EMERGING BUSINESS IN

INDIAN ECONOMY
( Revised as " Business Trends
in Indian Economy")
(MCM4C16)

STUDY MATERIAL

IV SEMESTER

MASTER OF COMMERCE
(2019 Admission)

UNIVERSITY OF CALICUT
SCHOOL OF DISTANCE EDUCATION
CALICUT UNIVERSITY P.O.
MALAPPURAM - 673 635, KERALA

190618
School of Distance Education
University of Calicut
Study Material
IV Semester
Master of Commerce
(2019 Admission)

MCM4C16 : EMERGING BUSINESS IN

INDIAN ECONOMY( Revised as "
Business Trends in Indian Economy")
Prepared by:
Dr. RIJILA P.T.
Assistant Professor, Dept. of Commerce
School of Distance Education
University of Calicut.

Scrutinized by:
JASEELA THANIKKAD
Assistant Professor
Department of Commerce
Government College, Mananthavady.

DISCLAIMER

"The author(s) shall be solely responsible

for the content and views
expressed in this book".
 UNIVERSITY OF CALICUT
Master of Commerce (CBCSS) Semester IV MCM4C16 :
EMERGING BUSINESS IN INDIAN ECONOMY (Course
for SDE/Private registration only) Credit : 2.4

Course Objective: To make an awareness and understanding

about the emerging business in the contemporary Indian
economic scenario to get an effective knowledge about the
changing business scenario in accordance with the changes in
the economic environment of the country.
Module I : Indian Economy - a business perspective :
Economic environment of India - Indian Economy as a
Developing Economy - Business and Economic environment -
Basic Characteristics of Indian Economy - Indian Industrial
sector - Changing role of MSME sector - Public sector and
Indian economy- Role of Service sector in Indian Economy -
Liberalization, Privatization and Globalization (LPG) Models
and Indian economy - Business in India during LPG.
(20 Hours)
Module II : Foreign Trade and Economic Development:
Importance of Foreign Trade for a Developing Economy,
Composition of India's Foreign Trade, Direction of India's
Foreign Trade and Balance of Payments ; impact of LPG on
foreign trade of India; Special Economic Zones (SEZs) -
Export and Import scenario in India - FDI policy -growth and
impact of FDI in Indian economy. (15 Hours)
Module III : Business Sustainability in India: Social
Responsibility and Ethics in Indian business - importance and
trends - MDG (Millennium development goals) - Circular
Economy - Initiatives and impacts - SDG (Sustainable
development goals) - Financial Inclusion - Need and
challenges of Inclusive growth. (15 Hours)
Module IV : Business in 21st Century : Need of
infrastructural development - GIG Economy and
impactTechnological business advancements in the economy -
Demonetisation and its impact in Indian economy – Angel
investors and Start Ups – Make in India - Skill India – Digital
Economy and Artificial Intelligence – Initiatives for Women
entrepreneurs and its impact in Indian economy - New
initiatives in service sectors and its impacts. (15 Hours)

CONTENTS

Module Title Page No.

INDIAN ECONOMY - A
I 1 - 52
BUSINESS PERSPECTIVE
FOREIGN TRADE AND ECONOMIC
II DEVELOPMENT 53 - 76

BUSINESS SUSTAINABILITY IN
III 77 - 100
INDIA

IV BUSINESS IN 21ST CENTURY 101 - 151

 MCM4C16 : Emerging Business in Indian Economy

MODULE I
INDIAN ECONOMY - A BUSINESS PERSPECTIVE

1.1 Introduction
The term environment refers to the totality of all the
factors which are external to and beyond the control of
individual business enterprises and their management. The
environmental factors are essentially the 'givens' within which
the firms and their management must operate. For example, the
value system of the society, the rules and regulations laid down
by the government, the monetary policies of the central bank,
the institutional set-up of the country, the ideological beliefs of
the leaders, the attitude towards foreign capital and enterprises,
etc., all constitute the environment system within which a
business firm operates.
The environmental factors generally vary from country
to country. The environment that is typical of India, may not
be found in other countries like the USA, the USSR, the UK
and Japan. Similarly, the American/Soviet/ British/ Japanese
environment may not be found in India. There may be some
factors in common, but the order and intensity of the
environment factors do differ between nations.
The environment may be classified into market
environment and non-market environment depending upon
whether a business firm's environment is influenced by market
forces like demand, supply, number of other firms and the
resulting price competition or non-price competition, etc., or
by non-market forces like government laws, social traditions,
etc.
We may also classify the environment into economic
and non-economic. Non-economic environment refers to
social, political, legal, educational and cultural factors that

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affect business operations. Economic environment, on the

other hand is given shape and form by factors like the fiscal
policy, the monetary policy, the industrial policy resolutions,
trade policy, physical limits on output, the price and income
trends, the tempo of economic development, the national
economic plan etc. The non-economic environment has
economic implications just as the economic environment may
have non-economic implications. Since the environment is the
sum total of history, geography, culture, sociology, politics and
economics of a nation, the interaction between economic
forces and non-economic forces is bound to take place.
1.2 Economic Environment
The economic environment relates to all the factors that
contribute to a country‟s attractiveness for foreign businesses.
The economic environment can be different from one nation to
another.
While analysing the economic environment, the
organization intending to enter a particular business sector may
consider the following aspects:
 An Economic system to enter the business sector
 Stage of economic growth & the pace of growth.
 Level of national & per capita income.
 Incidents of taxes, both direct & indirect tax.
 Infrastructure facilities available & the difficulties thereof.
 Availability of raw materials & components & the cost
thereof.
 Sources of financial resources & their costs.
Nature and Features of Economic Environment:
 Economic environment of a country is macro-level. The

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macro-level factors relate to the means of production and

distribution of wealth. They have an influence over
business of any enterprise. These macro-level factors are
uncontrollable by any one individual business unit.
 Business unit obtains all the needed-inputs from the
economic environment. The economy absorbs the output of
the business unit.
 The economic policies of the government especially the
industrial trade, fiscal and monetary policies shape the
opportunities for business.
 Business environment is volatile. It is not the same as it
used to be prior to July 1991. Major changes are marked by
the reforms-regime in our country. Economic reforms in
various sectors of the economy have shaped the Indian
economy to become global.
 Economic system of the country determines the parameters
of the business activity. In a recessionary situation, the
economic environment is marked by slow-down activities.
 Global economic environment is as much important as the
national economic environment. The notable features of
present-day global environment are globalization, deep
economic crisis in east and south east Asia,
underdevelopment of Russia and east Europe, global
recession and dominance of MNC‟s.
1.3 Economic Environment of India
The term economic environment refers to all the
external economic factors that influence buying habits of
consumers and businesses and therefore affect the performance
of a company. These factors are often beyond a company‟s
control, and may be either large-scale (macro) or small-scale
(micro).

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(a) Macro economic factors

The macroeconomic climate, are things that influence
the whole economy. Macroeconomics factors include,
 Employment/unemployment
 Income
 Inflation
 Interest rates
 Tax rates
 Currency exchange rate
 Saving rates
 Consumer confidence levels
 Recessions
(b) Micro economic factors
The micro economic climate is things that occur at the
individual organization or purchaser level. Micro economic
variables don‟t influence the entire economy. The following
are some microeconomic components that may impact a
business:
 The size of the available market
 Demand for the company‟s products or services
 Competition
 Availability and quality of suppliers
 The reliability of the company‟s distribution chain (i.e.,
how it gets products to customers)
Factors/ Components/Elements/Constituents of the
Economic Environment:
i) Growth strategy: Growth strategy of our country was

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based on soviet model. It gave central role to the

government in the control and direction of economic
activity. Savings rate and growth rate could be increased if
India invested heavily in capital goods sector at the
expense of consumer goods sector. State emerged as
mobiliser of savings and an investor and owner capital.
This strategy resulted in the neglect of agricultural sector.
ii) Basic economic systems: Capitalism, socialism and
communism are the basic economic systems. Capitalism
stresses the philosophy of individualism and private
property. Socialism proposes the government should own
and manage the tools of production. Communism also
abolishes private property and property rights to income. It
denies individual freedom.
iii) Industry: During mid-60‟s, India was ahead of Asian
tigers in respect of industrial base. But the administrative
controls held the country behind these Asian tigers. India
has potential to become a global player in industrial sector.
India has large low-cost and skilled work force. If India
were to attain 8% GDP growth rate, industrial sector
should overtake services sector.
iv) National income and per capita income: Every sector of
the economy employs the natural, human and material
resources. It contributes to the aggregate flow of goods and
services during a year. This represents the total income
generated from different factors of production employed.
this is called national income. High growth rate in N.I.
indicates the economy is a developed one. Low growth rate
in N.I. indicates the economy is a developing one.
v) Human resources: Human resources constitute an
important constituent of the total economic environment.
People provide ready market for goods produced and
services rendered by business units. India has 16% of

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world‟s population, but occupies only 2.4% of the total

land area.
vi) Economic policies: Economic policies of the government
are an important component of economic environment.
Industrial policy, trade policy, monetary policy and fiscal
policy are the major economic policies of the government.
vii) Financial system: Money market and the capital market
are the two segments of the financial system. Money
market refers to the demand for and supply of short-term
financial transactions. Unorganized and organised
components are found in money market. Capital market is
concerned with demand for and supply of long-term funds.
viii) Savings and investment: Investment can be undertaken
in directly productive activities/ infrastructure. The
investment is sustained by an equally high domestic
savings rate.
ix) Inflationary trends: Persistent and appreciable rise in
general level of prices is inflation. A business is adversely
affected under inflation. There is a drastic redistribution of
income, which reduces the aggregate demand.
x) Balance of payments: Excessive current account deficit in
a country is BOP is not desirable for business activity.
Such a situation leads to a shortage of foreign exchange.
xi) Price and distribution controls: The dual-pricing
mechanism is adopted and public distribution system
followed by the government for many years .
xii) Globalization: The world economy has steadily moved
towards an international economic integration since 1950.
Since early 1970‟s, there has been a marked acceleration in
the process of international integration. Globalization
implies the expansion of economic activities across
political boundaries of the nation.

