Assignment Code: ECO-13/TMA/2021-22

Course Code: ECO-13

Assignment Name: Business Environment

Year: 2021-2022

Verification Status: Verified by Professor

Marks: 100

Q1) What is meant by mixed economy? Highlighting its salient features, explain how it helped in developing industrial infrastructure in India?

Ans) A mixed economy is an economic system in which free markets coexist with government intervention in resource distribution, commerce, and trade. When a government intervenes to disrupt free markets by introducing state-owned firms (such as public health or education systems), regulations, subsidies, tariffs, and tax policies, a mixed economy might arise. A mixed economy, on the other hand, might occur when a socialist government makes exceptions to the rule of state ownership in order to profit economically from private ownership and free market incentives. All mixed economies share a blend of free market concepts of private contracting and socialist principles of governmental ownership or planning.

It's the perfect blend of capitalism and socialism. This system allows for economic independence as well as government intervention for social welfare. As a result, it is a hybrid of the two economies. The term "mixed economy" is relatively new. Developing countries, such as India, have chosen a mixed economy to hasten economic development. Even developed countries such as the United Kingdom and the United States have adopted the 'Mixed Capitalist System.' "Mixed economy" is defined by Prof. Samuelson as "an economy in which the public and private sectors work together." "Mixed economy" is defined as "an economy in which both the government and private persons exercise economic authority," according to Murad.

Features

Co-existence of Private and Public Sector: There is coexistence of the public and private sectors under this system. Defense, power, energy, basic industries, and other businesses are established in the public sector. On the other side, all consumer products industries, agriculture, and small-scale industries are developed in the private sector. The government promotes both industries to grow at the same time.

Personal Freedom: Although consumers do not have perfect freedom in a mixed economy, the government can regulate pricing in the public interest through the public distribution system.

Private Property is Allowed:  Private property is permitted in a mixed economy. However, it is important to remember that wealth and income must be distributed equally. It is necessary to ensure that profit and property do not concentrate in a few hands.

Economic Planning: In a mixed economy, the government strives to encourage the country's economic progress at all times. Economic planning is used for this aim. As a result, economic planning is critical in this system.

Price Mechanism and Controlled Price: In this arrangement, both the price mechanism and the controlled price are active at the same time. In the consumer goods industry, the price mechanism is commonly used. However, prices are controlled and the public distribution system must be made efficient during times of severe shortages or national emergencies.

Profit Motive and Social Welfare: Profit motives, as in capitalism, and social welfare motives, as in socialist economies, coexist in a mixed economy system.

Check on Economic Inequalities:  In this system, the government takes a number of steps to close the gap between the rich and the poor, including progressive income and wealth taxation. Subsidies are given to the impoverished, and they are also supplied with job opportunities. Other measures, including as concessions, old-age pensions, free medical care, and free education, are also done to help the poor. As a result, all of these factors contribute to the reduction of economic disparities.

Control of Monopoly Power: Under this system, the government takes significant steps to prevent private entrepreneurs from engaging in monopolistic behaviour through effective legal measures. Furthermore, in the public interest, the government can falsify these services.

Cooperative Sector: Another sector, the cooperative sector, occurs in a mixed economy. The primary goal of forming this sector is for the government to provide financial aid to cooperative societies in the warehouse, agricultural, and dairy industries, among other industries.

Freedom and Control: Individuals have the freedom to generate goods and services, own property, pick their employment, and demand the products and services they want in this country. However, the state maintains some supervision over monopolistic behaviours and discrimination against the poorer classes.

Social Welfare: Social wellbeing is one of the fundamental goals of a mixed economy. Its goal is to close the wealth gap in the country and combat societal inequities. Poverty and unemployment are to be reduced. Simultaneously, increase social security, public health care, and the public education system, among other things.

Q2) What do you mean by fiscal policy? Describe various instruments of fiscal policy in India.

Ans) Governments use fiscal policy to stabilise the economy, specifically through adjusting the levels and allocations of taxes and government spending. To attain particular goals, fiscal policy is commonly employed in conjunction with monetary policy. The typical objectives of fiscal and monetary policy are to achieve or maintain full employment, a high rate of economic growth, and price and wage stability. The development of means to attain these objectives as suitable aims of governmental economic policy and the establishing of these ends as proper goals of governmental economic policy are both products of the twentieth century.

