Assignment Code: MCO-04/TMA/2021-22

Course Code: MCO-04

Assignment Name: Business Environment

Year: 2020-2022

Verification Status: Verified by Professor

Attempt all the questions:

Q1. What is the concept of Business environment? Explain the emerging scenario of business environment in India. (5,15)

Ans) The total surroundings that have a direct or indirect impact on company activities can be termed as the business environment. In this context, the business environment refers to all external elements that may have an impact on the company's operations. Some experts, on the other hand, have used the word "business environment" in a far broader sense. They believe that business operations are influenced not only by external environmental influences, but also by the internal environment that exists within a company organisation, such as the resources available to management, the value system, the mission, and objectives, and so on.

The following are some of the factors that are influencing India's business environment:

Uncertainty in Politics

Because of their political constraints, coalition governments are more inclined to pursue haphazard economic policies that lack any long-term perspective or direction. Due to pressures from their coalition partners, these coalition governments have had to make numerous revisions to its economic policies in order to stay in power, which has had a severe influence on the country's general business environment. One of the reasons for India's economic slowdown is the country's ongoing political unrest. It has slowed the pace of economic changes, which is affecting the inflow of direct foreign investment and technology into the country.

Globalisation

In the context of India, globalisation refers to the integration of the Indian economy into the global economy. Since July 1991, the pace of globalisation has been accelerated by a large-scale implementation of economic reforms in the country. Globalisation can be accomplished in a variety of methods, including increasing the inflow of foreign direct investment and technology, expanding the trading system, and internationalising marketplaces and corporations in general.

These globalisation efforts had a mixed effect on Indian businesses. Those that managed their affairs well not only survived, but also rose to prominence as global actors. Indian enterprises are also making strategic attempts to form joint ventures with multinational corporations in order to attain global scale and capitalise on the scenario. Mergers and acquisitions are also taking place in large numbers, eroding the market's minor participants. People from various schools of thought, who have formed pro and anti-globalization lobbies, are still debating the consequences of globalisation in the country. The path of globalisation has also resulted in a significant increase in the general infrastructure of the country.

Liberalization of the Economy

Since independence, the Indian economy has been strongly regulated and controlled. The first Industrial Policy Resolution, passed in April 1948, demonstrates this. The government assumed responsibility for developing fundamental and vital industries in the public sector, which it owns and manages. Other significant industries were allowed to develop in the private sector, but only under government supervision and regulation. This resulted in the country's "License and Permit Raj." Following that, the Industrial Policy Resolution of 1956, also known as the Economic Constitution of India, extended the role of the public sector and brought the whole private sector under government regulation and control.

Revolutionary Technological

India has not been left out of technical advancements taking place around the world. Information Technology, Communications, and Computerization are three key areas in India where world-class technology is available. The number of mobile phone users in the country has increased dramatically. The automobile industry has also seen a surge, with nearly all of the world's major automakers establishing manufacturing operations in India. The easing of constraints on technology intake has a positive impact on practically all of the economy's industrial sectors. The customer, who now has access to a wide range of international-quality products and services at very low costs, is one of the most important benefactors of India's technology revolution. New forms of enterprises have emerged as a result of the technological revolution, notably in the service industry. Gurgaon is quickly establishing itself as a global hub for 'Call Centres' for practically all major multinational corporations.

Outsourcing

Companies are growing in size at a rapid rate, and they are involved in a wide range of activities. Many commercial corporations are turning to outsourcing as a recent trend. Firms tend to concentrate solely on areas where they have proven skill, with portions of value chain activities commissioned to external providers dependent on the economics of the scenario. The concept of outsourcing is a variation of the make or purchase principle. In the manufacturing industry, outsourcing organisations develop captive supply sources by supplying subcontractors with a portion of the manufacturing requirements, such as design and blueprints, as well as raw materials, which they subsequently manufacture and supply to the firm. MNCs resort to outsourcing on a worldwide scale. Because of the country's affordable labour and well-developed infrastructure, India is a popular outsourcing location for many multinational corporations.

