of international trade or not. A change in the exchange rate can affect the prices of the imported goods and further the cost of production and the prices of domestic goods. The various factors that determines the international environment are:

a) The stage of world economy.b) International economy Co-Operation.c) Role of multi lateral institutions such as IMF & WTO.d) International economic Laws and agreements.e) Political systems of different countries.f) Cultural factors across the countries.g) Technology growth and transfer.

h) Growth of Multinational organizations.i) National economic policies of different countries.j) Technology growth and transfer.

2) Domestic Microenvironment: Macro economic environment envelops all business firms and provides them a frame work with in which they have to operate and adopt themselves.

Major Economic Systems:

1) Free Market Economy: In this system productive resources are privately owned individuals and the firms have the freedom to make major decisions about production and consumption under competitive conditions E.g. US, Australia, Canada etc follows this system.

2) Command economy: In this system most of the productive resources are owned and operated by the government. The major decisions regarding the production and consumption are taken by the government.

3) Mixed Economy: In the mixed economy, neither the government nor the private sector has the dominant position. In fact both the sectors operate jointly and major decisions are taken by both the sectors.

Growth and Distribution environment:Growth refers to the income in the level of real output over a period of time.

There are three basic measures of country’s real output.1) G.D.P 2) N.D.P 3) G.N.P All these measures give the data on the national income and national income data

describes the prosperity of an economy. Higher the national income more prosperous the economy is which implies more market potential for the business organizations.

3) Macro Economic Stability: It is manifested in the form of stability of the price level, exchange rate, investment rate, interest rate, money supply, balance of payment etc. Variables are inter related and any instability in one of the variables can output the potential of other variables.

4) Economic policies: The basic objective of economic policies is to stimulate growth, achieve economic stability and bring economy to full employment level which depends on the wisdom of the government who is ruling the country at the point of time. Economic policies can be in the form of monetary policy, fiscal policy, industrial policy and foreign trade policy.

5) Competitive Environment: The state of market competition is one of the major factors affecting the rate of growth, income distribution and welfare of the consumers. Most governments in capitalistic and mixed economy attempt to maintain free and fair competition in various sectors of the economy through suitable laws and regulations. These laws are formed to control the monopolistic and anti competitive trade practices.

6) Macro Non Economic Factors: Understanding of non-economic environment is very essential for the business management. An individual firm is not in position to bring change in this environment, it has to operate and adjust according to this environment. Under this the factors which determine the scope of business activities are: a) Political Structure. b) Legal Structure. c) Cultural structure.

7) Demographic Environment: Demographic characters of a country have an important influence on business environment. Apart from the size and growth of the population demography includes density of the population, male female ratio, size of working population etc. These factors are helpful in determining the human resource of the country, demand for the product and wages or salary structure of the working population.

8) External Environment: This is the enterprise level external macro environment constituted by the business relations of an organization with outside parties. Some of the main entities with which the firm has business relations are Customers, Suppliers, Financial Institutions, Competitors etc.

9) Internal Environment: The determinants of the internal environment are: a) Mission and vision of the organization.b) Industrial Relations.c) Management philosophies and Strategies.d) Quality controlled system.e) Team spirit among employees.f) Quality of Internal Communication system.

Ethics: It refers to a system of moral policies, a sense of right and wrong, goodness and badness of actions and their consequence. Business Ethics refers to the applications of ethics in business, it is the extension of values of personal life to business.

Corporate Governance: Corporate Governance basically refers to a set of systems and sub systems by which company is controlled and directed, the basic objective of corporate governance is to maximize long run interests of the stakeholders.

Hallmark of a good Corporate Governance: 1) To maximize the long run corporate values.2) It is transparent and Effective.3) It is able to prevent corporate crimes.4) It promotes competitiveness and overall growth of the organization.5) It maintains a healthy corporate culture that blends well into the socio economic

and cultural profile of the society.6) It is ethical and socially responsible.7) It is flexible and dynamic.

8) It provides adequate space to the shareholders for effective contribution to the governance of the company without getting involved in the day to day functioning of the company.

9) It resolves the conflicts between stakeholders for the long run benefit of the organization.