The decisions that determine whether a government will spend more or less than it receives are referred to as fiscal policy. Until the unemployment crisis of the 1920s and the Great Depression of the 1930s, it was widely assumed that the government's fiscal policy should be to keep a balanced budget. The severity of these disruptions sparked a new set of ideas, first formalised by economist John Maynard Keynes, centred on the idea that fiscal policy should be used "countercyclically," that is, that the government should use its economic clout to counteract the economy's expansion and contraction cycles. Briefly, Keynes' rule was that the budget should be in deficit when the economy was experiencing low levels of activity and surplus when the economy was experiencing high levels of activity (frequently accompanied by high inflation).

The use of government spending and tax policies to impact economic conditions, particularly macroeconomic variables such as aggregate demand for goods and services, employment, inflation, and economic growth, is referred to as fiscal policy. Fiscal policy is sometimes contrasted with monetary policy, which is implemented by central bankers rather than elected leaders.

1. The use of government spending and tax policies to impact economic circumstances is referred to as fiscal policy.

2. Fiscal policy is largely founded on the views of John Maynard Keynes, who claimed that governments could regulate economic activity and stabilise the business cycle.

3. During a recession, the government may use expansionary fiscal policy to boost aggregate demand and boost economic growth by decreasing tax rates.

4. iA government may follow a contractionary fiscal strategy in the face of rising inflation and other expansionary signs.

Instruments

Budget: The budget of a country is a valuable tool for assessing economic variations. Economists have developed a number of budgetary principles, the most well-known of which are:

1. Budget for the Year: The notion of an annual balanced budget was proposed by classical economics. They defended it tenaciously until the deep-seated crises of the 1930s.

2. Budget with a Cyclical Balance: The term "Swedish budget" refers to a cyclical balanced budget. Such a budget entails budgetary surpluses during prosperous periods and the utilisation of surplus income sources to pay down the national debt. During times of recession, deficit budgets are structured in such a way that budget surpluses from earlier periods of inflation are offset by deficits.

3. Compensatory Budget that has been Meticulously Managed: With the goal of achieving full employment without inflation, this policy entails a deliberate adjustment in taxes, spending, revenues, and public borrowings. The budgetary balance is given merely a secondary importance. It emphasises the need of maintaining full employment and price stability. The increase of public debt and the difficulty of interest payment can be easily averted if this approach is followed. As a result, the concept is sometimes known as 'functional finance.'

Taxation:  In the hands of public authorities, taxation is a powerful fiscal policy tool that has a significant impact on changes in disposable income, consumption, and investment. Anti-depression tax policy boosts individual disposable income, encouraging consumption and investment. Obviously, when taxes are reduced, consumers will have more money available for consumption and investment.

This will eventually lead to an increase in spending activities, so increasing effective demand and closing the deflationary gap. In this sense, it is occasionally suggested that commodity taxes such as excise levies, sales tax, and import duty be reduced. Consumption is boosted as a result of these tax breaks. Economists like Hansen and Musgrave have stressed the decrease of corporate and personal income taxes to overcome the economy's contractionary tendencies, with the goal of increasing private investment.

Now, a critical question arises as to how much unemployment is decreased or mitigated as a result of tax cuts that encourage consumption and investment spending. In this situation, the reduction in unemployment is negligible. If a tax-cutting policy like this is continued, both consumers and investors are likely to put off spending in expectation of a future tax cut. Furthermore, it will cause additional budgetary challenges for the administration.

Public Expenditure: The government's strong participation in economic activity has elevated public spending to the forefront of budgetary instruments. Variation in government spending, rather than taxation, can have a greater direct impact on the amount of economic activity. Increased government spending will have a multiplier effect on income, output, and employment in the same way that increased investment does. Similarly, because of the reverse operation of the government expenditure multiplier, a reduction in government spending can lower economic activity.

Public Works:  The most important anti-depression device, according to Keynes' General Theory, is the public works programme. Public Works and 'Transfer Payments' are the two types of expenditures. Prof. J.M. Clark defines public works as "durable goods, largely permanent structure, produced by the government."

