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MCO-04: Business Environment

MCO-04: Business Environment

IGNOU Solved Assignment Solution for 2023-24

If you are looking for MCO-04 IGNOU Solved Assignment solution for the subject Business Environment, you have come to the right place. MCO-04 solution on this page applies to 2023-24 session students studying in MCOM, MCOMFT, MCOMMAFS courses of IGNOU.

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Assignment Code: MCO-04 /TMA/2023-24

Course Code: MCO–04

Assignment Name: Business Environment

Year: 2023-2024

Verification Status: Verified by Professor

Q1) How does socio-cultural environment affects business decision making? Give a brief sketch of the nature of socio-cultural environment prevailing in India.

Ans) The socio-cultural context has important repercussions for the making of business decisions in a variety of different ways. In order for businesses to effectively adjust their strategies, it is essential for them to have a solid understanding of the social and cultural background of the region or country in question. When it comes to the situation of India, a socio-cultural milieu that is both diverse and complicated plays a significant part in contributing to the formation of corporate decisions.

  1. Consumer Behaviour and Preferences: The cultural, religious, linguistic, and economic backgrounds of Indian customers are quite varied, to say nothing of their financial levels. It is crucial for businesses to have an understanding of these variations in order to build goods and marketing tactics that will resonate with diverse demographic subsets of the population. For instance, due to differences in cultural preferences, a product that is successful in one region of India may not be able to replicate that success in another region.

  2. Communication and Advertising: Advertising and communication tactics are greatly influenced by the intricacies and values of other cultures. In order to avoid alienating potential clients, businesses in India need to be sensitive to the religious and cultural sensitivities of the local population. In order to be successful, advertising efforts would frequently incorporate aspects of Indian culture, such as holidays, rituals, and languages.

  3. Decision-Making Hierarchy: The culture of India is highly collectivist, and both the family and the society are given substantial weight when making decisions. When marketing to customers and other businesses, companies need to be aware of this fact. Establishing connections and trust with important stakeholders, such as members of one's family, can be particularly important for business-to-business dealings.

  4. Work Culture: Traditional Indian hierarchies, traditions, and norms of respect for superiors all play a role in shaping the work culture there. It is absolutely necessary for good management and leadership inside Indian enterprises to have an understanding of these factors. When making important decisions, it is common practise to confer with higher-ups, and efforts to reach a consensus are highly regarded.

  5. Government Regulations: The socio-cultural environment of India also has an impact on the policies and laws of the Indian government. For instance, the prohibition of beef consumption in some jurisdictions can be traced back to cultural influences such as the veneration of cows in Hinduism. When deciding what kinds of products to sell, companies in the food and agriculture industries have to take into account a variety of cultural norms and preferences.

  6. Gender Roles: Traditional gender norms continue to have an impact on many facets of Indian culture and business, despite the fact that gender dynamics in India are in the process of changing. In order for businesses to remain in step with shifting social norms and expectations, they need to adopt gender-sensitive marketing strategies and employment regulations.

  7. Festivals and Holidays: India is well-known for the numerous festivals and holidays that are observed by a wide variety of people around the country. Because of the important role they play in determining how consumers choose to spend their money, businesses frequently need to adapt their business hours, marketing strategies, and promotional activities so that they coincide with the relevant holidays.

  8. Caste System: Even though it has been abolished on paper, India's caste system still has a significant impact on the country's social and economic relationships. When it comes to recruitment, collaboration agreements, and distribution networks, businesses could run into issues involving caste-based considerations.

  9. Language and Diversity: India is a very linguistically diverse country, and its many different areas each have their own distinct language. Because of the wide variety of languages spoken in the country, it is often necessary for businesses to adapt their goods, marketing materials, and customer service to the local culture.

  10. Sustainability and Environmental Concerns: The increased awareness of environmental challenges and the need for sustainable practises is reflected in India's sociocultural environment as well. In order to connect their beliefs with those of a consumer base that is environmentally sensitive, businesses need to adopt methods that are favourable to the environment and exhibit social responsibility.