Factors influencing the Corporate Governance:

1) Ownership Structure of the organization: The ownership of can be disbursed among shareholders or can be concentrated in the hands of few shareholders.

2) The structure of Company’s Board: The structure of Company’s Board has a considerable influence on the way the company’s are managed and controlled. The board of directors are responsible for establishing company objectives, policies of the company and selecting the top level executives to carry out these policies and objectives.

3) Financial structure: The proportion between debt and equity has implications for the quality of governance. Investors exercise significant influence on the way the company is managed and controlled.

4) The institutional environment: The legal regulatory and political environment within which the companies operate determines the quality of corporate governance.

Mechanism of Corporate Governance:

In our country, there are six mechanisms to ensure corporate governance:1) Company act 1956.2) S.E.B.I act 19923) Market for Corporate Control.4) Participation of shareholders in the governance of the companies.5) Statutory auditing.6) Code of Conduct.

The code of conduct is based on the checks and balances specially at the level of board of directors to guard against undue concentration of power and to ensure adequate disclosure of information when it is required. It Comprises of 4 Sections:

1) It is proposed that the number of executive directors should be balanced by adequate members of non executive directors with one board chairman and chief executive director.2) It was emphasized that non executive directors should be appointed only for a specific time period and there should be formal process for their appointment.3) There should be full and clear exposure of the emoluments and pay should be set by the remuneration committee consisting mainly of non executive directors.4) Financial reporting controls: It was recommended that properly constituted ordered committee of the board of directors should be appointed and non executive directors should report regularly on the effectiveness of the system and internal financial control.

Module 2 - Key Indicators of Macro Economy

Module 2: Key Indicators of Macro Economy

Key indicators of Economic perspectives:It is one of the most basic and important indicator of the health of the economy. It provides the measure of aggregate output and its comparison over a period of time help us to calculate the rate of growth of the economy. Following are the key indicators of macro economic environment:

1) GDP2) Sectoral Shares3) Inflation4) Agricultural Output5) Money Supply6) Foreign Trade7) Foreign Exchange8) Electricity Generation9) Economic Infrastructure10) Social Indicator

1) G.D.P: G.D.P is calculated both at current prices and constant prices. At current prices G.D.P growth is partially due to the growth in the prices and partially due to increase in prices. Thus G.D.P at current price can give misleading picture of growth. E.g. If the G.D.P at current prices records a growth of 5% then there may be 0 growth in the output and increase in price making it 5%, thus G.D.P also helps us to calculate the rate of inflation in the economy. To avoid such type of difficulties, G.D.P is calculated at constant prices taking one of the past year’s as the base year. Presently C.S.I (Central Statistical Organization) computes G.D.P for the Indian economy taking 93-94 as the base year. Thus a G.D.P growth of 5% calculated at constant price indicates 5% increase in the growth of an Economy.

Difference between nominal and Real G.D.P: Nominal G.D.P is the value of the flow of output produced in an economy over a period of time calculated at current market prices. Real G.D.P is the value of physical output produced in the country.

G.D.P Deflator: It is a price index number which can be applied to nominal G.D.P figure to remove the effect of changing price level. G.D.P Deflator can also give the rate of inflation of an economy.

2) Sectoral Shares: The sectoral share of G.D.P indicates the type and nature of the economy. If in the economy the share of agriculture is largest and agriculture provides employment to major part of the population then such economies are generally considered as low income and slow developing economies. Economies with good rate of growth are generally those economies in which share of industry in the national output are increasing and agriculture is falling over the period of time. Within the industrial

sector the share of industries such as iron & steel, petroleum, electrical engineering products, Automobiles, Fertilizers etc is indicative of industrial and technological environment, these industries provides strong base to the growth of agriculture. Increasing share of service sector in the total G.D.P is the indicative of high rate of growth as service sector provides finances, transportation, insurance, communication to the industrial and economic structure.

3) Inflation: Inflation is a process in which the general price level reports a sustained and appreciable increase over the period of time. There are many kinds of inflation as follows:a) Creeping: 0-5%b) Walking: 5-10%c) Running: 10-20%d) Galloping: 20-50%e) Hyper: Above 50%

Inflation below 5% is generally not a problem rather its considered as good boosters for the firm’s growth as it provides more profit margins to the producer and profits are motivator for further growth. Double digit inflation requires anti inflationary policies.Galloping and hyper inflation can lead to economic crises and requires strong anti inflationary policies.