Rural Market on the Rise

Rural markets are becoming more important in the marketing plans of several major consumer goods companies. Rural markets are tomorrow's marketplaces, and a growing number of enterprises are looking to extend their commercial operations today. Let us look at the causes for the increased interest of businesses in India's rural marketplaces.

For many products, urban markets are becoming highly competitive and, in some cases, saturated. In this environment, growth-oriented businesses are looking for new markets for their current products. The majority of these commodities are finding new consumers in rural areas. Companies such as Hindustan Levers, Brook Bond, Lipton, Colgate Palmolive, and others have long recognised the potential for their products in rural areas and have made efforts to access such markets. These businesses created items and packages that were specifically designed to meet the demands of rural customers. They increased their distribution network and even hired cycle salesmen to go out into rural areas and encourage rural buyers to utilise their products. Rural areas are now providing growth prospects for businesses that have reached saturation in urban markets due to intense competition.

Expectations of Stakeholders

The stakeholders are the many segments of society with an interest in the business and who are influenced by its actions. Customers, employees, suppliers, shareholders, investors, the local community, and society as a whole are all part of this. These stakeholders' expectations have grown to the point that the issue of corporate social responsibility can no longer be dismissed or dismissed lightly. The test of a company's social responsiveness is whether it lives up to society's expectations and meets community needs. Stakeholder expectations are diverse and occasionally at odds with one another. This means that various stakeholders' claims will have to be balanced, not just on the basis of what is best for the shareholders, but also on the basis of what is best for the community as a whole.

Q2. “The scope and coverage of labour legislation are very wide and overlapping.” Elucidate the statement with a brief overview of labour legislation in India. (20)

Ans) The scope and coverage of labour legislation are very wide and overlapping. The first piece of law, the Factories Act, was enacted in 1881 and was primarily concerned with the working conditions of minors. The numerous laws can be classified into the following categories based on their focus on a specific area of workers' interests:

Factories and certain industries have their own set of laws:

Under the Factories Act of 1948, all industrial establishments in India are obligated to care for workers' health, safety, and welfare. This Act also addresses issues like as working hours, paid leave, and the hiring of minors. ' Then there are rules that apply to specific industries in order to meet their unique requirements. For example, the Mines Act of 1952 compels mine owners to provide drinking water, conservation, and first aid for employees, as well as in mines employing women. Additional amenities, such as an ambulance room staffed by a certified medical practitioner for every mine working 500 or more people, a shelter for employees to eat and rest if the mine employs 150 or more people, or a canteen if the mine works 250 or more people, will be given. Similarly, the Plantations Labour Act of 1961 established statutory obligations for drinking water, conservancy, medical facilities, canteens, creches, recreational facilities, umbrellas, blankets, and raincoats. Plantation workers are now required to receive some welfare benefits outside of the workplace, such as housing, educational, and medical facilities.

Employees of transportation companies are governed by special regulations such as the Indian Railways Act, 1930, the Indian Merchant Shipping Act, 1973, the Motor Vehicles Act, 1939, and the Motor Transport Act. Canteens, rest facilities, uniform hours of work, leave rules, and other service conditions are all guaranteed under the Workers Act of 1961. State laws govern opening and closing hours, rest intervals, spread over, overtime rates, and weekly holidays for wage earners employed in shops, business premises (including insurance and banking companies), restaurants, theatres, cinemas, and other places.

Wages and bonuses are governed by laws:

The Payment of Wages Act of 1936, which applies to employees in factories, industrial or other establishments, and railways, is a significant piece of legislation affecting wage payment. It covers at least those workers who earn less than Rs. 1,600 per month. The major goal of this Act is to ensure that wages are paid on time, to prevent improper deductions from wages, and to protect employees from arbitrary fines. Another law, the Minimum Wages Act of 1948, allows the federal and state governments to set minimum wage rates for workers in "sweated industries" such as woollen, carpet, or shawl weaving establishments, rice mills, flour mills, dal mills, and oil mills, as well as employees of any local government. Employers are required to give bonuses to employees in factories and other establishments employing 20 or more people and earning up to Rs. 3,500 per month under the Payment of Bonus Act, 1965. The Equal Remuneration Act of 1976, for example, prohibits discrimination on the basis of gender by requiring male and female workers to be paid equally for the same or equivalent job. It also aims to eliminate all forms of discrimination in employment, promotion, training, and transfer.