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1.4 Indian Economy as a Developing Economy

The nature of Indian economy is underdeveloped
before the advent of economic planning. The pace of
development has quickened since 1951. The following facts
will prove that Indian economy is passing through a crucial
phase of economic development.
A) National income trends: Over the four and half decades of
economic planning, the economy registered significant
advance. In 1950-51 India‟s net national product at factor cost
(national income) at 1980-81 prices was Rs. 40,454 crores.
Since then, it had increased to Rs. 2,71,052 crores in 1997-98.
The growth rate of national income is higher than the rate of
population. This fact admitted some capital accumulation.
B) Rise in per capita income: A rise in per capita income is
considered to be a better index of growth than the growth of
net national product. In 1950-51 India‟s per capita net national
product at 1980-81 prices was Rs. 1,127. Since then, it has
raised by 145.0 percent and stood at Rs. 2,487 in 1997-98.
Economic growth in India during plan period has been both
inadequate and erratic.
C) Changing sectoral distribution of domestic product: An
important index of development is a steady decline in the
contribution of agriculture and allied activities to gross
domestic product. In 1950-51 the share of agriculture and
allied activities in the Gross Domestic Product was 56.5
percent. It was 27.9 percent in 1996-97. The output in the
secondary sector accounted roughly 15 percent of the gross
domestic product in 1950-51. It stood at 29.3 percent in 1996-
97. The share of tertiary sector is in gross domestic product
was 28.5 percent in 1950-51. It was 42.4 percent in 1996-97.
D) Occupational distribution of population: In many
occupational distributions of population has not changed

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significance during plan period. In India where agriculture and

allied activities accounted for 68.8 percent of work-force in
1991 as against 72.1 percent in 1951. The census figures in
1981 and 1991 reveal the slight increase in work force
participation in the secondary and tertiary sectors. It is 32.2
percent in 1981 and 33.2 percent in 1991.
E) Growth of basic capital goods industries: During British
rule the share of basic and capital goods industries in the total
industrial production was nearly one-fourth. Form 1956, a
large number of basic and heavy industries have been set up to
make the country‟s industrial structure pretty strong.
F) Growth of production: The index of agricultural
production increased by 100 percent. There is now in evidence
much larger area under irrigation, greater use of fertilizers,
mechanization and of improved agricultural practices. Indian
agriculture has been greatly stabilized by the adoption of
modern technology in farming. India stands out as a third
world country which has now achieved self-sufficiency in food
grains despite its rapidly galloping population.
G) Expansion in social overhead capital: Infrastructural
facilities often referred to as economic and social overheads.
Indian planners were fully aware of the link between
infrastructural facilities and general economic development.
Their development can also assure better human living.
Tremendous amount of progress achieved in the transport,
banking, irrigation, education and communications. There has
been a spectacular progress in the field of education and public
health. The rate of literacy increased to 52 percent of the
population.
H) Science and technology: For rapid economic progress the
application of science and technology to all economic and non-
economic activities has become essential. In 1958 the science
policy resolution was adopted to provide positive incentives

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for the development and utilization of science and technology

in nation building activities. In fact, India has at present the
third largest pool of scientists, engineers and doctors. India
today ranks second in the world as regards qualified science
and technology man power. Our achievements in nuclear
energy and in space technology have put India in the
scientifically most developed countries. Thus, it may be
concluded that the Indian economy is at once an
underdeveloped but now a developing economy. Further, the
Indian economy during past four and a half decades has
progressed structurally. It is on the way to self-generating and
self-reliant stage.
1.5 Business and Economic environment
Economic environment of business refers to the broad
characteristics of the economic system in which a business
firm operates. The present-day economic environment of
business is a complex phenomenon. The economic
environment relates to all the economic determinants that
influence commercial and consumer compliance. The term
economic environment indicates all the external economic
circumstances that affect the purchasing practices of customers
and markets. Hence, it influences the production of the
business.
The business sector has economic relations with the
government, the capital market, the household sector and the
foreign sector. These different sectors together influence the
trends and structure of the economy. The form and functioning
of the economy vary from country to country. The design and
structure of an economy system is conditioned by socio-
political arrangements. Such arrangements are relevant from
the standpoint of macro-economic decision making.
All modern economies, whether capitalist, socialist,
communist or mixed, have certain fundamental economic

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problems to deal with. In each and every economy, including

the so-called 'Affluent Society', most of the resources are
scarce. Consequently, choices concerning the resource use
have to be made together by individuals, by business
corporations, and by the society. It is the social choice and
community preference which give substance to the question of
macro-economic decisions. From the standpoint of resources,
the basic economic problem of every economy is that of just
allocation of resources and subsequent optimum production.
There are many aspects to this problem. What to produce?
How to produce? For whom to produce? When to produce?
Every economy has to decide on the quality and quantity of the
goods, and the services to be produced. It has to decide on the
nature of technology and technique of production in view of
factor endowment. It has to decide on the course and pattern of
distribution of goods and services produced. It has to decide on
the timing of production
Economic environment refers to all those economic
factors which have a bearing on the functioning of a business
unit. Business depends on the economic environment for all
the needed inputs. It also depends on the economic
environment to sell the finished goods. Naturally, the
dependence of business on the economic environment is total
and it is not surprising because, as it is rightly said, business is
one unit of the total economy.
Impact/Influence/Interface/Effect of the Economic
Environment on Business:
 The economic environmental factors are more influential.
The GNP, savings, investment, size and scope of public
sector, the economic policy of the government tax policy,
fiscal deficit policy, interest rate policy, policy on foreign
finance for development, trade policy, reservation of

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industries for SSIs, incentives for selected industries etc.,

influence businesses vastly.
 The economic system, nature of the economy, composition
of the economy, functioning of the economy, health of the
economy, economic strategy, programmes, procedures
adopted, economic controls and regulations economic
trends, economic problems and prospects also influence
business.
 In a capitalistic society, private enterprises develop. In an
industrial economy, the economic health is better than in
an agrarian economy. Structural pattern and interface
among various sectors of the economy are important for
business.
 The economic environment consists of macro level factors
related to production and distribution of wealth. These
factors have an impact on the business.
 In countries, where investment and income are steadily
increasing, business prospects are generally high. There are
possibilities for further investments.
 Economic policy of a government has a great impact on the
business. Some categories of the business are favourable
by the government policy and some are adversely affected.
 An industry within the priority sector recognised by the
government may get a number of incentives. Other
industries do not get incentives.
 Liberalized economic policy has a mixed effect on Indian
industry. Some companies benefitted in terms of resulting
freedom to alter product-mix and capabilities.
 Public savings in India have been traditionally invested in
fixed assets and precious metals. Recent changes in

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economic and fiscal policies have led to many

developments.
 Business fortunes and strategies are influenced by the
economic policy measures. The general level of
development of the economy has a bearing on the nature
and size of demand, government policies affecting business
etc.
1.6 Basic Characteristics of Indian Economy
Indian economy is termed as the developing economy
of the world. Some features like low per capita income, higher
population below poverty line, poor infrastructure, agriculture
based economy and lower rate of capital formation, tagged
India as a developing economy in the world. Some features of
Indian economy are given below:
1) Low per capita income: Per capita income is defined as
the ratio of national income over population. It gives the
idea about the average earning of an Indian citizen in a
year, even though this may not reflect the actual earning of
each individual. In India, the national income and per
capita income is very low and it is considered as one of the
basic features of underdevelopment. As per World Bank
estimates, the per capita income of India stood at only $
720 in 2005. Keeping aside a very few countries, this per
capita income figure of India is very low. In 2005, the per
capita income figure in Switzerland was nearly 76 times, in
U.S.A. about 61 times, in Germany about 48 times and in
Japan about 54 times the per capita income figure in India.
Thus, the standard of living of Indian people remained all
along very low in comparison to that of developed
countries of the world. This disparity in the per capita
income of India and other developed countries has
registered a manifold increase during the last four decades
(1960-2005). Although the per capita income at official

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exchange rates exaggerated this disparity but after making

necessary correction through purchasing power parity
figures, the per capita GNP of U.S.A. was 12.0 times that
of India in 2005 as against 68.0 times that of India at
official exchange rates.
2) Excessive dependence of agriculture and primary
producing: Indian economy is characterised by too much
dependence on agriculture and thus it is primary producing.
Out of the total working population of our country, a very
high proportion of it is engaged in agriculture and allied
activities, which contributed a large share in the national
income of our country. In 2004, nearly 58 per cent of the
total working population of our country was engaged in
agriculture and allied activities and was contributing about
21.0 per cent of the total national income.
3) High rate of population growth: India is maintaining a
very high rate of growth of population since 1950. Thus,
the pressure of population in our country is very heavy.
This has resulted from a very high level of birth rates
coupled with a falling level of death rates prevailing in our
country. In India, the rate of growth of population has been
gradually increasing from 1.31 per cent annually during
1941-50 to 2.5 per cent annually during 1971-81 to 2.11
per cent annually during 1981- 91 and then finally to 1.77
per cent during 2001-2011. The prime cause behind this
rapid growth of population is the steep fall in its death rate
from 49 per thousand during 1911-20 to 7.1 per thousand
in 2011. On the other hand, compared to its death rate, the
birth rate of our population has gradually declined from 49
per thousand during 1911-20 to 21.8 per thousand in 2011.
Thus, whatever development that has been achieved in the
country, it is being swallowed up by the increased
population. Moreover, this high rate of growth of
population necessitates a higher rate of economic growth

