FUNDAMENTALS OF BUSINESS ENVIRONMENT

SYLLABUS RECAP

I Introduction to Business Environment

 Definition of business and essential characteristics

 Purpose of business, contemporary business goals
 Definition of Business Environment
 Internal Environment – Strategic Advantage Profile (SAP)
o Helps to determine strengths and weaknesses
 External Environment – Environmental Threats & Opportunities Profile
(ETOP)
o Micro environment – Porter’s five force analysis
o Macro environment – PESTLE analysis
 Economic environment
 Non – economic environment
o Identify opportunities and threats
 SWOT – function of ETOP & SAP
 Environmental Analysis – 4 stages
o Scanning
o Monitoring
o Forecasting
o Assessment
 Forecasting Techniques
o Quantitative techniques
 Econometric modelling
 Trend extrapolation
o Qualitative techniques
 Scenario development
 Judgement models
 Brain storming
 Delphi method
 Strategic issue analysis
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II Nature of Indian Economy

 Features of Underdeveloped economies

 Features that characterize India as UDC
o Predominance of agriculture in employment ( but not contribution
to GDP)
o Poverty
o Rapid population growth & high dependency ratio
o Low per capita income and living standard
o Inequitable income distribution
o Low level of human development
o Unemployment
o Scarcity of capital
o Technological backwardness
o Lack of entrepreneurial spirit
 Features that characterize India as a developing country
o Rise in national income
o Rise in per capita income
o Structural changes
 Slow changes in employment structure
 Significant changes in sectoral distribution of domestic
product
 Growth of basic capital goods industries
o Expansion in social overhead capital
o Banking and financial sector progress
 India 2016
 Ease of doing Business

III Five Year Plans – Achievements & Failures

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IV & V Fiscal Policy

 Main functions
 Public Expenditure
o Classification
o Need
o Trends
o Composition
 Public revenue
o Sources
o Evaluation of tax structure with respect to equity, efficiency,
buoyancy, exemptions etc.
o Trends – share of direct and indirect taxes
 Public debt
o Composition
o Need
o Sources
o Burden
 Internal debt
 External debt
 India’s fiscal policy
o Pre 1991
o Post 1991
o Critique with respect to goals
 FRBM Act
 Budget 2016
 Critical analysis of the budget
 GST
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VI Monetary Policy

 Objectives of monetary policy in India

 Tools & instruments of monetary policy
o Quantitative tools
o Qualitative tools
 Monetary aggregates
 Functions of RBI
 Control of credit by RBI
o Changing objectives over time
o Tools and their use – recent trends
o Current levels
 Short term liquidity management
 Liquidity Adjustment Facility (LAF)
 Market Stabilisation Scheme (MSS)
o To sterilize foreign capital flows
 Monetary Policy Committee
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VII Industrial Policy

 Industrial policy 1948, 1956, 1973, 1977, 1980

 Industries act 1951
 Review of pre 1991 policy
 Liberalisation trends
 New Industrial Policy
o MRTP vs. Competitions act
o Licensing
o Public sector policy
o Foreign investment & technology
 Appraisal of New Industrial Policy
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VIII Liberalisation, Privatisation & Globalisation, 1991 macro crisis, New

Economic Policy

 Components of 1991 macro crisis

o Unsustainable fiscal & BOP deficits
o Very high rate of inflation
 Reasons for the crisis – build up through the 1980s
 Reforms in response to crisis
o Stabilisation measures
 Low & stable inflation
 Sustainable fiscal & BOP position
o Structural reforms – supply side reforms
 Inflation control
o Fiscal & monetary discipline
o Improve output & supply position
 Fiscal adjustment
o More in capital & social expenditure rather than hard measures
 BOP adjustment
o Initially import compression
o Import liberalisation
o LERMS
o Full convertibility on current account
 Structural reforms
o Trade & capital flows reforms
 FERA vs. FEMA
 Capital account convertibility – partial
o Industrial deregulation
o Disinvestment & public enterprise reforms
o Financial sector reforms
 Lower CRR & SLR
 BASEL norms
 Interest rate liberalisation
 Public sector bank reforms
 Ease of norms for private banking
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Privatisation & Disinvestment of PSUs

 Goals of PSUs
 Performance review
o Share in national production
o Profitability
o Employment & labour welfare
o Foreign exchange earnings
o Efficiency
 Problems
o Price policy
o Underutilisation of capacity
o Problems related to planning & construction of projects
o Problems of labour, management & personnel
 Policy since 1991
o Dereservation – of industries reserved for PSEs
o MOU – to provide autonomy to PSUs
o Disinvestment commission
o Board for reconstruction of PSEs (BRPSE)
o Privatisation
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Globalisation

 Components
o Trade in goods & services
o Movement of capital
o Flow of finance
 Globalisation
o Macro
o Micro
o Drivers of globalisation
 International trade
 Financial flows
 Communication
 Technological advances in transportation, electronics,
bioengineering & related fields
 Population mobility
o Globalisation of business
 Stages of globalisation
o Features of current globalisation
 New markets
 New actors
 New rules & norms
 New ( faster & cheaper) means of communication
 Pros & cons of Globalisation
 Globalisation in India
o First step was liberalisation in trade
o Real thrust – NEP 1991 at the behest of IMF & World Bank
 Exchange rate adjustment & rupee convertibility
 Import liberalisation
 Opening up to foreign capital
o Incentives for foreign investors & NRIs
o Relaxation of FERA – replaced with FEMA
o FDI limits
 Globalisation of Indian business
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o Limited prior to 1991