They cover things like roads, train tracks, schools, parks, buildings, airports, post offices, hospitals, and irrigation canals, among other things. Interest on public debt, subsidies, pensions, relief payments, unemployment, insurance, and social security benefits are examples of transfer payments. Capital expenditure refers to spending on fixed assets (such as public works).

Keynes believed in such a programme so much that he went so far as to argue that even absolutely ineffective undertakings like digging holes and filling them in were fully acceptable.

Public Debt:  Public debt is a sound fiscal weapon to fight against inflation and deflation. It brings about economic stability and full employment in an economy.

Q3) (a) Outline the causes of industrial sickness.

Ans) When we talk about industrial disease, we don't mean that it's caused by a single reason; rather, it's the outcome of the combined effects of several causes. Internal and External Causes are the two kinds of causes that cause industrial disease, and they are detailed below:

Internal Causes

Internal causes are defined as those that are under the control of the company. It could be the outcome of any internal inadequacy or shortcoming in several business areas. The following are a few of these reasons:

• Technical Feasibility

i) Inadequate Technical Knowhow

ii) Inappropriate choice of technology

iii) Obsolete production process

iv) Poor information system

v)   Wrong or defective idea of industry

• Economic Viability

i) High cost of inputs

ii) High break-even point

iii) Excessive investment in fixed assets

iv) Non-flexibility of fixed assets

v) Underestimation of financial requirements.

• Production Management

i) Underutilization of production capacity

ii) Huge wastage of raw materials and supplies

iii) Poor maintenance and replacement of plant and machinery

iv) Wrong location or layout

v)  Poor quality maintenance

• Labour Management

i) Poor performance and productivity of labour

ii) Huge workforce, than required.

iii) Lack of skilled labour

iv) Unreasonably high wage structure.

v)  Poor handling of labour

vi)   Inadequate training

• Marketing Management

i)  Lack of market research and feedback

ii) Unsound pricing policy

iii) Inappropriate product mix

iv) Improper demand forecast

v)  Small customer base

vi)  Poor marketing strategies

vii) Absence of horizontal and vertical integration

• Financial Management

i) Shortage of working capital

ii) Lack of funds

iii) Defective Capital structure

• Administrative Management

i)  Huge expenditure on Research and Development

ii)  Incompetent Management

iii)  Lack of timely diversification.

External Causes

External causes are those that are beyond the control of the business and have an impact on the industry as a whole.

General Issues

1. Improper supply or non-availability of important raw material, or availability at higher prices

2. Improper supply of critical inputs like power, water, and transportation

3. Chronic Power storage

4. High production cost

5. Ignorance of potential market

Government Controls and Policies

1. Sudden unfavourable change in the policies of the government

2. Taxes and duties

3. Price control

Market Constraints

1. Innovative technological changes, due to which products turn out as obsolete.

2. Recessionary trend in the entire economy, affecting the performance of the firms

Extraneous Factors

1. Natural Calamities, like an earthquake, floods, etc

2. Political Situation

3. Industrial Strikes

4. War between countries

(b) Evaluate the policy of public sector reforms.

Ans) After the New Industrial Policy of 1991, the government implemented its current public sector policy, which includes disinvestment programmes. The New Industrial Policy, which serves as the foundation for economic reforms, has resulted in significant changes in the way public sector enterprises operate (PSUs).

PSUs underwent a number of changes as a result of the Industrial Policy of 1991, including the concentration of PSUs in certain sectors, the removal of reservation for PSUs in most sectors, their restructuring through market-oriented practises, the sale of loss-making PSUs, and the reduction of government ownership through disinvestment. As a result of these reforms, public sector enterprises no longer command the economic throne; instead, they must compete on an equal footing with the private sector.

First and foremost, the 1991 industrial policy's public sector policy specified priority and non-strategic areas for the public sector. By pulling the public sector from most non-strategic industries, the government decided to focus solely on the strategic sector. Increasing efficiency and incorporating competitive business techniques were the primary means of reducing PSU losses.