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just for maintaining the same standard of living. This

imposes a greater economic burden on the economy of our
country as to maintain such a rapidly growing population
we require food, clothing, housing, schooling, health
facilities etc. in greater magnitude. Besides, this fast rate of
growth of population is also responsible for rapid increase
in the labour force in our country.
4) Existence of chronic unemployment and
underemployment: Rapid growth of population coupled
with inadequate growth of secondary and tertiary
occupations are responsible for the occurrence of chronic
unemployment and under-employment problem in our
country. In India, unemployment is structural one, unlike in
developed countries, which is of cyclical type.
Unemployment in India is the result of deficiency of
capital. Indian industries are not getting adequate amount
of capital for its necessary expansion so as to absorb the
entire surplus labour force into it. Moreover, larger number
of labour force is engaged in the agricultural sector of the
Indian economy than what is really needed. This has
reduced the marginal product of agricultural labourer either
to a negligible amount or to zero or even to a negative
amount. There exists disguised unemployment in Indian
agricultural sector which has resulted from too much
dependence of population on land and absence of
alternative occupations in the rural areas. Moreover, in the
urban areas of our country, the problem of educated
unemployment has also taken a serious turn. Thus, both the
rural and urban area of our country has been suffering from
the serious problem of unemployment and under-
employment to a large extent. Thus, the Third Five Year
Plan mentioned, “Urban and Rural unemployment in fact
constitute an indivisible problem.” On the basis of NSS
data, the planning commission has estimated that the total

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backlog of unemployed at the end of Seventh Plan, i.e., in

1990 would be around 28 million. During the 5-year period
of 1990-95, new entrants to the labour force are estimated
to be around 37 million. To put it in another way we can
guess that total burden of unemployment during this Eighth
Plan would be around 65 million which is a matter of
serious concern for the economy of our country. The
incidence of unemployment on CDS basis increased from
7.31 per cent of labour force in 1999-2000 to 8.28 per cent
of labour force in 2004-05.
5) Poor rate of capital formation: Capital deficiency is one
of the characteristic features of the Indian economy. Both
the amount of capital available per head and the present
rate of capital formation in India is very low. Consumption
of crude steel and energy are the two important indicators
of low capital per head in the under-developed countries
like India. Moreover, this low level of capital formation in
India is also due to weakness of the inducement to invest
and also due to low propensity and capacity to save. As per
Colin Clark‟s estimate, in order to maintain the same
standard of living, India requires at least 14 per cent rate of
gross capital formation. To achieve a higher rate of
economic growth and to improve the standard of living, a
still higher rate of capital formation is very much required
in India. In India the rate of saving as per cent of GDP has
gradually increased from 14.2 per cent in 1965-66 to 30.6
per cent in 2013-14 which is moderately high in
comparison to that of 30 per cent in Japan, 23 per cent in
Germany, 15 per cent in U.K. and 17 per cent in USA. But
considering the heavy population pressure and the need for
self-sustained growth, the present rate of saving is
inadequate and thus the enhancement of the rate of capital
formation is badly needed.

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6) Inequality in the distribution of wealth: Another

important characteristic of the Indian economy is the
unequal distribution of wealth. The report of the Reserve
Bank of India reveals that nearly 20 per cent of the
households owing less than Rs 1000 worth of assets
possess only 0.7 per cent of the total assets. Moreover, 51
per cent of the households owing less than Rs 5000 worth
of assets possessed barely 8 per cent of the total assets.
Lastly, the top four per cent households possessing assets
worth more than Rs 50,000 held more than 31 per cent of
the total assets. Unequal distribution in income is the result
of inequality in the distribution of assets in the rural areas.
On the other hand, in respect of industrial front there
occurs a high degree of concentration of assets in the hands
of very few big business houses. This shows high degree of
assets concentration in the hands of very few powerful
business houses of our country.
7) Low level of technology: Prevalence of low level of
technology is one of the important characteristics of a
developing economy like India. The economy of our
country is thus suffering from technological backwardness.
Obsolete techniques of production are largely being
applied in both the agricultural and industrial sectors of our
country. Sophisticated modern technology is being applied
in productive units at a very limited scale as it is very
expensive. Moreover, it is difficult to adopt modern
technology in Indian productive system with its untrained
and unskilled labour. Thus, due to the application of
obsolete technology and lower skills, the productivity- in
both the agricultural and industrial sectors of our country is
very low. This has resulted in inefficient and insufficient
production leading towards general poverty in our
economy.

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8) Under-utilisation of natural resources: In respect of

natural endowments India is considered as a very rich
country. Various types of natural resources, viz., land,
water, minerals, forest and power resources are available in
sufficient quantity in the various parts of the country. But
due to its various inherent problems like inaccessible
region, primitive techniques, shortage of capital and small
extent of the market such huge resources remained largely
under-utilised. A huge quantity of mineral and forest
resources of India still remains largely unexplored. Until
recently, India was not in position to develop even 5 per
cent of total hydropower potential of the country.
9) Lack of infrastructure: Lack of infrastructural facilities is
one of the serious problems from which the Indian
economy has been suffering till today. These
infrastructural facilities include transportation and
communication facilities, electricity generation and
distribution, banking and credit facilities, economic
organisation, health and educational institutes etc. The two
most vital sectors, i.e. agriculture and industry could not
make much headway in the absence of proper
infrastructural facilities in the country. Moreover, due to
the absence of proper infrastructural facilities, development
potential of different regions of the country largely remains
under-utilised.
10) Low standard of living: The standard of living of Indian
people in general is considered as very low. Nearly 25 to
40 per cent of the population in India suffers from
malnutrition. The average protein content in the Indian diet
is about 49 grams only per day in comparison to that of
more than double the level in the developed countries of
the world. Moreover, the low-calorie intake in Indian diet
is another characteristic of low standard of living. In 1996
the daily average calorie intake of food in India was only

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2,415 in comparison to that of 3,400 calories per day in

various developed countries of the world. The present
calorie level in India is just above the minimum caloric
level required for sustaining life which is estimated at 2100
calories. Until a few years ago only a small percentage of
the Indian population had access to safe drinking water and
proper housing facilities. As per the estimate of National
Building Organisation (NBO), in total there was a shortage
of 31 million housing units at the end of March, 1991 and
by the turn of the century, total backlog of housing
shortage in the country was around 41 million units.
11) Poor quality of human capital: Indian economy is
suffering from poor quality of human capital. Mass
illiteracy is the root of this problem and illiteracy at the
same time is retarding the process of economic growth of
our country. As per 2001 census, 65.3 per cent of the total
population of India is literate and the rest 34.7 per cent still
remains illiterate. In most of the developed countries like
U.S.A., U.K., Canada, Australia etc. the level of illiteracy
is even below 3 per cent. Besides, low level of living is
also responsible for poor health condition of the general
masses. All this has resulted in the problem of poor quality
of human capital in the country.
12) Inadequate development of economic organisation:
Poor economic organisation is another important
characteristic of the Indian economy. For attaining
economic development at a satisfactory rate certain
institutions are very much essential. As an example, for the
mobilisation of savings and to meet other financial needs,
more particularly in the rural areas, development of certain
financial institutions is essential. In India the development
of financial institutions is still inadequate in the rural areas.
There is the urgent need to develop credit agencies for
advancing loan to small farmers on easy terms as well as to

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provide long term and medium-term loan to industries. For

protecting poor tenants from the clutches of landlords,
proper enforcement of tenancy legislation is very much
necessary. All these require maintenance of honest and
efficient administrative machinery which India is lacking.
1.7 Indian Industrial sector
The processing of natural resources into more useful
items is called manufacturing. These manufactured goods are
finished products derived from the raw materials. These raw
materials used in manufacturing industry may be either in their
natural form such as cotton, wool, iron ore etc. or may be in
the semi processed form like cotton yarn, pig iron etc. which
can further be used for making more useful goods. Thus, the
finished product of one industry may serve as the raw material
for another industry. Economic development cannot be
achieved by a country without developing its industries. There
is a direct relationship between the level of industrial
development and the economic prosperity of a country.
Developed countries like the USA, Japan, Russia owes due to
their prosperity to highly developed industries. Industrially less
developed countries export their natural resources and import
finished goods at higher prices and continue to remain
economically backward. In India manufacturing industries
contributed about 30 per cent of the gross domestic product.
These industries provide employment to about 28 million
people. Thus, industries are a major source of national income
and employment.
History of Modern Industry
The modern industrial development in India started
with the establishment of the first cotton textile mill at
Mumbai in 1854, predominantly with Indian capital and
entrepreneurship. Jute industry made a beginning in 1855 with
the establishment of a jute mill in the Hooghly Valley near

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Kolkata with foreign capital and entrepreneurship. Coal

mining was first started at Raniganj in 1772. Railways were
introduced in 1854. Tata Iron and Steel Plant was set up at
Jamshedpur in 1907. Several other medium and small size
industries like cement, glass, soaps, chemicals, jute, sugar and
paper followed. The industrial production in pre-independence
period was neither adequate nor diversified. At the time of
independence, the economy was under-developed with
agriculture contributing to more than 60 per cent of the GDP
and most of the country‟s export earnings. After 60 years of
independence, India has now shown the signs of becoming a
leading economic power. Industrial development in India can
be divided into two phases. The Government successively
increased its control over different economic sectors during the
first phase (1947-1980). In the second phase (1980-97) it took
measures to liberalise the economy between 1980 and 1992.
These measures were somewhat adhoc. After 1992, the whole
process of liberalization became more focused and radically
different in nature. After independence, systematic industrial
planning under different five-year plans helped in establishing
a large number of heavy and medium industries. The main
thrust of the industrial policy was to remove regional
imbalances and to introduce diversification of industries.
Indigenous capabilities were developed to achieve self-
sufficiency. It is due to these efforts that India has been able to
develop in the field of industry. Today, we export a large
number of industrial goods to various countries.
Classification of Industries
Industries can be classified on different basis.
Classification of industries are as follows
1. Classification based on source of material
Industries are grouped into agro based industries and
mineral based industries.