o Obstacles to globalisation in India
 Govt. Policy & procedures
 High input cost reduced international competitiveness
 Poor infrastructure
 Obsolescence
 Resistance to change
 Poor quality image
 Supply problems
 Small size
 Limited R & D and marketing research
 Growing competition
 Tariff & non – tariff barriers, trading blocs
o Factors favouring globalisation of Indian business
 Human resources
 Broad resource & industrial base
 Growing entrepreneurship
 Growing domestic market
 Niche markets
 NRIs
 Liberalisation
 Competition
 Globalisation of Indian firms – Indian firms in Fortune 500
 Impact of globalisation on Indian economy
o Impact on external sector
o Impact on Indian firms
 Unequal competition
 Size disadvantage
 Higher cost of capital in India
 Protected industry was inefficient & technologically
backward
 Immense financial strength of MNCs
 Restructuring & downsizing difficult in India
 Policies favouring MNCs
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Foreign Investment

 FDI
 Portfolio Investment
o Short term gains
 Significance of foreign investment
 Factors affecting international investment
o Rate of interest
o Speculation
o Profitability
o Cost of production
o Economic conditions
o Govt. Policies
o Host country determinants
 Resources
 Market
 Efficiency
 Types of FDI classified by motives of MNCs
o Market seeking
o Resource/asset seeking
o Efficiency seeking
 FDI in India
o Liberalisation measures taken to boost FDI after 1991
o Trends
o Impact
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IX Trade Policy

Import Policy – 1950-51 to 1990-91

 Import substitution & Import restriction

o Protection of domestic infant industry
o Conserve scarce foreign exchange – direct allocation via import
licences
o Import restriction up to 1997 -78
o Import substitution up to early 1980s
 Import liberalisation in 1980s esp. after 1985
o Import of capital goods
o Import of raw materials
o Import policy for registered exporters
o Policy for trading houses
o Policy for import of technology
 Adverse impact of import policy on economy
 Import liberalisation → substantial increase in imports

Export Policy – 3 distinct phases

 Phase I – Export pessimism

o Continued up to the 1st oil price shock of 1973
 Phase II – continued for almost a decade after 1973
o Exports accorded a high priority as it was recognized that import
substitution alone could not improve BOP
o Export growth rate increased as a result of
 Depreciation combined with low inflation increased
competitiveness
 External factors – expansion in world trade, emergence of
new markets & boom in primary commodity prices
 Phase III – Positive approach to export promotion
o Measures
 Cash Compensatory support
 Duty drawback system
 Replenishment licences
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 Advance licences & duty exemptions

 EPZ & 100% EOUs
 Subsidies on domestic raw materials
 Fiscal concessions for exports
 Export credit & assistance
 Export promotion councils, Commodity boards, STCs,
MMTC, Trade Development Authority, Trade Fair Authority
 Critique of pre 1991 EXIM policy
 New Trade Policy
o Withdrawal of QRs, decanalisation of imports, rationalisation of
tariff structure, current account convertibility, EOU schemes,
Agricultural export zones
o Market Access Initiative Schemes 2001 - 02
o SEZs (EXIM Policy, 2000)
o Five thrust sectors (2004 – 09)
o Served from India Scheme
o Free trade and warehousing zones
o Concessions & exemptions – to liberalise imports & encourage
exports
o Expansion of measures with time and more incentives
o Focus Market Scheme (FMS) – new markets added
o Focus Product Scheme (FPS) – new products
o EPCG – Export Promotion Capital Goods Scheme
o EPZ, SEZ
 Foreign Trade Policy 2015 – 20
o 2 new schemes
 MEIS – Merchandise Exports from India Scheme
 SEIS – Service Exports from India Scheme
o EPCG Scheme
o Trade facilitation & enhancing ease of doing business
o Approved exporter scheme
o Niryat bandhu Scheme
o Focus on simplicity & stability
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 FUNDAMENTALS OF BUSINESS ENVIRONMENT
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X Trade Agreements - WTO & GATT, Bilateral & Multilateral agreements

 GATT – 1947
 MFN Clause
 8 rounds of Multilateral Trade Negotiations
 8th & final round in Uruguay (1986 – 94)
o Dunkel draft
 Biased in favour of developed countries
 Finally signed in 1994 under pressure
 WTO (1995)
o Functions of WTO
o WTO Agreements
 Agreement on agriculture
 Multi – Fibre agreement
 Agreement on market access
 TRIMS
 TRIPS
 GATS
 Dispute & Settlement Understanding
o Critique of WTO agreements & developing country concerns
o Singapore issues
o Doha Development Round
o Nairobi meet 2015
 SAFTA, SAPTA, APTA, BIMSTEC
 Other trade agreements
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XI Foreign exchange market, exchange rates, BOP, FDI, FII investment

 Exchange rate regime

o Pre 1991
o Post 1991
 LERMS
 Rupee convertibility
o Current account – first partial & then full
o Capital account
 Pros & cons
 Partial convertibility
 BOP trends
 FDI & FII trends

XII Sectoral Analysis – Automobile, IT & ITeS, Pharmaceutical, Power, Steel,

Retail, Telecom, Banking, Aviation, Tourism & Hospitality

 evolution
 Trends
 Govt. policy
 Growth drivers
 Porter’s five force analysis
 PESTLE analysis
 SWOT analysis
 Future growth prospects

XIII Business in other economies – Economic Transition

 Problems of Communism
 Transition experience
o Process of transition
o Components
o Impact
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