The main reform initiatives for PSUs introduced as part of the 1991 industrial policy are listed below:

1. The government will concentrate on strategic, high-tech, and critical infrastructure projects.

2. Chronically ill PSUs should be considered for reconstruction.

3. A portion of PSU shares will be allocated to mutual funds, financial institutions, the general public, and workers to boost resource mobilisation in PSUs (often this is described as disinvestment policy).

4. PSU boards will be made more professional and given greater authority.

5. The government would sign Memorandums of Understanding with the PSU Boards to allow the PSU management authority.

The following are the primary areas in which the public sector will be involved under the 1991 industrial policy:

1. Infrastructure goods and services are critical.

2. Exploration and extraction of natural resources such as oil and minerals.

3. Technology advancements and the development of manufacturing capabilities in areas critical to the economy's long-term development and where private sector investment is insufficient.

4. Manufacturing of products with a strong strategic component, such as defence equipment.

5. The Industrial Policy of 1991 influenced public sector policy and PSE disinvestment. It has implemented a reorganisation strategy and modified the role of PSEs.

Q4) Distinguish between the following:

(a) Economic and non-economic environments of business

Ans) The broad aspects of the economic system in which the business entity operates are referred to as the business environment. The current business environment is a combination of national and international contexts. The current commercial economic environment is extremely complex and difficult to comprehend. It is for this reason that businesses in similar economic environments frequently make different options.

The government, capital market, and household sectors all have economic ties to the business sector. These several industries have a combined impact on the economy's tendencies and structure. Business firms can only do so much to improve their economic climate on their own.

However, business firms can work together to make the economic environment more suitable to their operations. Business firms are now forming groups in order to influence government decisions. In India, significant business organisations include the Confederation of Indian Industry (CII), the Federation of Indian Chambers of Commerce and Industry (FICCI), and the Associated Chambers of Commerce and Industry of India (ASSOCHAM). They have a lot of clout with the government and try to alter the economic environment in their favour.

Non-Economic Environment

The non-economic environment refers to the circumstances, factors, or aspects in which a country's corporate institutions must operate. In other words, the non-economic environment encompasses all of the aspects or circumstances that a firm must consider when establishing and operating. Physical, social, cultural, political, legal, technical, educational, historical, moral, environmental, and international issues are only a few examples.

These are factors or elements that are not economic in nature:

1. These are flexible and dynamic.

2. According to the non-economic environment, business institutions might change their aims, policies, techniques, functions, and strategies.

3. Even more significant than economic factors are these.

4. Human attributes, social conventions, and traditions, political events, and historical coincidences, among other things, all have a role in the non-economic environment.

Similarly, it is necessary for economic development that people have a strong desire for progress, that they are willing to make all possible sacrifices, that they are aware of the need to mould themselves according to new ideas, and that their economic, social, political, and legal organisations assist them in putting these desires into action.

(b) Public sector and private sector

Ans)

Q5) Write short notes on the following:

(a) Main components of India’s exports

Ans) When you can examine the general economic export conditions, it's easier to understand a country's exports. In this post, we'll look at India's top five exports as well as market circumstances in each of the export categories.

India is becoming a key player in the global and national marketplace as a member of the BRIC (Brazil, Russia, India, and China) economies. It is currently the 17th largest export economy in the world. This position provides India with the necessary foothold in international trade to remain competitive.

India's exports have grown at a significant annualised pace of 1.2 percent during the last five years, resulting in a $125 billion trade deficit in 2017. In 2017, India's Gross Domestic Product (GDP) was $2,6 trillion dollars, with a GDP per capita of $7,06 thousand dollars, according to the Organization for Economic Cooperation and Development (OECD).

The following are India's main exports (in US dollars):

1. Refined Petroleum ($30.2B)

2. Diamonds ($26.5B)

3. Packaged medicaments ($13.2B)

4. Jewellery {$8.66B)

5. Rice ($7.05B)

As you can see, refined petroleum accounts for a significant portion of India's principal exports. In fact, it contributes for 10.3 percent of the country's total exports, followed by diamonds, which account for 9.1 percent.

(b) Importance of small-scale sector in India’s economy

Ans) Small-scale industries are significant since they contribute to India's economic development and employment. It boosts the country's growth through boosting urban and rural development. Small and medium-sized businesses play an important role in assisting the government in expanding infrastructure and manufacturing industries, as well as eliminating pollution, slums, poverty, and other development challenges. Cottage industries and small-scale manufacturing enterprises play a critical part in India's economic development.