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a) Agro based industries

Textiles, sugar, paper and vegetable oil industry are
some of the examples of agro based industries. These
industries use agricultural products as their raw materials.
Textile industry is the largest industry in the organized sector.
It comprises of (i) cotton textiles, (ii) woolen textiles, (iii) silk
textiles (iv) synthetic fibres and (v) jute textile industries.
Textiles has been a major component of the industrial sector. It
accounts for nearly a fifth of the industrial output and a third of
the export earnings. In term of employment, it comes next only
to agriculture sector.
b) Mineral based industry
Industries which use minerals as the raw material are
called mineral based industries. Iron and steel industry is the
most important among these industries. Engineering, cement,
chemical and fertilizer industries are also important mineral
based industries.
2. Classification based on ownership
Based on the ownership, industries are grouped in to
four they are as follows
a) Public sector industry
Public sector industries are those which are owned and
managed by the government. Examples are Bokaro iron and
steel plant, Chittaranjan locomotive works.
b) Private sector industry
These are owned and managed by an individual or a
group as a company. examples are Tata Iron and steel, J K
Cement industry, Apollo tyres
c) Joint sector industries
These are owned jointly by public and private sectors.
Examples are Maruthi udhyog

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d) Cooperative sector
These are industries which are owned by cooperative
society of raw material producers Examples are
AMUL(Gujarat), Sugar industry in Maharashtra etc.
3. Classification based on function or role
Based on the function or role performed by the
industries, industries are grouped into two,
a) Basic industry
The main characteristics of this type of industry are,
finished products of basic industry are used as raw material for
other industries. Example are iron and steel and Petro-
chemical industries.
b) Consumer goods industry
In the case of consumer goods industry finished
products are directly used by the individuals. Examples are
Tooth paste, soap, and sugar.
4. Classification based on Size of industry
a) Large scale industry
Huge investment, heavy machinery, large number of
workers, large factory, 24 hours of operation are the major
characteristics of this industry. Examples are Iron and steel, oil
refineries etc.
b) Small scale Industries
These industries require small investment, small
factory, few factory workers. Examples are cycles, electrical
goods industry.
c) Rural and cottage industries
These are industries owned by family members, and
they possess small machines at home. Examples are jewellery,
handicrafts, handlooms, art work

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5. Classification based on weight of raw materials and

finished products
a) Heavy industries
These industries used both raw material and finished
products are heavy and bulky, and requires high transportation
cost. Examples are Iron and steel, BHEL, heavy electrical like
generator.
b) Light industries
These industries used both raw material and finished
products are light in weight, low transport cost. Examples are
watches, readymade garments, toys, fountain pens.
1.8 MSME sector
Micro, Small, Medium Enterprises (MSME‟s) are
entities that are involved in production, manufacturing and
processing of goods and commodities. The concept of MSME
was first introduced by the government of India through the
Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006. In accordance with the provision of Micro, Small &
Medium Enterprises Development (MSMED) Act, 2006 the
Micro, Small and Medium Enterprises (MSME) are classified
as below: (i) a micro enterprise, where the investment in plant
and machinery or equipment does not exceed one crore rupees
and turnover does not exceed five crore rupees; (ii) a small
enterprise, where the investment in plant and machinery or
equipment does not exceed ten crore rupees and turnover does
not exceed fifty crore rupees; and (iii) a medium enterprise,
where the investment in plant and machinery or equipment
does not exceed fifty crore rupees and turnover does not
exceed two hundred and fifty crore rupees.
The new classification has come into effect from 1st
July, 2020. The earlier criterion of classification of MSMEs
under MSMED Act, 2006 was based on investment in plant

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and machinery / equipment. It was different for manufacturing

and services units. It was also very low in terms of financial
limits. Since then, the economy has undergone significant
changes. a revision in MSME criteria of classification was
announced in the Aatma Nirbhar Bharat package on 13th May,
2020. This has been done in order to be realistic with time and
to establish an objective system of classification and to provide
ease of doing business.
As a result, a new composite criterion of classification
for manufacturing and service units has been notified on
26.06.2020, with guidelines regarding composite criteria to
facilitate the present and prospective entrepreneurs. Now, there
will be no difference between manufacturing and service
sectors. Also, a new criterion of turnover has been added in the
previous criteria of classification based only on investment in
plant and machinery. The new criteria is expected to bring
about many benefits that will aid MSMEs to grow in size.
Ministry of Micro, Small and Medium Enterprises
The Ministry of Micro, Small and Medium Enterprises,
a branch of the Government of India, is the apex executive
body for the formulation and administration of rules,
regulations and laws relating to micro, small and medium
enterprises in India.
Under the Micro, Small and Medium Enterprises
Development Act, 2006, the Government of India established
The National Board for Micro, Small and Medium Enterprises
(NBMSME) to examine the factors affecting promotion and
development of MSME. This board also reviews the existing
policies and suggests recommendations to the Government for
the growth of the MSME sector
The services provided by the Ministry of MSME are as
follows:

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 Facilities for testing, training for entrepreneurship

development
 Preparation of project and product profiles
 Technical and managerial consultancy
 Assistance for exports
 Pollution and energy audits.
Characteristics of MSMEs
The important characteristics of MSMEs are
summarized as follows:
 They are generally organized and run by individual
entrepreneurs.
 They require less capital.
 They are fundamentally labour-intensive units facilitating
greater utilization of man power.
 They involve the use of simple technology, intensive
utilization of individual skill leading to professional
specialization.
 They cater the individual tastes and fashions and render
personalized service to consumers.
 They are highly localized industries. Using local resources
MSMEs are decentralized and dispersed to rural areas.
 They are eligible for govt. assistance and patronage and for
concessional finance by banks, financial institutions etc.
 They are flexible to a large extent. They are more
susceptible to change and highly reactive and receptive to
socio-economic conditions.
 They are free from red-tapism and bureaucratic handicaps.
 Compared to large units, a MSME has a lesser gestation
period. i.e., the period after which the on investment starts.
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Objectives of MSMEs
The primary objectives of MSME are to play a
complementary role in the socio-economic set up of a country.
The other objectives are as follows:
 To provide increased employment opportunities.
 To provide production of large variety of goods especially
consumer goods through labour intensive methods.
 To bring backward areas too in the mainstream of national
development.
 To improve the level of living of people in the country.
 To create a climate for the development of self-employed
experts, professionals and small entrepreneurs.
 To ensure more equitable distribution of national income.
 To ensure balanced regional development as regards
industries
 To encourage the adoption of modern techniques in the
unorganised traditional sector or the industry
Advantage of MSMEs
 They are relatively more environmentally friendly.
 They are generally based on local resources.
 They provide ample opportunities for creativity and
experimentation.
 They facilitate equitable distribution of income and wealth.
 MSME enjoys the government support and patronage.
 These helps in the balanced regional development.
 It is possible to make necessary changes as and when
required.

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 These help in reducing prices.

 There is a close and direct personal contact with the
customer and employees.
 They create more employment opportunities. They are
labour intensive. They offer ample scope for self-
employment.
 They require only less capital. It is a boon to a country like
India where capital is deficient.
 MSME alone can satisfy individual tastes and offer
personalized service to the customers.
Disadvantages of MSMEs
 MSMEs suffer from lack of funds. They are financially
weak.
 They suffer from lack of managerial and other skills. They
cannot employ highly paid officials.
 MSMEs always face tough competition from large
businesses.
 They are not well equipped to make advantage of the latest
technology and modern methods.
 There is only a little scope for division of labour and
specialization.
 MSMEs cannot afford to spend large sums of money on
research and experiments
 They cannot survive in times of adversity.
 They cannot secure cheap credit.
Role/ Importance of MSMEs in Developing Countries
I) Large Employment Opportunities: MSMEs are
generally labour-intensive. For every Rs. 1 lakh of fixed

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investment, MSME sector provides employment for 26

persons as against 4 persons in the large-scale sector.
Thus, in a country like India where capital is scarce and
labour is abundant, MSMEs are especially important.
II) Economical Use of Capital: MSMEs need relatively
small amount of capital. Hence it is suitable to a country
like India where capital is deficient.
III) Balanced Regional Development: Generally small
enterprises are located in village and small towns.
Therefore, it is possible to have a balanced regional
growth of industries. India is a land of villages.
IV) Equitable Distribution of Income and Wealth: It
removes the drawbacks of capitalism, abnormal
profiteering, concentration of wealth and economic
power in the hands of few etc.
V) Higher Standard of Living: MSMEs bring higher
national income, higher purchasing power of people in
rural and semi-urban areas.
VI) Mobilization of Local Resources: The spreading of
industries even in small towns and villages would
encourage the habit of thrift and investment among the
people of rural areas.
VII) Simple Technology: New but simple techniques of
production can be adopted more easily by MSMEs
without much investment.
VIII) Less Dependence on Foreign Capital: MSMEs use
relatively low proportion of imported equipment and
materials. The machinery needed for these industries can
be manufactured within the country.
IX) Promotion of Self Employment: MSMEs foster
individual skill and initiative and promote self-

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employment particularly among the educated and

professional class.
X) Promotion of Exports: With the establishment of a large
number of modern MSMEs in the post-independence
period, the contribution of the small scale sector in the
export earnings has increased much.
XI) Protection of Environment: MSMEs help to protect the
environment by reducing the problem of pollution.
XII) Shorter Gestation Period: In these enterprises the time-
lag between the execution of the investment project and
the start of flow of consumable goods is relatively short.
XIII) Facilitate Development of Large-Scale Enterprises:
MSMEs support the development of large enterprises by
meeting their requirements of inputs of raw materials,
intermediate goods, spare parts etc. and by utilizing their
output for further production.
Problems of MSMEs
Some of the more important problems faced by
MSMEs are as follows:
I) Lack of managerial experience: They may not be having
specialised knowledge in the different fields of
management. At the time of initiating the project, they are
not in a position to anticipate correctly their financial
requirements and the size of market for their products.
II) Inadequate finance: Generally, MSMEs are not in a
position to arrange full finance from their own sources.
They obtain finance from unorganized finance sector at
higher rate of interest.
III) Lack of Proper Machinery and Equipment: Many
MSMEs use inefficient and outdated machinery and
equipment. This affects the quality of production.