Inflation can be of two types: Demand pull inflation and cost push inflation.Demand pull inflation results when aggregate demand exceeds aggregate supply. The pull of demand may be due to the fast increase in money supply or bank credit. On the other hand cost push inflation results because of sustained increase in the prices of inputs including capital goods, intermediaries and raw materials. Cost push inflation also occurs when workers negotiate for more wages and salaries or more facilities.

4) Agricultural Output: Agricultural output is also a very important indicator of positive macro economic environment. Agriculture provides food for the population, raw materials to the industry and employment to major portion of population. Shortage of food can create serious scarcity of food and country can become dependant on the import of food from other countries. It causes a drain of scarce foreign exchange resources. Given the inequalities of income the shortage of food can also lead to malnutrition, poverty and hunger. Similarly it can also create dependents of industry on imports as agriculture provides many types of inputs to the industries. The imports of these inputs by the industry can increase the cost of production and reduces the industrial competitiveness in the international markets and also cause inflationary pressures.

5) Money Supply: It is an important indicator of macro economic environment; it is determined by the central bank of our country along with the wide network of commercial banks and other financial institutions. R.B.I has adopted 4 measures of money supply i.e. M1, M2, M3 & M4.

M1 & M3 are the most popular components from the operational point of view. M1 is known as narrow money and M3 is known as broad money.M1 Consists of:

a) Currency with the public in the form of coins and notes.b) Demand deposits with the bank and other deposits with R.B.I

M3 consists of M1 plus time deposits with post offices and other commercial banks Ideally money supply should be equal to the growth of the output, this is important to maintain price stability in the economy under competitive conditions. If money supply is less then the growth of the output, it means sufficient money is not available in the economy to conduct transactions. It creates shortage of liquidity and leads to increase in the market rate of interest. Increase in the rate of interest increases the cost of capital and lowers the competitiveness of the firm. Thus a low money supply is the indicator of negative macro economic environment. Excess of money supply may lead to inflationary pressures from the economy.6) Foreign Trade: Foreign trade of a country not only affects the national income of a country but is also an indicator of country’s openness and competitiveness in the international market. It is also indicative of economic liberalization and positive attitude of government towards globalization. A country with low level of imports and exports indicates poor economic relations. The commodity composition of foreign trade reflects the nature of an economy. A slow growing and low income economy exports primary and low value added product and import high value industrial products. Foreign trade balance is the key indicator of foreign exchange, a positive trade balance which is known as surplus increases the foreign expenses and is an indicator of positive macro economic environment.

7) Foreign Exchange Reserves: It consists of foreign currencies, gold holding of central bank and Special Drawing Rights of World Bank. Foreign exchange reserve of a country indicates its ability to pay, import, clear off debt liabilities etc. The international credibility of a country is seriously jeopardized if it does not maintain adequate foreign reserves. To protect good image of the economy, most of the governments, particularly in developing economies would maintain comfortable level of reserves even through borrowings from the other countries. A low level of foreign exchange reserves of a country indicates a substantial devaluation of the currency, foreign exchange crisis and heavy restrictions on imports. Foreign trade involves the use of the currencies of different countries, the price of one unit of a currency in terms of the number of units of other currency is known as foreign exchange rate. E.g. If 40 Rupees are exchanged for 1 U.S.D, its called rupee exchange rate, if this rate increases to rupees 45 a dollar, then rupee depreciates and dollar appreciates. On the other hand if the rate falls to 35, then rupee appreciates and dollar depreciates. A currency which has a long term tendency to depreciate is known as the weak currency and foreign investors generally don’t prefer weak currency. Thus, foreign exchange stability is the key indicator of positive macro economic environment.

8) Electricity Generation: Electric power is the device of modern technology; it is the major component of the company’s infrastructure and the cost of production. Because of massive investment and manpower requirements, it is managed by government companies in most of the developing countries. Availability of sufficient power is a key indicator of positive macro economic environment. Insufficient power supply upsets production schedules and creates excess capacities in production units. This increases cost per unit and reduces the competitiveness of the organization. Power inadequacy discourages both domestic and foreign investment in the corporate sector, it equally affects agricultural sector too. Keeping in mind the macro economic importance of power, the government of India has already initiated a program of power sector reforms.