Social security legislation is a set of laws that governs how people get benefits:

Worker social security laws include provisions for cases of employment jury, maternity benefits, sickness, and old age and employment. The Workmen's Compensation Act of 1923 includes provisions for employers to compensate workers and their families for personal injury caused by accidents arising out of and in the course of employment, as well as death or disability due to occupational diseases. The Central Maternity Benefit Act of 1961, as well as state regulations that relate to industries, mines, and plantations, provide maternity benefits for female employees. These rules include provisions for the payment of a monetary maternity benefit before and after delivery, the approval of leave, and other advantages such as payment of a medical bonus, free medical help, and so on. The Employees' State Insurance Act, 1948, governs the Employees State Insurance Program, which covers all nonseasonal factory employees whose monthly compensation does not exceed Rs. 6,500. The ESI Scheme offers a variety of benefits, including free medical treatment for sackless and employment jury employees, free maternity care for female employees, cash disablement benefit if the injury lasts longer than seven days, life pension in the event of permanent disablement, and pension for the family or dependents in the event of fatal injury.

Laws governing trade unions and labour relations:

In legal terms, a trade union is any organisation founded for the aim of regulating interactions between employees and their employers, or between employees and their coworkers, or between employers and their coworkers. However, trade unions are often referred to be organisations of employees founded to promote and protect their interests through collective action in the workplace. The Indian Trade Unions Act of 1926 is a watershed moment in India's trade union movement. Trade unions have legal status as a result of its provisions, and its officers and members are immune from civil and criminal liability for concerted action. The Act establishes the rights and obligations of recognised trade unions, as well as the duties they perform. The Industrial Disputes Act of 1947 is another essential statute that governs all major matters of labour relations. It aims to prevent and resolve industrial disputes quickly, and it mandates the formation of works committees in every industrial establishment, with an equal number of representatives from both workers and employers, to promote measures aimed at securing and maintaining amity and good relations between the employer and workers.

Q3. Distinguish between the following: (7,7,6)

(a) Primary capital market and Secondary capital market

Ans) The differences between primary capital market and secondary capital market are as follows:

1. The primary market refers to securities that are issued in a market. Stocks are exchanged in the secondary market after a company is listed on an exchange.

2. The primary market is often referred to as the new issue market, whereas the secondary market is referred to as the after-issue market. Prices in the secondary market fluctuate depending on the demand and supply of the assets traded. The prices in the primary market, on the other hand, are set.

3. The primary market, unlike the secondary market, provides funding to both new and existing businesses.

4. Investors can purchase shares directly from the company in the primary market, whereas in the secondary market, investors buy and sell securities among themselves.

5. In a primary market, investment bankers handle the selling. The broker works as an intermediary in the secondary market while trade takes place.

6. The corporation stands to profit from the sale of securities in the main market. An investor benefits from securities while trading on the secondary market.

7. In the primary market, securities can only be sold once, whereas in the secondary market, sales and purchases are ongoing.

8. The money acquired from securities is used to build up a company's capital, whereas in the secondary market, it is used to pay investors' income.

9. The primary and secondary markets are distinguished by the types of businesses and investors they serve. Corporations looking for long-term investments for an IPO utilise the main market, whilst companies looking for short-term cash use the secondary market.

(b) Speculative Transaction and Investment transaction

Ans) The differences between investment and speculation are as follows:

1. An investment transaction is not the same as a speculative transaction. Speculative transactions, on the other hand, are based on limited analysis and involve high risk. While an investment transaction is based on thorough analysis and promises the safety of principal and a satisfactory return, speculative transactions are based on limited analysis and involve high risk.

2. By taking on an average or below-average amount of risk, investors attempt to produce a satisfactory return on their capital.

3. Speculators are looking for abnormally big returns on bets that could go either way.

4. Futures, options, and short selling trading tactics are frequently used by speculative traders.

5. The term "investment" refers to the purchase of an item with the expectation of profit. The term "speculation" refers to the act of engaging in a high-risk financial transaction in the hopes of making a large profit.