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IV) Lack of Technical Know-How: Do not have the

knowledge about different alternative technologies and
processes available for manufacturing their products to
improve the quality of products and reduce costs.
V) Run on Traditional Lines: They have not yet adopted
modern methods and techniques of production. They have
not taken adequate interest in research and development
efforts. Hence, they cannot be run efficiently.
VI) Irregular Supply of Raw Materials: The majority of
MSMEs depends on local sources for their raw material
requirements. Small entrepreneurs are forced to pay high
prices for materials because they purchase materials in
small quantity.
VII) Problem of Marketing: The brand name of the products
of MSMEs is acute due to tough competition from large
industries. It cannot afford to costly advertisement and
network of distribution system. There are delays in the
payment of bills by large purchasers resulting in
inadequate working capital.
VIII) Personnel Problems: It is difficult for them to get
qualified persons to run the business. They cannot provide
much training facilities to employees.
IX) Lack of Clear-Cut Policy of The Govt: The Govt. may
take decisions relating to MSMEs on the basis of political
consideration rather than on economic consideration.
X) Bogus Units: The government should look into this
aspect seriously, break the strong hold of such vested-
interested and promote only genuine entrepreneurship in
the country.
XI) Other Problems: Like inefficient management, non-
availability of cheap power, burden of local taxes etc.

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Role of MSMEs in Indian Economy

The Micro, Small & Medium Enterprises (MSMEs)
have been contributing significantly to the expansion of
entrepreneurial endeavours through business innovations. The
MSMEs are widening their domain across sectors of the
economy, producing diverse range of products and services to
meet demands of domestic as well as global markets.
MSMEs contribute to approximately 8% of India‟s
GDP, employ over 60 million people, have an enormous share
of 40% in the exports market and 45% in the manufacturing
sector. Hence, they are of paramount importance for overall
economic development of India. In a developing country like
India, MSME industries are the backbone of the economy.
When these industries grow, the economy of the country grows
as a whole and flourishes. These industries are also known as
small-scale industries or SSI's. In India, MSMEs contribute
nearly 8% of the country's GDP, around 45% of the
manufacturing output, and approximately 40% of
the country's exports. MSMEs are an important sector for the
Indian economy and have contributed immensely to
the country's socio-economic development.
MSMEs produces and manufactures a wide variety of
products for domestic, as well as international
markets. MSMEs help in the promotion of growth and
development of Khadi, Village and Coir industries, in co-
operation with concerned ministries, state governments and
stakeholders.
1.9 Public sector and Indian economy
In India, a public sector company is that company in
which the Union Government or State Government or any
Territorial Government owns a share of 51 % or more.
Currently there are just three sectors left reserved only for the

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government i.e., Railways, Atomic energy and explosive

material. Private sectors/players are not allowed to operate in
these sectors.
Before the independence of India, there were only a
few public sector companies in the country this includes,
Indian Railways, the Port Trusts, the Posts and Telegraphs, All
India Radio and the Ordinance Factory are some of the major
examples of the country‟s public sector enterprises. However,
post Indian independence, some policies for the development
of the socio-economic status of the country were planned out
by the then visionary leaders, where the public sector were
used as a tool for the self-reliant growth of the nation‟s
economy.
Classification of Public Sector
The public sector can be classified into: -
1. Departmental Undertaking – Directly managed by
concerned ministry or department. (e.g., Railways, Posts,
etc.)
2. Non-Departmental Undertaking – PSU (e.g., HPCL, IOCL,
etc.)
3. Financial Institution (e.g., SBI, UTI, LIC, etc.)
The rationale behind the establishment of PSU‟s was
Industrialisation and the establishment of Capital Goods
Industries and Basic Industries. The organizations that are not
a part of the public sector are termed as private sector that
works to raise profit for the organization.
Objectives of Setting up Public Sector Unit (PSU)
1. To create an industrial base in the country
2. To generate a better quality of employment
3. To develop basic infrastructure in the country

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4. To provide resources to the government

5. To promote exports and reduce imports
6. To reduce inequalities and accelerate the economic growth
and development of a country.
Role of Public sector in the upliftment of society
The public sector plays a major role in uplifting the
economic condition of society in various ways. The major role
of the public sector can be explained below:
1. Public sector & capital formation – This sector has been
a major reason for the generation of capital in the Indian
economy. A large amount of the capital comes from the
public sector Units in India
2. Creation of Employment opportunities – Public sector
has brought about a major change in the employment
sector in the country. They provide a lot of opportunities
under various domains and thus helps in uplifting the
Indian economy and society.
3. Development of Different Regions – The establishment of
major factories and plants has boosted the socio-economic
development of different regions across the country.
Inhabitants of the region are impacted positively
concerning the availability of facilities like electricity,
water supply, township, etc.
4. Upliftment of Research and Development – Public sector
units have been investing a lot to introduce advanced
technology, automated equipment, and instruments. This
investment would result in the overall cost of production.
Problems faced by public sector undertakings
The major problems of PSUs can be stated below:
1. Inappropriate investment decisions

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2. Improper Pricing Policy

3. Excessive overhead cost
4. Lack of Autonomy & Accountability
5. Overstaffing
6. Trade Unionism
7. Under Utilization of capacity
Role of Public Sector in the Economic Development of
India
a) Promoting economic development at a rapid pace by filling
gaps in the industrial structure
b) Promoting adequate infrastructural facilities for the growth
of the economy
c) Undertaking economic activity in those strategically
significant development areas, where private sector may
distort the spirit of national objective
d) Checking monopolies and concentration of power in the
hands of few
e) Promoting balanced regional development and
diversifying natural resources and other infrastructural
facilities in those less developed areas of the country
f) Reducing the disparities in the distribution of income and
wealth by bridging the gap between the rich and the poor
g) Creating and enhancing sufficient employment
opportunities in different sectors by making heavy
investments
h) Attaining self-reliance in different technologies as per
requirement
i) Eliminating dependence on foreign aid and foreign
technology

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j) Exercising social control and regulation through various

public finance institutions
k) Controlling the sensitive sectors such as distribution
system, allocating the scarce imported goods rationally
etc.; and
l) Reducing the pressure of balance of payments by
promoting export and reducing imports.
1.10 Role of Service Sector in Indian Economy
As civilization progresses human desires increase
leading to the evolution of economic activities. Normally
primary activities such as hunting, animal husbandry and
agriculture emerged. Later on, as science and technological
development took place which led to the evolution of industrial
sector. The expansion of both these sectors made the
advancement of service sector.
Fisher (1935) and Colin Clark (1940) have divided the
economy into primary sector, secondary sector and tertiary
sector. The primary sector which covers tangible goods in
agriculture, forestry, fishing, and hunting. The secondary
sector includes mining, manufacturing and such activities as
gas, electricity and water supply involving activities with a
tangible and product. The tertiary sector consists of trade and
public services. But this is not a clear-cut division on economic
activities as economist change the activity in the list and also
there is overlapping of economic activities.
Later on, the economic activities have been shifted
from one sector to another sector. At present the primary sector
includes agriculture, forestry, animal and husbandry and
fisheries etc., the secondary sector activities incorporate
mining, manufacturing, electricity, gas, water supply,
construction etc., the service sector activities include trade,
commerce, transport, communications, hotel and restaurant,

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banking and finance, health and education, tourism, share

market, film industry, insurance, astrology industry,
advertisement industry, sports, legal service, publishing
industry, mass media etc.,
Service sector also known as the tertiary sector of the
economy is expanding at a faster rate. It is one of the three
sectors of the economy. “Soft” part of the economy in the
service sector includes all activities which people offer their
knowledge and time to improve productivity, performance,
potential and sustainability and also known as advice,
experience and discussion include the service sector. Service
sector involves of activities beginning from the production of
goods and service until it reaches to the consumer. For the last
30 years there has been a substantial shift from the primary and
secondary sector to the service sector. Now it has become a
largest sector of the economy. Further, the service sector
activities can be grouped into:
1. Trade, hotel and restaurants.
2. Transport, storage and communication. Transport includes
roads and railways, airways and inland and overseas, water
transport.
3. Financial institutions, insurance, real estate and business
services.
4. Community, social and personal services. Community
services include government establishment and its
departments and personal services such as health, and
education, NGOs etc.
Role of Service Sector in Economic Development
In any country economic development depends on the
growth and evolution of the three sectors of the economy.
However, in recent years the service sector growing at a very
faster rate in the developing countries and is contributing a

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major share in terms of output, income and employment. Even

the productivity per worker is becoming higher in-service
sector when compared to agriculture and industrial sectors.
Already the service sector is dominant in the developed
countries. If agriculture sector is stagnant, new service
activities are emerging and adding to the service sector making
the economy to grow. Hence service sector is playing a major
role in economic development of any country.
The importance of the services sector can be gauged by
its contributions to different aspects of the economy.
 Business includes both domestic trade as well as foreign
trade. Trade as a service sector activity facilitates the
exchange of the goods and services between producers and
consumers. Domestic trade refers to the exchange of goods
and services with in the country. Which provides income
and employment to the people who have engaged in these
activities. Foreign trade plays a major role in the
development of the country. Imports of machinery and
equipment which cannot be produced in the initial stages at
home are essential. Such imports which either help to
create new capacity in some lines of production or enlarge
capacity in the other lines of production are called
developmental imports. The imports which are made in
order to make a full use of the productive capacity are
called maintenance imports.
 Finance as a service sector activity plays an important role
in undertaking any economic activities. Finance refers to
funds of monetary resources required by individual,
business houses and the government. People needs funds to
meeting their current requirement or day to day of
expenses for buying capital goods. A business house
requires funds for paying wages and salaries, for buying
raw materials, for purchasing new machinery or replacing