India's socio-cultural environment is incredibly diverse and dynamic, with a profound influence on business decision-making. Companies operating in India must recognize and adapt to this environment to succeed. This includes understanding consumer behaviour, respecting cultural values, navigating government regulations, and adapting business practices to align with the prevailing social and cultural norms. Failure to do so can lead to challenges and missed opportunities in this vibrant and complex market.

Q2) Write short notes on the following:

Q2. a) call money market.

Ans) All developed money markets have a call money market. Transactions involving borrowing and lending typically last one day in the call money market. These are frequently referred to as call loans, and the next day's renewal may or may not occur. The renewals are only permitted for a period of 14 days after which the transaction must be cancelled.

The call money market is also known as the inter-bank call money market because most of the players are banks. Through this market, they can utilise their short-term cash surpluses or fill their short-term cash shortfalls. The call money market has recently seen increased activity from financial intermediaries like LIC, GIC, JTI, and NABARD. They were initially permitted to serve as lenders, but eventually they were also permitted to borrow.

In July 1988, the DFHI also entered the call money market and was permitted to act as both a lender and a borrower. The market standard is for lenders and borrowers to notify DFHI of the monies they have available or needed at the agreed-upon interest rate. These hints become firm promises once the transaction has been approved by DFHI and the lender 1 borrower.

When DFHI borrows money, a lender is given a call deposit receipt in exchange for a check drawn on the Reserve Bank of India that represents the loan's amount. In exchange for the call deposit receipt, DFHI sends the borrower an RBI cheque for the loan. The following day, the transaction is reversed. If a renewal is necessary, DFHI can document the date of the renewal and the interest rate on the deposit receipt to validate the prolongation of the transaction. In 1996–1997, DFHI lent a total of Rs. 4,97,957 crores, on average lending Rs. 1,156 crore a day. Its emergence as a significant player in the call money market aided in the development of the market's ability to smooth out short-term liquidity imbalances.

Q2. b) Certificate of deposits market.

Ans) A certificate of deposit is a document that a bank issues to its depositors in exchange for a term deposit. Banks issue CDs for deposits with maturities ranging from three months to one year in multiples of Rs. 10 lakhs. Financial institutions like LIC, IFCI, IRBI, SIDBI, and Exim Bank are now able to issue CDs with maturities of up to three years in addition to those of one year.

The market determines the rate at which CDs are issued, which is at a discount to face value. Due to the fact that CD interest rates are not capped, banks typically offer high rates on them. CDs cannot be refinanced by banks or used as collateral for loans. They are readily transferable by delivery and endorsement because the holders prefer to keep them till maturity, there has not been much secondary activity in CDs.

To increase the variety of money market instruments and give investors more options for using short-term surplus funds, the RBI created CDs. The banks initially showed little interest in issuing CDs.

The tight money market regulations in 1995–1996 and the high interest rate encouraged banks to mobilise capital through CDs on a wide scale. As a result, the outstanding balance on issued CDs increased significantly during 1996–1997, but it later decreased as the situation improved. The minimum maturity period for CDs was lowered to 15 days to bring them on pace with other instruments.

Q2. c) Money market mutual funds.

Ans) Money market mutual funds (MMMFs) are an essential component of the financial landscape, offering investors a secure and convenient way to park their cash and earn a modest return. These funds are designed to provide a safe and liquid alternative to traditional savings accounts and certificates of deposit.

One of the primary features of MMMFs is their investment portfolio. These funds primarily invest in short-term, highly liquid, and low-risk securities. Examples include U.S. Treasury bills, commercial paper issued by corporations, certificates of deposit from banks, and short-term municipal debt. The goal is to keep the fund's net asset value (NAV) stable at $1 per share, ensuring that investors can easily access their funds without worrying about fluctuations in value.

Investors in MMMFs often appreciate the safety and liquidity these funds offer. While they may not offer high returns compared to riskier investments, such as stocks or long-term bonds, they are an excellent choice for preserving capital and maintaining a readily accessible source of cash. This makes them particularly attractive to individuals and institutions that require a cash cushion for emergencies or upcoming expenses.