6. Fundamental analysis, or the performance of the company, is used to make investment decisions. Speculation, on the other hand, is based on hearsay, technical charts, and market psychology.

7. Investing is done for at least a year. As a result, it has a longer time horizon than speculation, which involves speculators only holding assets for a brief period of time.

8. In the case of investment, the level of risk is moderate, and in the case of speculation, the level of risk is high.

9. The investors anticipate benefit from a change in the asset's value. Unlike speculators, who hope to profit from price changes due to supply and demand pressures.

10. An investor anticipates a low rate of return on his or her investment. A speculator, on the other hand, expects larger rewards from speculation in exchange for taking on more risk.

11. For investment objectives, the investor uses his own funds. Speculators, on the other hand, use borrowed funds to speculate.

12. Income stability is lacking in speculating; it is unstable and erratic, which is not the case in investment.

13. Investors have a conservative and cautious mentality. Speculators, on the other hand, are risky and careless.

(c) Budla system and Equity derivative (7,7,6)

Ans) The differences between Budla system and Equity derivative are as follows:

The budla system (contango or backwardation) was a settlement system in specified securities that allowed transactions to be carried forward from one settlement day to the next. The amount of budla charges (contango or backwardation) paid depended on the class of security, its quantity, the amount involved, and the interest rate prevailing in the market at the time of the transaction.

It has long been suspected that this structure encouraged excessive speculation and, on occasion, malpractices such as price fixing, margin evasion, and transaction non-reporting. As a result, it was repealed in December 1993. This resulted in a halt in trading of specified assets with carryover facilities, as well as a substantial drop in stock market turnover, resulting in a liquidity shortage. As a result, efforts were made to return the system in a revamped and modified version, with specific conditions and precautions in place. However, due to the system's intrinsic flaws and a demand for the adoption of other risk hedging devices, they did not click.

Experts favoured equity derivatives, including as futures and options, which are widely used in advanced countries. As a result, index futures were introduced at the BSE and NSE in June 2000, followed by index options, stock futures, and stock options. It should be noted that the NSE accounts for more than 90% of India's equity derivatives volume, owing to its effective monitoring, surveillance, timely settlement, and risk minimization through the National Securities Clearing Corporation Ltd. (SSCCL), which provides high-quality risk mitigation in settlement.

It should be noted that not all options are similar to budla. An option is a contract that allows the investor (the holder) the right, but not the duty, to purchase or sell a certain number of a share at a set price on or before the expiry date. Future, on the other hand, may appear to be budla to some, as it is a contractual commitment to purchase or sell a standard quantity of a share at an agreed price at a future period, similar to a forward contract.

However, unlike budla, where all cash and future prices are combined into one price, the future markets trade differs from the cash market in that each future and cash price is distinct. Future markets also have no counter-party risk because of the clearing house, which insures the deal and allows for margining. This removes the risk premium that is included in budla financing fees.

Q4. Write short notes on the following: (7,7,6)

(a) Nature of Indian Economic Planning

Ans) There are two types of economic planning: collectivist planning, also known as economic planning by direction, and suggestive planning, also known as economic planning by enticement. Collectivist planning has always been a key component of a socialist economy, regardless of its type. Indicative planning was used in a number of western countries before they opted to renounce the welfare state goal. We, too, in India, embraced the second style of economic planning, but with a few tweaks. The Government of India, on the other hand, embraced some of the aspects of collectivist planning by allocating a strategic role to the public sector in the earlier time. However, since the country's economic liberalisation process began, the nature of economic planning has changed dramatically, and with the removal of economic regulations and the diminution of the public sector's role, the economic planning that we now have in this country is solely suggestive planning. In recent plan papers, planners have also recognised that, as the economy has deregulated and decision-making has become more market-oriented, planning methodologies focused on input-output balances for each productive sector have become less relevant. As a result, Indian plans are no longer founded on the idea that the plan and economic success are deterministic. Let's look at the primary characteristics of Indian economic planning to get a better understanding of the country's planning.