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an old one etc. Government needs funds to provide various

services to its subject. Finance institutions provides funds
to various groups of people for variety of activities. In this
process the service sector activities provide income and
employment to the people of a country.
In the previous days this sector is responsible for
distributing the output of the primary and secondary sectors for
the intermediate and final consumption and also for the
providing a variety of services to producers as well as
consumers. Trade, transport and storage activities ensure
distribution of goods and services where and when needed by
consumers. Business and financial services facilitate
mobilization of resources and their development in the
activities of different sector of the economy.
Service Sector in India
Today, in India service sector accounts more than 50
percent of India‟s Gross Domestic Product (GDP). There is a
significant change in sectoral contribution of each sector to
India‟s GDP over a period of time. In 1950-51 the primary
sector was contributing about 56.5 percent to the Indian GDP.
It is followed by the secondary sector with 13.6 percent and
tertiary sector with 29.9 percent. During 1990-91 the share of
agriculture sector in India GDP was 34 percent. It was
followed by secondary sector with 23.2 percent and tertiary
sector with 42.8 percent. During 2007 the contribution of
primary sector came down to 18 percent, and industrial sector
increased to 29 percent sector to 53 percent (Misra and Puri,
2009). During 2008-09 the share of primary sector was 15.7
percent, the share of secondary sector was 28 percent and the
share of service sector was 56.4 percent (GOI, 2010) which
highlights the fact that the share of tertiary sector is raising
constantly over a period of time.
India stands one of the leading economies because its

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growth has been led by the service sector. It‟s a larger part of
the Indian economy both in terms of employment potential and
its contribution to national income. Demand and supply factors
have led to this growth. In the demand side high growth of
services is the economy was mostly due to the factors such as
the increasing input usage of services by other sectors. In the
supply side is the increased trade in services following trade in
liberalization policies and other reforms of 1990s induced this
growth.
The trade liberalization is responsible for the
development of finance, transport communication and other
service sector activity including in service hotel and restaurant.
Along with this the increase in demand for health and
education also led to expansion of these sector. The services
sector in future providing about the 70 per cent of the new job
opportunities in the economy as the share agriculture in total
employment already falling, in the coming years, the share of
services would increase.
The Indian economy has contributed to the services
sector of about 55.2 per cent share in G.D. P its growing by 10
per cent annually, contributing to the total employment, a high
share in foreign direct investment and one-third of total exports
and recording very fast at 27.4 per cent in export growth of the
first half of 2010-11. Some services, such as infrastructure
include the roads, railways, civil aviation, financial services
and social services. The social services including the health
and education play a major role in enhancing the contribution
of service sector to its Indian economy.
1.11 Liberalization, Privatization and Globalization
(LPG) Models and Indian economy
Business in India during LPG.
The economy of India had undergone significant policy

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shifts in the beginning of the 1990s. This new model of

economic reforms is commonly known as the LPG or
Liberalisation, Privatisation and Globalisation model. The
primary objective of this model was to make the economy of
India the fastest developing economy in the globe with
capabilities that help it match up with the biggest economies of
the world. The concepts of liberalization, globalization and
privatization are actually closely related to one another. This
LPG phenomenon was first initiated in the Indian Economy in
1990 when the Indian Economy experienced a severe crisis. At
that time the government decided to introduce the New
Industrial Policy (NIP) in 1991 to start liberalizing the Indian
economy. The chain of reforms that took place with regards to
business, manufacturing, and financial services industries
targeted at lifting the economy of the country to a more
proficient level. These economic reforms had influenced the
overall economic growth of the country in a significant
manner.
Liberalisation
Liberalisation refers to the slackening of government
regulations. The economic liberalisation in India denotes the
continuing financial reforms which began since July 24, 1991.
Or in other words we eeecan say that Liberalization means
elimination of state control over economic activities. It implies
greater autonomy to the business enterprises in decision-
making and removal of government interference. It was
believed that the market forces of demand and supply would
automatically operate to bring about greater efficiency and the
economy would recover. This was to be done internally by
introducing reforms in the real and financial sectors of the
economy and externally by relaxing state control on foreign
investments and trade.

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Objectives
 To boost competition between domestic businesses
 To promote foreign trade and regulate imports and exports
 Improvement of technology and foreign capital
 To develop a global market of a country
 To reduce the debt burden of a country
 To unlock the economic potential of the country by
encouraging the private sector and multinational
corporations to invest and expand.
 To encourage the private sector to take an active part in the
development process.
 To reduce the role of the public sector in future industrial
development.
 To introduce more competition into the economy with the
aim of increasing efficiency.
Reforms under Liberalisation
 Deregulation of the Industrial Sector
 Financial Sector Reforms
 Tax Reforms
 Foreign Exchange Reforms
 Trade and Investment Policy Reforms
 External Sector Reforms
 Foreign Exchange Reforms
 Foreign Trade Policy Reforms

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Impacts of Liberalisation in India

 Positive impacts of liberalisation in India
1) Free flow of capital: Liberalisation has improved flow of
capital into the country which makes it inexpensive for the
companies to access capital from investors. Lower cost of
capital enables to undertake lucrative projects which they
may not have been possible with a higher cost of capital
pre-liberalisation, leading to higher growth rates.
2) Stock Market Performance: Generally, when a country
relaxes its laws, taxes, the stock market values also rise.
Stock Markets are platforms on which Corporate Securities
can be traded in real time. Impact of FDI in Banking
sector: Foreign direct investment allowed in the banking
and insurance sectors resulted in decline of government‟s
stake in banks and insurance firms.
3) Political Risks Reduced: Liberalisation policies in the
country lessens political risks to investors. The government
can attract more foreign investment through liberalisation
of economic policies. These are the areas that support and
foster a readiness to do business in the country such as a
strong legal foundation to settle disputes, fair and
enforceable laws.
4) Diversification for Investors: In a liberalised economy,
Investors gets benefit by being able to invest a portion of
their portfolio into a diversifying asset class.
5) Impact on Agriculture: In the area of agriculture, the
cropping patterns has undergone a huge modification, but
the impact of liberalisation cannot be properly measured. It
is observed that there are still all-pervasive government
controls and interventions starting from production to
distribution for the produce

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 Negative impacts of liberalisation in India

1) Destabilization of the economy: Tremendous
redistribution of economic power and political power leads
to Destabilizing effects on the entire Indian economy.
2) Threat from Multinationals: Prior to 1991 MNC‟s did
not play much role in the Indian economy. In the pre-
reform period, there was domination of public enterprises
in the economy. On account of liberalisation, competition
has increased for the Indian firms. Multinationals are quite
big and operate in several countries which has turned out a
threat to local Indian Firms.
3) Technological Impact: Rapid increase in technology
forces many enterprises and small-scale industries in India
to either adapt to changes or close their businesses.
4) Mergers and Acquisitions: Acquisitions and mergers are
increasing day-by-day. In cases where small companies are
being merged by big companies, the employees of the
small companies may require exhaustive re-skilling. Re-
skilling duration will lead to non-productivity and would
cast a burden on the capital of the company.
5) Impact of FDI in Banking sector: Foreign direct
investment allowed in the banking and insurance sectors
resulted in decline of government‟s stake in banks and
insurance firms.
Privatisation
Privatisation refers to the participation of private
entities in businesses and services and transfer of ownership
from the public sector (or government) to the private sector as
well. Privatization is the transfer of control of ownership of
economic resources from the public sector to the private
sector. It means a decline in the role of the public sector as

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there is a shift in the property rights from the state to private

ownership. The public sector had been experiencing various
problems, since planning, such as low efficiency and
profitability, mounting losses, excessive political interference,
lack of autonomy, labour problems and delays in completion
of projects. Hence to remedy this situation with Introduction of
NIP‟1991. Another term for Disinvestment. The objectives of
disinvestment were to raise resources through sale of PSUs to
be directed towards social welfare expenditures, raising
efficiency of PSUs through increased competition, increasing
consumer satisfaction with better quality goods and services,
upgrading technology and most importantly removing political
interference.
Objectives of Privatisation
 Privatisation aims at providing a strong base to the inflow
of FDI.
 Increased inflow of FDI improves the financial strength of
the economy
Impact of Privatisation
 Positive Aspect
1. Improved efficiency: - The main argument for
privatisation is that private companies have a profit
incentive to cut costs and be more efficient. If you work for
a government run industry managers do not usually share
in any profits. However, a private firm is interested in
making a profit, and so it is more likely to cut costs and be
efficient.
2. Lack of political interference: - It is argued governments
make poor economic managers. They are motivated by
political pressures rather than sound economic and
business sense. For example, a state enterprise may employ

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surplus workers which is inefficient. The government may

be reluctant to get rid of the workers because of the
negative publicity involved in job losses. Therefore, state-
owned enterprises often employ too many workers
increasing inefficiency.
3. Short term view: - A government many think only in
terms of the next election. Therefore, they may be
unwilling to invest in infrastructure improvements which
will benefit the firm in the long term because they are more
concerned about projects that give a benefit before the
election. It is easier to cut public sector investment than
frontline services like healthcare.
4. Shareholders: - It is argued that a private firm has
pressure from shareholders to perform efficiently. If the
firm is inefficient then the firm could be subject to a
takeover. A state-owned firm doesn‟t have this pressure
and so it is easier for them to be inefficient.
5. Increased competition: - Often privatisation of state-
owned monopolies occurs alongside deregulation – i.e.,
policies to allow more firms to enter the industry and
increase the competitiveness of the market. It is this
increase in competition that can be the greatest spur to
improvements in efficiency. For example, there is now
more competition in telecoms and distribution of gas and
electricity.
6. Government will raise revenue from the sale: - Selling
state-owned assets to the private sector raised
significant sums for the UK government in the 1980s.
However, this is a one-off benefit. It also means we lose
out on future dividends from the profits of public
companies.
 Negative Aspect
1. Natural monopoly: - A natural monopoly occurs when the