9) Economic Infrastructure: It is the foundation on which various economic activities takes place. The growth of economic factors including power, telecommunication, roadways etc is essential to sustain growth and development. Insufficiency or poor quality of infrastructure constrains business operations and increases operational costs E.g. Poor quality of roads and congested ports increases the delivery time of cargo and also increases the working capital requirements etc.A number of private sector projects in infrastructure have been held up for reasons such as power shortage, lack of resources etc. Availability of good quality infrastructure expands the scope of economic activities, Activities of almost all the industrial countries of the world have developed infrastructure.

10) Social Indicator: Economic growth does not have much meaning in the economy if it does not bring quality of life of the people. Social development is directly related to human resource development, hence it takes place through education, nutrition etc. Specific programs targeted at women, children,, old population and economically backward classes are the important components of social service. Other social indicators are: Poverty rate, Labor force participation rate, Health Indicator etc.

Module 3 - Industrial Policy and Performance

Industrial policy refers to the government policy towards industries. It is related to their establishment, functioning, growth and management. It also focuses in the respective areas of small scale, medium scale and large scale industries. It also indicates the government policies towards foreign capital, taxes, subsidies and other related areas.

Present industrial policy 1991:

Objectives:1) To de regulate the economy in substantial manner.2) To remove the weaknesses or distortions of the earlier policies.3) To maintain sustained level of growth and productivity.4) To promote the growth of entrepreneurship.

5) TO upgrade technology to match the standards of international competitiveness.

The steps taken to achieve these objectives are as follows:

1) Abolition of industrial licensing: The important landmark of new industrial licensing for all the industries except the few industries because of social and security reasons. Some of these reasons are sugar, coal, hazardous chemicals producing industries, medicinal industries, petroleum etc. The exemption from licensing will make the economy more competitive, efficient and modern and will take its right place in the world of industrial growth.

2) Liberalization of foreign investment and technology inflow: Foreign investment brings advantages of technology transfers, marketing expertise, introduction to modern management techniques, and new possibilities for the promotion of exports. The emphasis of industrial policy of 1991 has been to invite foreign investment in high priority areas requiring large investment and sophisticated technology. Initially policy provided F.D.I up to 51% but in the subsequent years the limit has been raised substantially The policy explicitly recognizes the need for foreign investment for export development. The policy also provides automatic approval for technical collaborations within specified parameters. The policy provides freedom to Indian companies to negotiate terms of technology transfer with foreign companies according to their own commercial wisdom subject to the condition that no foreign exchange is drained out. The basic intention behind the provision is to motivate Indian firms to develop the capacity to absorb foreign technology in their production processes and invest more in research and development. No prior government clearance is required for having foreign techniques and testing foreign technologies.

3) Public sector refocusing: The new industrial policies impart a new focus to the problems of public sector.The problems of the public sector identified by the policy are:

a) Insufficient growth of productivity.b) Poor management.c) Poor manpower planning and overstaffing.d) Lack of continuous technical up gradation.e) Inadequate attention to R & D and H.R.Df) Very low return on capital.

New Industrial policy lays emphasis on the restructuring of public sector and lays down following priority areas for its growth:

a) Essential infrastructure for the production of goods and servicesb) Exploration and exploitation of mineral oil resources.c) Technological development.

d) Building of manufacturing capabilities in those areas which are required for the long run development of an economy.

e) Manufacturing of products which are of strategic importance such as defense equipment.

4) Removal of size limit on large companies: The new industrial policy provides more freedom to large scale companies to enable them to attain greater competitiveness particularly in foreign markets. According to the M.R.T.P act the industries having assets more then 100 crores were required to obtain a separate license for additional investment and capacity expansion. This provision was kept to prevent or control monopolistic or dominant influence on the market however under the new industrial policy; such firms need not require obtain approval of the government for investment.

5) Removal of mandatory convertibility clause: The new industrial policy has removed the convertibility clause under which the financial institutions financing the industrial projects had the option of covering their loans into equity if they wanted to do so. This clause was compulsory although this option was not often exercised and it was considered to be a hanging threat of take over by the financial institutions. This clause is no longer compulsory in the new industrial policy.