(b) Small Scale industries 

Ans) Small scale industries are ones in which the manufacturing, production, and servicing processes are carried out on a small scale. The investment in such enterprises is one-time, and the majority of these investments are in equipment and machinery; the overall investment in such industries does not surpass one crore. Smaller machines and relatively limited labour are used to manufacture items and provide services in small scale companies. Small scale enterprises, or SSIs, are known as an economy's lifeline, which is critical in a country like India. It is particularly useful in establishing work possibilities for the country's inhabitants because it is a labour-intensive business. They are also an important aspect of an economy from a financial standpoint, as they contribute to maintain the country's per capita income.

Characteristics of Small-Scale Industry

1. Small-scale industries are typically owned by a single person, either as a sole proprietorship or as a partnership.

2. The owners of small-scale industries are responsible for their management, and as a result, the owner is involved in the day-to-day operations of the business.

3. Because small-scale enterprises rely heavily on labour, technology is used sparingly.

4. Unlike huge businesses, small scale industries are agile and adaptable to changing business environments.

5. Small-scale companies operate in a constrained environment, allowing them to fulfil local and regional needs.

6. Small-scale companies rely on locally available resources, allowing the economy to fully utilise natural resources while minimising waste.

Objectives of Small-Scale Industries

The objectives of small-scale industries are as follows:

1. To provide employment options for the general public.

2. To assist in the economic development of rural communities.

3. To actively participate in addressing the country's regional inequities.

4. To aid in the improvement of people's living standards in rural areas.

5. To ensure that wealth and income are distributed equally.

(c) Economic Reforms

Ans) Economic reforms are a set of fundamental adjustments that began in 1991 with the goal of liberalising the economy and speeding up its development rate. In 1991, the Narasimha Rao government began economic reforms in order to restore internal and external confidence in the Indian economy. The changes aimed to increase the private sector's participation in the Indian economy's growth strategy. Technology advancements, industrial licencing, the lifting of constraints on the private sector, foreign investments, and foreign commerce were all recommended as policy improvements. Liberalisation, Privatisation, and Globalisation (often referred to as LPG) are three key characteristics of economic reforms.

The Indian economy was in shambles in 1991. There was a severe lack of cash, government-owned industries were failing, and the bureaucracy was causing the economy to bleed. There was concern that the Indian nation would become bankrupt as a result of the 'License Raj' and numerous forms of red tape. It was the right time in India for economic transformation.

The Decision to Reform the Economy

1. i)       P.V. Narasimha Rao, the then-Prime Minister, seized leadership of the situation at that critical moment and implemented a series of well-coordinated and synchronised steps that would later prove essential for the country.

2. ii)     These decisions were made with the knowledge and approval of the entire cabinet, particularly Dr. Manmohan Singh, the youthful and vibrant Finance Minister. In economics, he brought the concept of LPG.

3. iii)    Liberalisation is the process of engaging globalisation, restoring faith in the Indian economy, lifting, and abolishing some antiquated regulations, and keeping the country afloat. In India, the entire manoeuvre is referred to as economic reforms.

Q5. Comment on the following statements:

(a) India’s export is not more than the China for the year 2019-20. (4X5)

Ans) According to data from the commerce ministry, India's exports to China climbed by 16.15 percent to USD 20.87 billion in 2020 from USD 17.9 billion the previous year, owing to strong rise in ores, iron and steel, aluminium, and copper shipments. According to the data, the country's trade deficit with China fell 19.39% from USD 56.95 billion in 2019 to USD 45.91 billion in 2020, while imports from the neighbouring country fell 10.87 percent to USD 66.78 billion from USD 74.92 billion in 2019. In 2020, bilateral trade fell by 5.64 percent to USD 87.65 billion, down from USD 92.89 billion the previous year.

Cane sugar, soybean oil, and vegetable fats and oils are among the key agricultural export commodities that have shown strong development. Mangoes, fish oil, tea, and fresh grapes, on the other hand, saw a drop in exports. S K Saraf, President of the Federation of Indian Export Organisations (FIEO), said that these figures are an encouraging sign that domestic exporters are becoming more competitive. Electrical machinery and equipment, boilers, machinery and mechanical appliances, plastics and related materials, iron and steel articles, furniture, fertilisers, car parts and accessories, toys and sports equipment, inorganic chemicals, and ceramic products have all seen decreases in imports.