Another notable aspect of MMMFs is their convenience. Investors can buy and sell shares in these funds easily, often with no transaction fees. This accessibility makes them a practical choice for managing cash reserves and making quick financial moves. Moreover, MMMFs typically offer check-writing privileges, enabling investors to write checks directly from their MMMF accounts, providing added flexibility.

Investors should be aware that while MMMFs are safe, they are not entirely risk-free. There is a minimal risk that the fund's NAV could drop below $1 per share, known as "breaking the buck." To mitigate this risk, regulatory safeguards have been put in place, and many funds are required to maintain a well-diversified portfolio of high-quality, short-term securities.

Q2. d) Discount and finance house of India.

Ans) The Discount and Finance House of India (DFHI) is a financial institution in India that plays a significant role in the money market and the overall financial system. Established in April 1988, DFHI was founded with the objective of developing and strengthening the short-term money market in India.

  1. Money Market Operations: DFHI primarily operates in the money market segment. It acts as an intermediary between the Reserve Bank of India (RBI) and other financial institutions, facilitating the trading of money market instruments such as treasury bills, commercial paper, certificates of deposit, and government securities.

  2. Promoter Banks: DFHI was initially promoted by several public and private sector banks, with the State Bank of India (SBI) being the largest shareholder. These promoter banks played a crucial role in establishing DFHI and providing it with the necessary financial support and expertise. Role in the Money Market: DFHI plays a pivotal role in the Indian money market by enhancing liquidity and efficiency. It engages in the purchase and sale of various money market instruments, helping to maintain stable interest rates and ensuring the smooth functioning of the short-term credit market.

  3. Government Securities: In addition to money market instruments, DFHI also deals in government securities. It participates in auctions of government securities conducted by the RBI and acts as an intermediary for other market participants, including banks and financial institutions. Discounting of Bills: DFHI is involved in the discounting of commercial bills, which are short-term debt instruments used by businesses to raise funds. By discounting these bills, DFHI provides businesses with a source of short-term financing while also serving as a mechanism for managing liquidity in the financial system.

  4. Regulatory Framework: DFHI operates under the regulatory framework established by the RBI. The central bank oversees its operations to ensure compliance with monetary policies and financial regulations.

  5. Market Development: DFHI has contributed to the development of India's money market by introducing innovative financial instruments and trading practices. Its involvement has helped increase the efficiency and depth of the market.

  6. Evolution and Restructuring: Over the years, DFHI has undergone restructuring to adapt to changing market dynamics. It transitioned from a government-promoted institution to a standalone entity with a broader range of services.

  7. Ownership Changes: The ownership structure of DFHI has evolved, with changes in the composition of promoter banks and the government's shareholding. These changes have been part of efforts to diversify ownership and encourage private sector participation in the financial sector.

Q3) Why is Indian economy regarded as an underdeveloped economy? State its basic characteristics.

Ans) The Indian economy is characterised as an underdeveloped economy. Though it no

longer suffers from stagnation as it did under the British, the development since independence has not been spectacular. One fourth of the population still lives in conditions of misery, and poverty remains a chronic malady. A respectable number of national resources remain unutilized. All characteristic features of an underdeveloped economy are still present in the Indian economy.

Its Basic Characteristics are as Following:

  1. Low Per Capita Income: The per capita income in India in 2003 was $530. Barring a few countries, it is lowest in the world. The per capita income in 2003 in Switzerland, Germany and USA respectively was 75,48 and 71 times the per capita income in India. During 1990-2003, Indian economy has grown at a faster rate than the developed economies but the difference in per capita income remains exceptionally large

  2. Occupational Pattern-Predominance of Agriculture: Agriculture employs a significant section of India's working population. Agriculture employed 61% of the working population in 1999, and it contributed 28% of the nation's income. Agriculture only makes up a small fraction of the population in developed nations like the United Kingdom, the United States, and Japan. Their contribution to the LGDP is no different. India depends more heavily on agriculture than even other third-world nations like Indonesia, China, Brazil, etc.