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most efficient number of firms in an industry is one. For

example, tap water has very significant fixed costs.
Therefore, there is no scope for having competition
amongst several firms. Therefore, in this case, privatisation
would just create a private monopoly which might seek to
set higher prices which exploit consumers. Therefore, it is
better to have a public monopoly rather than a private
monopoly which can exploit the consumer.
2. Public interest: - There are many industries which
perform an important public service, e.g., health care,
education and public transport. In these industries, the
profit motive shouldn‟t be the primary objective of firms
and the industry. For example, in the case of health care, it
is feared privatising health care would mean a greater
priority is given to profit rather than patient care. Also, in
an industry like health care, arguably we don‟t need a
profit motive to improve standards. When doctors treat
patients, they are unlikely to try harder if they get a bonus.
3. Government loses out on potential dividends.:- Many of
the privatised companies in the UK are quite profitable.
This means the government misses out on their dividends,
instead going to wealthy shareholders.
4. Problem of regulating private monopolies.: -
Privatisation creates private monopolies, such as the water
companies and rail companies. This need regulating to
prevent abuse of monopoly power. Therefore, there is still
need for government regulation, similar to under state
ownership.
5. Fragmentation of industries: - In the UK, rail
privatisation led to breaking up the rail network into
infrastructure and train operating companies. This led to
areas where it was unclear who had responsibility. For
example, the Hatfield rail crash was blamed on no one

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taking responsibility for safety. Different rail companies

have increased the complexity of rail tickets.
6. Short-termism of firms: -As well as the government
being motivated by short term pressures, this is something
private firms may do as well. To please shareholders, they
may seek to increase short term profits and avoid investing
in long term projects. For example, the UK is suffering
from a lack of investment in new energy sources; the
privatised companies are trying to make use of existing
plants rather than invest in new ones.
Globalisation
Globalization essentially means integration of the
national economy with the world economy. It implies a free
flow of information, ideas, technology, goods and services,
capital and even people across different countries and
societies. It increases connectivity between different markets
in the form of trade, investments and cultural exchanges. The
concept of globalization has been explained by the IMF
(International Monetary Fund) as „the growing economic
interdependence of countries worldwide through increasing
volume and variety of cross border transactions in goods and
services and of international capital flows and also through the
more rapid and widespread diffusion of technology.
Advantages of Globalisation in India
1) Increase in Employment: With the opportunity of Special
Economic Zones (SEZ), there is an increase in the number of
new jobs availability. Including Export Processing Zones
(EPZ) Centre in India is very useful in employing thousands of
people. Another additional factor in India is cheap labour. This
feature motivates big companies in the west to outsource
employees from other region and cause more employment.
2) Increase in Compensation: After Globalisation, the level

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of compensation has increased as compared to domestic

companies due to the skill and knowledge a foreign company
offers. This opportunity also emerged as an alteration of the
management structure.
3) High Standard of Living: With the outbreak of
Globalisation, Indian economy and the standard of living of an
individual has increased. This change is notified with the
purchasing behaviour of a person, especially with those who
are associated with foreign companies. Hence, many cities are
undergoing a better standard of living along with business
development.
4) Extension of Market- Due to globalisation any company
can extend their limits the size of business. Now no nation can
any longer hope to lead an existence of solitude and isolation
in which only domestics industries can function.
5) Development of Infrastructure- Its help in the
improvement and development of infrastructure. For example,
growing financial facilities, faster communication, rapid
technology changes, new sources of industrial energy etc.
6) Development of healthy competition. Integration of global
markets reduces manufacturing costs, improves quality,
reduces processing time, and business becomes dominant
drivers.
7) Multiplicity of Manufacturing Plants- In globalisation, an
MNC by operating in more than one country gains research
and development production, marketing and financial
advantages in its cost and reputation, that are not available to
purely domestic marketers.
Disadvantages of Globalisation
1. Inequality: Globalisation has been linked to rising
inequalities in income and wealth. Evidence for this is the
growing rural–urban divide in countries such as China, India

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and Brazil. This leads to political and social tensions and

financial instability that will constrain growth. Many of the
world‟s poorest people do not have access to basic
technologies and public goods. They are excluded from the
benefits.
2. Inflation: Strong demand for food and energy has caused a
steep rise in commodity prices. Food price inflation has placed
millions of the world‟s poorest people at great risk.
3. Vulnerability to external economic shocks – national
economies are more connected and interdependent; this
increases the risk of contagion i.e., an external event
somewhere else in the world coming back to affect you has
risen / making a country more vulnerable to macro-economic
problems elsewhere
4. Threats to the Global Commons: Irreversible damage to
ecosystems, land degradation, deforestation, loss of bio-
diversity and the fears of a permanent shortage of water afflict
millions of the world‟s most vulnerable
5. Trade Imbalances: Global trade has grown but so too have
trade imbalances. Some countries are running big trade
surpluses and these imbalances are creating tensions and
pressures to introduce protectionist policies such as new forms
of import control. Many developing countries fall victim to
export dumping by producers in advanced nations (dumping is
selling excess output at a price below the unit cost of supply.)
6. Unemployment: Concern has been expressed by some that
capital investment and jobs in advanced economies will drain
away to developing countries as firms switch their production
to countries with lower unit labour costs. This can lead to
higher levels of structural unemployment.
7. Standardisation: Some critics of globalisation point to a
loss of economic and cultural diversity as giant firms and

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global multinational brands dominate domestic markets in

many countries.
Impact of Globalisation on Indian Economy.
In the Economic welfare, globalisation refers to the
unique economically interdependent international
environment. Each country‟s prosperity is interlinked with the
rest of the world. A further development will be the super
national enterprise. It serves all nation without being specially
attached to any of the. The Impacts of Globalisation are as
follows:
1. Economic Impact: - The implications of globalisation for a
national economy are many. Globalisation has intensified
interdependence and competition between economies in the
world market. This is reflected in interdependence in regard to
trading in goods and services and in movement of capital. As
the globalization attracted foreign investors to invest in the
financial market (like stock market, share market), the
commodity market also expanded. International trade leads to
an increase in the world‟s prosperity and welfare of each
trading nation and living standard of trading nation by way of
foreign direct investment by one country in to other country.
The economy will boost by the FDI, especially for the
developing country. Globalisation also gives a chance to IT
Sector, Pharma Sector, Agro Products etc. It has also some bad
effects especially on small scale sectors and local markets.
2. Cultural Effects: - Due to globalization is multi
dimensions, have been formed various outlooks about impact
of it on culture. coexistence with different cultures isn‟t
possible. Globalization is figure on broadcast and dominates a
special culture on other cultures in the world. Spread of
education has influenced the life style of people and standard
of living has been improved. By going global, corporation has
extended their products lines to other cultures. A company can

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both improve product quality and achieve its goal by sharing

technology and information. There are so many differences
between cultures that it is impossible to cover them all. The
global company is becoming the most viable force in the world
trade and international relation.
3. Political Effects: - Globalization by removing geographical,
political and cultural borders, and place has changed attitudes,
behaviour and action of individuals, nations, states and even
socio-political structure of societies. In politics scope,
globalization has created several evolution the scientific and
academic societies, especially political science, and some other
matters like political systems, states, and democracy, has
conceptual redefined by globalization.
4. Technological Changes: - Technology is understood to be
the driving force of globalization. This technological
development has helped globalise the world economy the tends
of technological changes that have taken place since the
industrialization revolution, relating from production,
distribution and communication, that has filled the
globalization. It has brought about innovation and interaction
between nations that weren‟t possible before. That has led to
some of the greatest invention that revolutionized trade,
communication and interaction to a whole new level and
increased globalisation
LPG Model of Development & LPG Reforms
(a) This has a very narrow focus since it mostly concentrates
on the corporate sector which accounts for only 10 percent
of GDP.
b) The model bypasses agriculture and agro-based industries
which are a significant source of generation of employment
for the masses. It did not delineate a concrete policy to

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develop infrastructure. Financial and technological support,

particularly the infrastructural needs of agro-exports.
(c) By permitting free entry of the multinational corporations
in the consumer goods sector. LPG model hit the interests
of the small and medium sector engaged in the production
of consumer goods. There is a danger of labour
displacement in the small industry if the unbridled entry of
MNCs is continued.
(d) By facilitating imports, the Government has opened the
import window too wide. Consequently, the benefits of
rising exports are more than offset by the much higher rise
in imports leading to a more significant trade gap.
(e) Finally, the model emphasizes a capital-intensive pattern of
development, and there are severe apprehensions about its
employment-potential. It is being made out that it may
cause unemployment in the short run but will take care

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MODULE II
FOREIGN TRADE AND ECONOMIC
DEVELOPMENT

2.1 Foreign Trade- Meaning and Definition

Foreign trade is the exchange of capital, goods, and
services across international borders or territories. In most
countries, it represents a significant share of Gross Domestic
Product (GDP). Industrialization, advanced transportation,
globalization, multinational corporations, and outsourcing are
all having a major impact on the international trade system.
Increasing international trade is crucial to the continuance of
globalization. International trade is a major source of economic
revenue for any nation that is considered a world power.
Without international trade, nations would be limited to the
goods and services produced within their borders.
Foreign trade is the exchange of goods across national
boundaries. Prof. J.L. Hanson said, “An exchange of various
specialized commodities and services rendered among the
corresponding countries is known as foreign trade.”
Foreign trade is all about imports and exports. The
backbone of any foreign trade between nations is those
products and services which are being traded to some other
location outside a particular country‟s borders.
Types of Foreign Trade
1. Import: Importing is the purchasing of goods or services
made in another country. For example, importing edible oil
from Chinese producers to sell in Africa.
2. Export: Exporting is selling domestic-made goods in
another country. For example, Hameem Garments exports

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Readymade Garments (RMG) products to Western

Countries.
3. Re-export: When goods are imported from a foreign
country and are re-exported to buyers in some other foreign
countries, it is called re-export. For example, Firm/
Readymade Garments located at EPZs imports raw
materials (cotton) from Korea and produces Readymade
Garments products by Thai cotton and then those products
to Canada.
Reasons/Need/ Importance/ Advantages of foreign Trade
The following points explain the need and importance
of foreign trade to a nation.
1. Division of Labour and Specialisation
Foreign trade leads to the division of labour and
specialization at the world level. Some countries have
abundant natural resources. They should export raw materials
and import finished goods from countries which are advanced
in skilled manpower. This gives benefits to all the countries
and thereby leading to the division of labour and
specialization.
2. Optimum allocation and utilisation of resources
Due to specialization, unproductive lines can be
eliminated, and wastage of resources avoided. In other words,
resources are canalized for the production of only those goods,
which would give the highest returns. Thus, there is rational
allocation and utilization of resources at the international level
due to foreign trade.
3. Equality of prices
Prices can be stabilized by foreign trade. It helps to
keep the demand and supply position stable, which in turn

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stabilizes the prices, making allowances for transport and other

marketing expenses.
4. Availability of Multiple choices
Foreign trade helps in providing a better choice to the
consumers. It helps in making available new varieties to
consumers all over the world.
5. Ensures quality and standard goods
Foreign trade is highly competitive. To maintain and
increase the demand for goods, the exporting countries have to
keep up the quality of goods. Thus, quality and standardized
goods are produced.
6. Raises standard of living of the people
Imports can facilitate the standard of living of the
people. This is because people can have a choice of new and
better varieties of goods and services. By consuming new and
better varieties of goods, people can improve their standard of
living.
7. Generate employment opportunities
Foreign trade helps in generating employment
opportunities by increasing the mobility of labor and resources.
It generates direct employment in the import sector and
indirect employment in other sectors of the economy. Such as
Industry, Service Sector (insurance, banking, transport,
communication), etc.
8. Facilitate Economic development
Imports facilitate the economic development of a
nation. This is because, with the import of capital goods and
technology, a country can generate growth in all sectors of the
economy, agriculture, industry, and service sector.