6) De-Reservation of the industries of public sector: The new industrial policy opened up a number of industries to the private sector which were earlier reserved for the public sector. Under the industrial policy of 1956, 17 industries were reserved for public sector and in 1991 industrial policy the number of reserved industries were brought down to 8. The new industrial policy provides that the focus of the public sector would be on strategic and high technology industries. The industries De-Reserved include Iron & Steel, Electricity, Airlines, Ship Building and heavy machinery industries.

7) Privatization of government share in public sector units: The government has resolved to offer 49% of the government share holding in 31 public sector undertakings to mutual funds, financial institutions, general public and workers.

Evaluation: The new industrial policy makes the end of old policies and the beginning of new era in the government approach towards the management and control of the industrial sector. The departure from the old industrial policy is of a drastic nature and some of the changes are:

1) Earlier industrial policies made the public sector the main instrument of industrial growth however in the new policy private sector has been made the main instrument for the future industrial growth.

2) The earlier industrial policies allowed foreign investment on selected basis with 40% of share however the new industrial policy invites foreign investment to 34 industries to 51% share.

The new industrial policy is expected to make Indian industry more efficient and internationally competitive. It is expected to encourage new private investment in areas open for private sector. The industrial growth rate is around 7% since new industrial policy came in force. The short term performance is certainly better but long run still has to come, we still have to wait for the results of new industrial policy in the country.

The board of industrial & Financial Reconstruction:- It was formed on 12Jan87- Total Cases 5147- Restructures 434- Under Revival 259- Wound Up 1377

Benefits given for small scale industries:a) Industrial Estate program.b) Integrated infrastructural development scheme.c) Growth centre scheme.d) Identification of growth centers.

Regulatory role of the government:Regulatory measures ensure orderly development of industry with least wastage

of resources. These regulatory resources can be in the form of direct controls or indirect controls, these measures include:

a) Industry Development & Regulation Act (I.R.D.A)b) Competition Actc) Company Actd) Foreign rate exchange management act 2000e) Labor Lawsf) Indirect control in the form of monetary and fiscal policy.

1) Industrial Development & Regulation Act: It is one of the most powerful and efficient weapon in the hands of the government to regulate the development and control the activities of industrial sector. The Objectives of the act are:a) To take necessary steps for the development of the industry.b) To regulate the pattern and direction of industrial development.c) To control the activities, performance and results of industrial undertakings in public interest.d) Main provisions for the regulations are:- Regulation of conduct and management of business.- Regulation of growth of the business.- Regulation of production, supply, price and distribution.- And also the decorum of management.

2) Competition Act: This act was introduced by the government to restrict the unfair trade practices which restricts the competition, affects the flow of goods & services in the market or manipulation of prices. Through this act, if there is any misuse of market power, the case can be referred to the competition commission of India for enquiry and report.

4) Foreign Exchange Management Act (F.E.M.A): This act came into effect from 1st Jan 2000 and applies to all branches, offices and agencies outside India, owned or controlled by residents of IndiaObjectives of F.E.M.A:a) Facilitates external trade and payments.b) To promote the orderly development and maintenance of foreign exchange market.c) According to this law, deals in foreign exchange should be through authorized persons permitted by the reserve bank of India only.

5) Labor laws: Labor is the important component and factor of production, it is the responsibility of each organization to maintain and motivate this human resource as it occupies a significant place in the process of production. There are several laws related to labor, some of them are:a) Laws related to industrial labor organizations which aim on improving the working conditions of labor.b) Laws related to wage payment.c) Laws related to union and management.d) Indirect control.