  3. Rapid Population Growth: India's population has been expanding quickly. The population is 102.5 crore, up from 43.9 crore in the 2001 census. The sharp reduction in mortality rates without an equal decline in birth rates is the primary factor contributing to this sudden spike in population increase. The minor development gains that had been accomplished during this time have been cancelled out by the population expansion. The country now has a high dependency ratio and a larger labour force. In 1999, 61.1 percent of the population was in the working age range (1 to 64 years).

  4. Chronic Unemployment: It has been challenging to give everyone who is working productive employment because of the growing population of people who are working age. At the end of 2001–2002, 3.49 crore people were currently unemployed, according to the Planning Commission. It has been noted that whereas unemployment is cyclical in industrialised nations and stems from a lack of effective demand, it is persistent in India and is caused by structural economic problems. It has been observed that unemployment is more prevalent in metropolitan regions.

    The present daily state of unemployment rate for rural workers in 1999-2000 was 7.20%, whereas it was 7.70% for urban workers, according to estimates from the 55"' round of the NSS. The fundamental issue in rural areas is that many employees lack sufficient employment throughout the year and many of them experience open unemployment and underemployment for extended periods of time. Additionally, a significantly greater number of workers than necessary are employed in agriculture, and there is "disguised" or "concealed" unemployment, according to the Indian Economy structure.

  5. Deficiency of Capital: The existence of capital insufficiency is expressed as the amount of available capital per head is low, and the rate of capital production is low, is another fundamental feature of the Indian economy. In 2001–2002, the rates of gross domestic saving and gross domestic capital formation were, respectively, 23.7 and 23.1% of GDP. Even while it is very encouraging, it is still far lower than that of several East Asian nations and, considering the growing population, is still viewed as insufficient for achieving the requisite rate of economic growth.

    Asset or wealth misallocation Sharp disparities in asset distribution are revealed by the Reserve Bank of India's study of household assets in India's rural and urban areas from July 1991 to June 1992. In rural areas, 27% of families owned less than 20,000 rupees worth of assets, which accounted for 2.4% of total assets, and 24% of households, which owned 20,000 to 50,000 rupees worth of assets, which only accounted for 7.5% of total assets. In contrast, 9.6% of wealthy households (those with assets worth Rs. 2.5 lakh or more) controlled close to 49% of all assets.

    The situation is significantly worse in urban regions, as 14.2% of wealthy households (those with assets worth at least Rs. 2.5 lakh) held just 66.6% of the total assets, even though 50.7% of urban households in these areas had assets worth less than Rs. 50,000. The main reason for the unequal distribution of wealth is this unequal distribution of wealth. Additionally, it shows that 50% of the household's resource base is so depleted that it can hardly support them above the subsistence level of income.

  6. Poor Quality of Human Capital: The deplorable state of the human resource base is an obvious indicator of an underdeveloped economy. India is not an exception to the widespread illiteracy that plagues most developing nations. It should be obvious that to develop skills and understand societal issues, one must have a minimal degree of education. In India, public spending on research and development and education in the years 1999 to 2001 was only 4.1% of GDP. The similar percentage in the USA is 6% of GDP. Human progress is typically gauged using the UNDP's Human Development Index (HDI), which is based on factors like life expectancy, adult education enrolment, and real per capita GDP in US dollars. It is disappointing to learn that China ranked 94 and India 127 in terms of HDI in 2002. India clearly needs to make progress before it can compete with developed nations.

  7. Low Level of Technology: Most industrial facilities in a developing nation like India employ outdated and subpar production methods. The low productivity of agriculture, which produces food for two thirds of the population, is mostly caused by technical sluggishness. Most farmers are insufficiently wealthy to afford even the most basic inputs, let alone expensive machinery like tractors, harvesters, and sowing machines.

As the economy has opened and significant capabilities in science and technology have been developed, many businesses have begun implementing contemporary technology for survival and expansion.

Q4) State the salient features of 1956 Industrial Policy Resolution. How far the objectives of this policy could be achieved.