(b) Agricultural and allied products are not the India’s leading export products.

Ans) Foreign trade aids the country's economic development. It facilitates the flow of cash and technology while also increasing the firm's competitiveness. India's exports and imports have both increased, but the trade balance has deteriorated due to greater import growth.

Engineering goods, gems and jewellery, agricultural and associated products, chemicals and related products, petroleum and crude products, readymade garments, textiles, ores and minerals, and leather and leather manufacturers were the top export commodities in 2004-05. India's export markets include the United States, the United Arab Emirates, China, Singapore, Hong Kong, the United Kingdom, Germany, Belgium, Italy, Japan, France, and Bangladesh.

Petroleum products, food and related commodities, textiles and made-up, chemicals and related products, and capital goods are among the biggest imports. India imports primarily from China, the United States, Switzerland, Belgium, the United Arab Emirates, Germany, Australia, the United Kingdom, the Republic of Korea (South), Japan, Singapore, and Indonesia.

The Indian government has taken several steps to promote exports. These actions are aimed at establishing a production base, developing marketing capabilities, and improving exporters' total export capability. At the same time, the Indian government regulates foreign trade to ensure legitimate products and services transactions, correct payment procedures, and the country's economic success.

(c) Export promotion capital goods scheme does not facilitate import of capital goods in India.

Ans) This programme allows capital goods to be imported at a 5% duty rate for pre-production, production, and post-production purposes, subject to an export requirement equal to 8 times the duty savings on imported capital goods. The export obligation must be met within eight years of the date of the license's issuance.

The Export Promotion Capital Goods scheme allows zero-duty imports of capital goods, including spares for pre-production, production, and post-production, if an export obligation of six times the duty saved on capital goods imported under the EPCG scheme is met within six years of the Authorization's issue date. Manufacturer exporters with or without supporting manufacturer(s)/vendor(s), merchant exporters with supporting manufacturer(s), and service providers are all covered under the EPCG scheme. A service provider who is designated / accredited as a Common Service Provider is likewise covered by the Scheme.

The bearer of an EPCG authorisation can export directly or through a third party (s). Except for considered exports, export proceeds must be realised in freely convertible currency. Until the export obligation is fulfilled, capital items imported under the EPCG plan will be subject to the Actual User condition.

Imports under the EPCG Scheme are subject to an export requirement equal to six times the duty, tax, and cess saved on capital goods, which must be completed within six years of the date of the Authorisation. The authorisation will be valid for 18 months from the date of issue. If the validity term for imports expires between February 1st and July 31st, 2020, the validity period is automatically extended by 6 months from the date of expiry. It is not possible to revalidate an EPCG Authorization.

(d) Third party exports are not allowed in India.

Ans) Third-party exports are any exports made on behalf of another exporter or exporters by an exporter or producer. Both the manufacturer exporter and the third-party exporter's addresses must be listed in the legal document of the shipping bill. A third-party exporter obtains the overseas order in a third-party export. As a result, the third-party exporter receives the Foreign Inward remittance because he acquired the export order. As a result, the purchase order from an international buyer, as well as the Foreign Inward Remittance Certificate (FIRC), will be in the name of the third-party exporter rather than the manufacturer exporter. So, from the Reserve Bank's perspective, inward remittance regulation is overseen by the third-party exporter.

In third-party exports, a third-party exporter obtains the export order, and he may or may not have products under the purchase order. He buys items from another manufacturing exporter, exports them under his name, and has the third-party exporter obtain foreign exchange for him. After receiving a purchase order from an overseas buyer, the third-party exporter issues a purchase order to the manufacturing exporter in his home country at a lower price than the price he agreed on with the overseas client. The third-party exporter pays the manufacturer exporter the value of the goods according to mutually agreed terms and circumstances. Normally, a third-party exporter pays the maker exporter the value of the goods in local currency. In exchange, the third-party exporter receives his export revenues in foreign currency from the overseas buyer.