Module 4: Monetary and fiscal Policies

Monetary Policies:

Introduction: Monetary policy is an important tool of macro economic policy. It is designed, formulated and implemented by central bank to a wide network of commercial banks and other financial institutions. The policy is announced one or twice a year and is kept tuned to take care of changes in business environment and economic conditions of the country. Monetary policy is generally designed to include all measures, direct or indirect that affects the supply of money, availability of credit, interest rate and overall development of financial sector. All these measures have significant effect on the decisions of business organization. Changes in the monetary policy affect the aggregate demand and the level of prices in the economy, availability of credit can alter the investment decisions of the business organizations as changes in interest rates can influence the profitability of the investment and the capital structure of business firms at the household level, change in interest rates also influences the savings and credit based consumptions and asset management. At the macro level, change in interest rates influences the exchange rates and flow of foreign investment in an economy. Finance managers watch the monetary policy developments

very sharply and make adjustments in their financial strategies to adjust with the macro economic environment.

Goals of monetary policy:Various objectives of monetary policies are:

1) Achieve high growth rate.2) Full Employment level.3) More equitable distribution of income and wealth.4) Price Stability.5) Stability of exchange rate.6) Stability in balance payment.7) Controlling business cycles.

Targets of Monetary Policies:1) Expansion of monetary supplies.2) Expansion and contraction of money supply.3) Interest Ratio.4) Reserved ratios of commercial banks.5) Reserved ratios of central bank.6) Money and credit ratio in the economy.

Quantitative Instruments in Monetary Supply:

The mechanism of bank trade in monetary policy is as follows:1) Increase in Bank rate: Raise in bank rate signifies a restrictive monetary policy

designed basically to control inflation, in this process some slow down in the rate of growth takes place which is taken as the cost of restrictive monetary policy. The reverse action takes place when high rate of growth has to be achieved in the economy and that type of monetary policy is known as expansionary monetary policy.

2) Open market operations: These operations are mainly conducted by the central bank of the country and involve pre audit sale and purchase of government securities. As the central bank sells securities money gets transferred from the commercial bank to the central bank, The opposite happens when there is purchase of securities. The mechanism of open market operations are as follows: Sale of Bonds will lead to decrease in deposits which lead to decrease in credit which lead to decrease in investment which lead to Decrease in aggregate demand which lead to Decrease in prices. Sale of bonds causes bank deposits to fall further causing fall in credit supply, as credit is the main component of money supply this decreases money supply. The decrease in money supply affects the aggregate demand and decreases the prices in the economy.

3) Cash Reserve Ratio: Commercial banks are generally required to hold a minimum amount of non interest bearing reserves with central bank, these reserves are statutorily required and it is a certain percentage of their demand and time liability. In India these reserves requirements are called as cash reserve ratio under R.B.I and it can be varied by R.B.I in the range of 3% to 15%. The central bank uses this money in buying foreign exchange and giving loans to commercial banks. Changes in the reserve ratio are used as the important tool of monetary policy. Under restrictive monetary policy, the reserve requirements would be raised and this would transfer a substantial portion of money from active deposits of banks to passive deposits of R.B.I, this leads to decrease in the credit creation in the economy. These factors are expected to slow down the aggregate demand and fall in the general price level. The mechanism works in the opposite direction when the cash reserve ratios are reduced.

4) S.L.R (Statutory Liquidity Requirements): Every bank is legally required to maintain a certain percentage of deposits in cash to meet the withdrawal requirements of the depositors. Such reserves are held by the bank not only in the form of cash but also in the form of near money assets. A raise in S.L.R directly reduces the credit creating capacity of banks and hence it immediately affects the supply of money and credit in the economy.

Qualitative Measures in Monetary Supply:These measures are selective rather then generally applied. They affect the

distribution and flow of credit rather then quantity of credit. The central bank with the help of these instruments may increase the flow of credit to certain sectors which acts as the growth drivers or which are socially important and it reduces the flow of credit to sectors which are non essential or inefficient. Some of the qualitative measures are as follows:

1) Changes in margin requirements: Margin requirements may be varied according to the type of securities and assets to be financed. A higher margin requirement reduces the quantum of finance for specific industry.

2) Differential Interest Rate: Central bank may prescribe different rate of interest to different sectors or for different activities E.g. Lower interest rate could be required for priority sector such as small scale industries, exports, agriculture and higher rates may be permitted to those sectors where central bank wants to reduce the credit.

3) Moral Suasion: It is the method of persuading or Convincing the commercial banks to advance credit in accordance to the policy decisions taken by the economic interest of the country. Under this method the central banks writes letters, publishes articles and hold direct discussions and meetings with the banks. Certain times central banks may use direct methods in the form of cancellation of license if any commercial bank is not following the instructions of the central bank however these methods are very rare.