Ans) After the First Five Year Plan was finished, it was felt that a new industrial policy resolution that adhered to more general objectives of economic planning was necessary. As a result, in April 1956, the second Industrial Policy Resolution was adopted. It outlined the following goals to be attained through this policy:

  1. Accelerate economic growth and industrial development.

  2. Develop capital goods and heavy industries.

  3. Expand the public sector.

  4. Prevent the growth of monopolies and the concentration of economic resources and power.

  5. Lessen income and wealth disparities.

A thorough framework for industrial development over a 20-year period was established by the Industrial Policy of 1956.

The following three categories were established by the Industrial Policy Resolution of 1956 for industries:

  1. Industries to Be Developed Exclusively by the State: The first group includes 17 sectors that were mentioned in Schedule A, which was annexed to the Industrial Policy Resolution. The state was supposed to grow each of these industries in the future. Four of these sectors—arms and ammunition, nuclear energy, railroads, and air transportation—were given government monopolies. For the remaining 13 industries, new industrial facilities were to be built in the public sector, but those that already existed in the private sector were free to continue operating and expanding without fear of government acquisition.

  2. Mixed Sector Comprising Both Public and Private Industrial Units: This group contained the twelve Scheduled B industries. These included non-first-category items such as other minerals, road and sea transportation, machinery, and tool steels, antibiotics and other important medications, synthetic rubber, festivals, chemical pulp, carbonization of coal, aluminium, and other non-ferrous metals. The government was anticipated to have a bigger part in the mixed sector. At the same time, the private sector was not to be denied the chance to build new units or increase the capacity of the ones it already had.

  3. Industries. Open to The private Sector: The private sector was left in charge of all fields not included in Schedule A or B. Although the state could establish a unit in certain industries, the private sector must take the lead in growing the industries that fall under this heading. The main responsibility of the state in respect of these industries was to give facilities the private sector so that it may grow its industrial activity.

Coexistence and Mutual Cooperation of Public and Private Sectors: Public and private sectors were not made to be mutually exclusive and independent of one another by the 1956 Industrial Policy Resolution. Even in industries set aside for the private sector, the government might erect units and let private company to build industrial facilities there. Only atomic energy, railroads, aviation, and weapons and ammunition fell under the government's sole control. The 1956 Industrial Policy Resolution gave the government permission to support the expansion of private businesses both directly by taking part in their share capital and indirectly by offering fiscal incentives, among other things.

Government Reputation and Control of Private Sector: The 1956 Industrial Policy Resolution prohibited the private sector from pursuing objectives that were in opposition to those of the government. Although the private sector might maximise returns, companies were nevertheless required to follow the government's economic and social policies. Thus, many government restrictions and controls were applied to the private sector's operations. Reduction in regional disparities : The Indian economy developed unevenly up to the mid-1950s. The 1956 Industrial Policy Resolution promoted industrial development, particularly in the underdeveloped regions, as a solution to this issue. To make it easier for new industries to start up in underdeveloped areas, it also placed a strong emphasis on infrastructure development in those areas.

Recognising the Importance of Small-Scale and Cottage Industries: The 1956 Industrial Policy Resolution recognised the significance of cottage and small-scale industries, just like the 1948 Industrial Policy Resolution did. These sectors employ technology that requires a lot of labour. As a result, they have a much greater capacity to create jobs than do large-scale industries. Additionally, they avoid the concentration of wealth and economic power and contribute favourably to the mobilisation of both physical and human resources. The 1956 Industrial Policy Resolution presented a compelling argument for government support of small- and cottage-scale businesses, both directly and indirectly.

Industrial Peace: The importance of industrial peace in industrialisation was emphasised in the 1956 Industrial Policy Resolution. The Resolution emphasised the importance of defending workers' rights considering the reality that industrial firms frequently exploit their workforces. Thus, it promoted providing employees with the "necessary facilities and incentives for performing their work." Employee involvement in management was viewed as a desirable step toward a cordial environment in the industrial sector.