If any cash is invested in small scale industries, it will aid in the reduction of unemployment and increase self-employment in India. The industry is a sub-sector of the economy that deals with the manufacturing of goods. Every small-scale industry contributes significantly to the Indian economy. It has the added benefit of requiring less capital, in addition to providing work to millions of people. For this reason, the government provides SSI with a number of tax benefits.

They can also be found in both urban and rural locations. Because of this, small-scale businesses have been able to compete with large-scale businesses and global organisations. They are extremely important for reasons such as these.

(c) The concept of collective bargaining

Ans) Collective bargaining is the process through which employees, through their unions, negotiate contracts with their employers to establish their employment terms, such as pay, benefits, hours, leave, occupational health and safety standards, and strategies to balance work and family life, among other things. Collective bargaining is a method of resolving workplace disputes. It's also the most effective way to raise salaries in the United States. Working people in unions do, in fact, receive greater pay, better benefits, and safer workplaces as a result of collective bargaining.

Approximately three-quarters of private-sector workers and two-thirds of governmental employees in the United States enjoy the right to collective bargaining. Workers in the United States have this right thanks to a succession of laws. In 1926, the Railway Labor Act gave railroad workers the right to collective bargaining, and it today encompasses a wide range of transportation workers, including airline pilots. The National Labor Relations Act of 1935 codified the bargaining rights of most other private-sector employees and declared collective bargaining to be "US policy." International human rights accords also acknowledge the right to collective bargaining.

The right to organise and join a union is a "enabling" right—a fundamental right that provides the ability to protect other rights—as stated in the United Nations Universal Declaration on Human Rights. Every year, millions of workers in the United States negotiate or revise their collective bargaining agreements. Some companies, on the other hand, are attempting to undermine established bargaining ties by reversing several hard-won contract terms and conditions. Through collective bargaining agreements, unions continue to fight for the intrinsic rights of working people and to restore the balance of economic power in our society.

(d) Consumer rights

Ans) Consumer Rights are as follows:

Right to Safety

Means the right to be protected from the marketing of goods and services that endanger life and property. The items and services they acquire should not only suit their immediate requirements, but also serve their long-term goals. Consumers should insist on product quality as well as product and service guarantees prior to making a purchase. They should buy ISI, AGMARK, and other quality-marked products whenever possible.

Right to Choose

Means the right to be assured of access to a diverse range of products and services at a reasonable cost wherever possible. It means the right to be assured of adequate quality and service at a reasonable price in the case of monopolies. The right to essential goods and services is also included. This is because a minority's unlimited ability to choose can result in the majority's fair share being denied. In a competitive market, where a wide range of goods are accessible at competitive rates, this right can be better exercised.

Right to be Informed

To protect consumers from unfair trade practises, consumers have the right to be informed about the quality, quantity, potency, purity, standard, and price of goods. Before making a choice or a decision, the consumer should insist on receiving all available information about the product or service. This will allow him to act sensibly and ethically while also preventing him from succumbing to high-pressure sales tactics.

Right to Consumer Education

The right to gain the knowledge and skills necessary to be a well-informed consumer throughout one's life. Consumer ignorance, particularly among rural customers, is largely to blame for their exploitation. They should be aware of their rights and should be able to exercise them. Only then can genuine consumer protection be possible.

Right to be Heard

Means that the interests of consumers will be taken into account in relevant forums. It also involves the right to be represented in various forums established to look after the interests of consumers. Consumers should organise non-political, non-commercial consumer organisations that can be represented on various government and non-governmental committees dealing with consumer issues.

Right to Seek Redressal

Means the right to seek redress in the event of unfair trade practises or consumer abuse. It also involves the right to a just resolution of a consumer's real grievances. Consumers must file a complaint if they have legitimate grievances. Their complaint may be minor in nature, but its influence on society as a whole can be significant. They can also seek redress of their problems with the support of consumer organisations.

Consumer Protection Act

An Act to provide for consumer protection and, for that purpose, to establish authorities for the timely and effective administration and settlement of consumer disputes, as well as matters related thereto."