Fiscal Policies:

Fiscal policy is the important tool of the macro economic policy and has the power to influence the key variables of the economy. It has both macro economic and micro economic effects which determine the business environment. A business manager has to monitor fiscal policy developments closely in order to make strategic adjustments. Fiscal policies have the power to affect aggregate demand, general price level, past conditions, international trade and distribution of wealth and overall growth of an economy.

It is a policy under which the government of the country uses taxation, public expenditure and public debt to achieve pre determined economic and social goals to solve specific problems of an economy. Fiscal policy is the overall budgetary management through which the government manages the public revenue most effectively and efficiently, It is reflected in the annual presentation of the budget.

Objectives of Fiscal Policies:

1) Attainment of full employment.2) Achieving high rates of growth.3) Optimum allocation of resources.4) Equitable distribution of income and wealth.5) Price Stability.6) Control of Business cycle.7) Balanced growth and export development.

Instruments of fiscal policies:1) Taxation: Taxation is the most important tool of fiscal policy and it is also a major

source of source mobilization. Tax is a compulsory levy imposed by the government on most of the economic units. Taxes can be classified as direct and indirect taxation: Direct tax is generally defined as the one in which the incidence of the tax rests upon the person who bears the impact also. E.g. Income Tax, Property Tax, Wealth Tax etc. If the incidence is passed on to other person, it is known as indirect tax. Taxation as a instrument of fiscal policy has a wide effect on aggregate demand, production, cost, supply of investment and overall resource allocation in the economy.

2) Public Expenditure: It is another tool of fiscal policy which is very powerful, a raise or fall in public expenditure brings changes in public expenditure brings changes in the level of national income. Public expenditure is mainly financed through taxes, market borrowings and deficit financing. Public expenditure weather in the form of consumption or investment increases the aggregate demand and hence G.D.P of the country.

3) Public Debt: Changes in Public Debt transfers money from the public and business organizations to the government. As the public expenditure increases through public borrowings in the household sector, consumption falls and in the business sector the investment falls. Investment is further discouraged because of increased rate of interest. The combined effect is that the aggregate demand falls which slows down the output and prices. Fiscal operations of the government have significant effect on the business sectors of an economy as different rates of taxes makes investment in certain sectors more attractive then others. Thus fiscal policy is an important economic policy through which government tries to control various important economic variables.

4) Budget: Budget means the estimation of revenue and expenditure of the government. Budget approval is very important exercise because without its approval no taxes can be levied or no expenditure can be incurred as the government can spend only on approved items. As per the constitution of our country the government has been preparing annual budget and placing them before the parliament, getting its approval and spending and raising the revenue. The work of preparing the annual budget begins in the month of august every year and after its finalization, it is presented in the parliament on the last day of February by the finance minister in the name of the president of India, the budget speech of finance minister is of great importance and is eagerly awaited by the finance and business circles as it contains fresh information about fresh taxes and proposals relating to expenditure. Occasionally in times of financial crisis an interim budget may be introduced by the government to increase taxes or expenditure. The receipt and expenditure of the government are audited by controller and auditor general in order to ensure that the executives have spent the money in accordance with the wishes of the legislature. The budget is divided into two parts – Revenue budget and capital budget: the revenue budget deals with the revenue receipts which includes receipts from taxes, interest, dividends, profit and revenue expenditure is mainly on the administration. Capital budget is the statement of all capital expenditure and capital receipts which include market loans, external loans, deposits etc.

State Budget: Every state government needs to prepare a budget of its own, over the years following problems have emerged from the way the states have been managing their respective finances.

1) The states combined fiscal deficit: The states combined fiscal deficit has gone up which is a disturbing feature.

2) The states have failed to deliver on the social indicators that would benefit the poor people.

3) Expenditure on establishment is growing year by year4) Loss making public sector undertakings are continued to be financed

which drains stray finances.