Technical and Managerial Personnel: When India placed a strong emphasis on the path of industrial development shortly following independence, it encountered a shortage of technical and administrative personnel. Thus, the 1956 Industrial Policy Resolution promoted the establishment of technical and managerial institutions as well as the introduction of management and engineering courses in universities in the hope that, over time, these actions would be sufficient to meet the demand for technical and managerial personnel.

Strengthening the nation's mixed economy structure was the main goal of the 1956 Industrial Policy Resolution. Its strategy was like that of the 1948 Industrial Policy Resolution in this regard. However, it was more adaptable and increased the public sector's reach.

Q5) What do you mean by liberalization? State the various factors that necessitated liberalisation of the economy in India?

Ans) The process of opening up and lessening the number of limitations placed on economic activities, trade, and investments by the government is referred to as liberalisation. It frequently involves lowering trade barriers, deregulating various industries, privatising state-owned businesses, and developing an economy that is more focused on market forces. The promotion of economic growth, the improvement of efficiency, the attraction of foreign investment, and the creation of an economic climate that is more competitive and dynamic are the desired outcomes of liberalisation.

In the context of India, the term "liberalisation" principally refers to the economic changes that were launched in the early 1990s. These reforms represented a considerable break from the country's highly regulated and protectionist economic policies that had been in place earlier. These changes were brought about as a result of a confluence of domestic and international considerations.

  1. Balance of Payments Crisis: At the end of the 1980s, India was confronted with a serious balance of payments crisis as a result of a mounting trade deficit and insufficient reserves of foreign currency. The government was forced to implement economic changes in order to attract foreign capital and reduce the trade imbalance so that it might escape a full-blown economic crisis.

  2. Slow Economic Growth: The Indian economy, which was highly regulated and walled off to foreign trade, was showing slow economic progress. Both innovation and entrepreneurship were hampered by the "License Raj" system, which was characterised by an excessive amount of bureaucracy and government control. It was believed that liberalisation would encourage economic growth and raise levels of productivity.

  3. Fiscal Deficit: Because to factors such as excessive employment in the public sector, excessive subsidies, and inefficient public companies, the government was struggling with a substantial fiscal deficit. Through the privatisation of state-owned companies and the encouragement of budgetary restraint, liberalisation sought to bring the fiscal burden down to a more manageable level.

  4. External Pressures: India was put under pressure to liberalise its economy by international organisations such as the International Monetary Fund (IMF) and the World Bank. Doing so was a need for the country to receive financial aid and access to global markets. These organisations pushed for free-market reforms as a method of achieving economic growth and stability as a means of their advocacy.

  5. Technological Advancements: The worldwide information technology revolution brought to light the critical nature of accepting technological progress and incorporating oneself into the global economy. The liberalisation and opening up of the services sector in India made it feasible for the country's software and information technology services sector to blossom into a global success storey.

  6. Trade Barriers: Domestic industries in India were not as competitive as they could have been because of the country's high tariffs and import restrictions. It was vital to reduce trade barriers in order to expose Indian industry to foreign competition, which would lead to improvements in both productivity and quality.

  7. Foreign Investment: It was widely believed that luring foreign direct investment (also known as FDI) was essential for fostering economic expansion, modernising industry, and making infrastructure improvements. By eliminating unnecessary bureaucratic roadblocks and opening the door to more foreign direct investment (FDI), liberalisation policies aimed to make the environment in which businesses may invest more appealing.

  8. Export Promotion: The purpose of liberalisation was to encourage more exports by enhancing infrastructure, lowering limitations on exports, and offering financial incentives. The growth of exports was very necessary in order to bring in more foreign currency and bring down trade deficits.

  9. Rising Aspirations: The Indian middle class was expanding, and with it came a shift in the ambitions of Indian consumers. The market was able to accommodate the needs of a more prosperous and diverse customer base when liberalisation made it possible for a greater variety of products and services to join the marketplace.

  10. Globalization: Because of the ongoing trend toward greater economic integration and globalisation on a global scale, it was absolutely necessary for India to open its economy to foreign commerce and investment. It was believed that taking part in the global economy would provide access to new technologies and markets.

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