Technological Perspectives

Environmental cost audit: It is to asses the impact of industrial trade on the environment. Environmental auditing has been regarded as a significant technique which includes:

a) Life Cycle Assessment: Under this the manufacturer should account the impact of their entire product cycle on the environment. This means from the extraction of resources, manufacturing and till disposal, the entire impact has to be accounted for. Life cycle assessment provides information for labeling program that can help the consumer in selecting products according to their environmental attributes such as quality, price, warning against harmful usage etc.

b) Training: If environmental policies have to be launched successfully, then training is very important. Companies should identify different methods of training required for managers & supervisors. Training must ensure that employees can effectively apply and use technical and engineering control methods to conserve energy, prevent pollution and implement emergency measures.

c) Consumer Education: Consumer education is very important of consumer has to play an important role in environment improvement. The aim is “Buy Better, Not More”, business must play a supporting role by providing eco labeling of product giving proper information on inputs, energy use, disposal etc.

d) Toxins release inventory: Industries should develop policies and strategies to reduce the source of environmentally hazardous chemicals such as several European countries are developing active pesticide policies to reduce the risk of human health and environment. In short it can be said that the business and industry should adopt true cost accounting procedures which include environmental cost auditing. Such a situation will ultimately create more efficient use of economic resources and enhance long term global economic performance.

Technology Transfer: Technology is an essential mode for socio economic development of a country, as it is a known fact that today the modern know how and technology is the monopoly of the multinational corporations, the loss developed economies are totally dependent on M.N.C’s for borrowing the sophisticated and costly technology.

Methods of transfer of technology:

1) According to the nature of technology, it can be transferred in the following ways:

a) Simple direct sale of technology: It consists of sale of embodied technology or disembodied technology by unrelated firms for prices which are more or less competitive.

b) Process package sale of technology: It is a method where technology is accompanied by other requirements for the commercial operation of a product. It is a system where a complete industrial process or plant is supplied by manufacturing engineering firm.

c) According to the nature of the instruments used: In this method, technology is sold in the form of equipment, designing of plant, management, licenses, direct investment etc. Technology transfer can take place by the following ways:

- By Flow of books and other published information.- By the movement of people between countries including study visits.- By the import of machinery and equipment.- By technical operation programs.- By Licensing.- By Patent.- By Know how agreement.

Technology transfer by flow of books and published material is more important for the transfer of fundamental scientific knowledge; all the other methods are directly related relevant for the transfer of industrial technology.

Incentives for technological research and development:

1) The department of scientific and industrial research operates a scheme for having recognized in house R&D units. The various incentives and support provided by the government to recognized R & D units in the industry includes:a) Income tax deduction for sponsor research program.b) Income tax relief on R & D expenditure.c) Exemption from the payment of customs duty on goods imported for use in government funded R & D projects.d) Excise duty waiver for 3 years on goods produced using technology patented in U.S.A, Japan, or in any country of European Union.e) Direct financial support to R & D centers.f) Technology promotion for self reliance. 2) The department holds annual national conference on in house R & D in industry and certain awards are given for the development of technology. These departments provides partial financial support R & D designs and engineering projects for the development of new processes and products for Indian and foreign parties. It also provides partial financial assistance for development of technologies which promotes self reliance. Under its scheme of transfer and trading in technologies it promotes and supports activities relating to exports of technologies, projects and related services.

3) Consultancy Support: A part of technology development program consists of those measures which promote consultancy capabilities of the country. These measures are taken through consultancy development centre which is a non profit making society. Some of the measures to assist and promote consultancy are:a) Conducting human resource development and training program for consultancy.

b) Sponsoring consultancy development programs for other organizations.c) Providing computerized database for consultants.

Information System for technology development: For the promotion of suitable technology, national information system for science and technology provides support to the inter working of informational systems on science and technology. The system seeks to promote the services provided by the existing network for technological development. It is also operative in the direction of improvement in existing information technique. The system supports 12 major information networks in the country and many of these have access to international databases.

Entrepreneurship: Entrepreneurship is the process of innovation and organization of resources with a motive of earning profits under conditions of risk and uncertainty.

Privatization: In narrow sense, privatization implies the induction of private ownership in publicly owned enterprises, but in broader sense besides private ownership there is the induction of private management and control in the public sector enterprise.Thus privatization is the general process of involving the private sector in the ownership or operation of a state owned enterprise. Thus the term refers to the private purchase of all or part of a company