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9. Assistance during natural calamities

During natural calamities such as earthquakes, floods,
famines, etc., the affected countries face the problem of
shortage of essential goods. Foreign trade enables a country to
import food grains and medicines from other countries to help
the affected people.
10. Maintains balance of payment position
Every country has to maintain its balance of payment
position. Since every country has to import, which results in an
outflow of foreign exchange, it also deals in export for the
inflow of foreign exchange.
11. Brings reputation and helps earning goodwill
A country which is involved in exports earns goodwill
in the international market. For example, Japan has earned a
lot of goodwill in foreign markets due to its exports of quality
electronic goods.
12. Promotes world peace
Foreign trade brings countries closer. It facilitates the
transfer of technology and other assistance from developed
countries to developing countries. It brings different countries
closer due to economic relations arising out of trade
agreements. Thus, foreign trade creates a friendly atmosphere
for avoiding wars and conflicts. It promotes world peace as
such countries try to maintain friendly relations among
themselves.
Features of Foreign Trade (Export/Import)
1. Import dependency (our country foreign trade depends on
import because of high demand and low supply),
2. Import capital goods and industrial goods,
3. Export of readymade garments

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4. Export of agricultural raw materials and products,

5. Unfavourable balance of payment (More import but less
export),
6. Operate most business by sea/ocean,
7. More import from Asia (China, Singapore, India) and
export in Western countries (USA, England),
8. Government initiation and control (By TCB and EPB govt
control foreign trade and operate helpful initiative),
9. Export of jute and jute goods
10. Export of manpower
11. Private initiative
12. Diversity of import goods (necessary goods and
unnecessary luxurious goods).
13. Effect of free trade economy (for open market economy
unnecessary luxurious goods are imported in our country,
and our country‟s money went to another country)
14. Business with all countries.
Contribution of Foreign Trade to Economic Growth
Foreign trade enlarges the market for a country‟s
output. Exports may lead to increase in national output and
may become an engine of growth. Expansion of a country‟s
foreign trade may energise an otherwise stagnant economy and
may lead it onto the path of economic growth and prosperity.
Increased foreign demand may lead to large production
and economies of scale with lower unit costs. Increased
exports may also lead to greater utilisation of existing
capacities and thus reduce costs, which may lead to a further
increase in exports. Expanding exports may provide greater
employment opportunities. The possibilities of increasing
exports may also reveal the underlying investment in a
particular country and thus assist in its economic growth.

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Some of the important ways in which foreign trade

contributes to economic growth are as follows:
i. The primary function of foreign trade is to explore means
of procuring imports of capital goods, without which no
process of development can start;
ii. Trade provides for flow of technology, which allows for
increases in productivity, and also result in short-term
multiplier effect;
iii. Foreign trade generates pressure for dynamic change
through (a) competitive pressure from imports, (b) pressure
of competing export markets, - and (c) a better allocation
of resources;
iv. Exports allow fuller utilisation of capacity resulting in
achievement of economies of scale, separates production
pattern from domestic demand, increases familiarity with
absorption of new technologies;
v. Foreign trade increases most workers‟ welfare. It does so at
least in four ways: (a) Larger exports translate into higher
wages; (b) because workers are also consumers, trade
brings them immediate gains through products of imports;
(c) it enables workers to become more productive as the
goods they produce increase in value; and (d) trade
increases technology transfers from industrial to
developing countries resulting in demand for more skilled
labour in the recipient countries.
vi. Increased openness to trade has been strongly associated
with reduction in poverty in most developing countries.
India’s Foreign Trade Policy
The Indian government‟s Foreign Trade Policy (FTP)
2015-2020 announced on April 1, 2015 is primarily focused on
increasing India‟s exports of goods and services to raise

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India‟s share in world exports from 2 to 3.5 percent. The FTP

consolidated most of India‟s existing export subsidies and
other incentives into two main export incentive schemes
1. The Manufactured Goods Exports Incentive Scheme
(MEIS)- for export of specified goods to specified markets.
2. The Service Exports Incentive Scheme (SEIS)- for
increasing exports of notified services. FTP 2015-20
provides a framework for increasing exports in line with
the „Make in India‟ programme.
For grant of rewards under MEIS, the countries have
been categorized into 3 Groups. Measures have been adopted
to nudge procurement of capital goods from indigenous
manufacturers under the EPCG scheme by reducing specific
export obligation to 75 per cent of the normal export
obligation. Measures have been taken to give a boost to
exports of defence and hi-tech items. E- Commerce exports of
handloom products, books/periodicals, leather footwear, toys
and customised fashion garments through courier or foreign
post office would also be able to get benefit of MEIS (for
values up to INR 25,000).
Manufacturers, who are also status holders, will now be
able to self-certify their manufactured goods in phases, as
originating from India. 108 MSME clusters have been
identified for focused interventions to boost exports. „Niryat
Bandhu Scheme‟ has been galvanised and repositioned to
achieve the objectives of „Skill India‟.
Trade facilitation and enhancing the ease of doing
business are the other major focus areas in this new FTP. One
of the major objectives of new FTP is to move towards
paperless working in 24x7 environments. The existing foreign
trade policy 2015-20 which was valid up to 31 March 2020 is
extended up to 31 March 2021 aimed the outbreak of
coronavirus pandemic and the lockdown to contain its spread.

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Foreign Trade Policy- Highlights India

Periods Policy measures
1. New import export policy was formulated
2. Services exports were encouraged
1990-91
3. Replenishment rates were modified to
encourage higher value-added products
1. exim Policy for 5 years 1992-97 was
implemented.
1992-93
2. Since 1992 imports were regulated through a
limited negative list
Under the duty exemption scheme and the export
1994-95 promotion of capital goods scheme third party
exports were given benefits.
1. Quantitative restrictions were phased out in the
form of licensing and other discretionary
1995-96 controls.
2. Controls on imports were liberalized with only
small list of items in the negative list.
1997-98 EXIM Policy 1997-2002 constituted
In the wake of Asian crisis on India‟s exports
several measures were announced.
1. Exports under all export promotion schemes
1998-99 were exempted from special additional duty.
2. Simplification of bond furnishing procedures
for exporters.
3. Tax holidays foe EPZ to 10 years.
1. Import of 894 items were made license free and
1999-
another 414 items were allowed to be imported
2000
against special import license.

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2. Free trade zones replaced export processing

zones.
3. Green card for exporters exporting 50 % of their
production.
4. Golden status certificates for exports and
trading houses
1. Quantitative restrictions removed from 714
2001-02 tariff lines
2. Setting up of special economic zones
2002-03 Agricultural exports promoted
Efforts were made to make India hub of gems and
2006-07
jewellery by accelerating their exports.
Continued emphasis on special economic zones
2008-09
Exports duty on iron ore fines was eliminated
2009-10 New Foreign trade policy introduced for 2009-14.
1. 27 new markets added under the focus market
scheme with incentive of duty credit.
2010-11 2. The zero-duty export promotion capital goods
scheme and status holder incentive scrip scheme
introduced in 2009 is extended to other sectors
2015-16 New Foreign trade policy introduced for 2015-20
Foreign trade policy 2015-20 extended by one year
2020-21
and made valid up to 31 March 2021

Direction of India's Foreign Trade and Balance of

Payments
In more recent times, India‟s exports to Asia and
Oceania markets, with whom ethnically, culturally and
economically India is closer, have shown a sharp jump. In fact,

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the current boom in exports is sustained largely by what

officials see as an unexpected and healthy rise in exports to the
Asia and Oceania countries, which include the ESCAP
countries like Australia, Iran, Japan, Korea, Malaysia,
Singapore, Thailand, Hongkong, Bangladesh and Nepal. The
shift in favour of these countries implies that Indian exporters
have at last concentrated in markets closer home to capitalise
on the advantages from lower freight cost. It is also an
evidence of the outward orientation being imparted to the
economy by reforms.
Balance of Payment
Balance of Payment is a summary of international
transactions of a country for a given period (i.e., financial
year). It records inflow and outflow. It is constructed on
double entry system of accounting. If receipts are larger than
payments, there is surplus in BOP. Similarly, if payments are
larger than receipts, there is deficit in BOP. It represents a
summation of country‟s current demand and supply of the
claims on foreign currencies and of foreign claims on its
currency. There are two main accounts in the BOP – the
current account and the capital account.
 BOP of a country reveals its financial and economic status.
 BOP statement can be used as an indicator to determine
whether the country‟s currency value is appreciating or
depreciating.
 BOP statement helps the Government to decide on fiscal
and trade policies.
 It provides important information to analyse and
understand the economic dealings of a country with other
countries.
Current Account
The current account is used to monitor the inflow and

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outflow of goods and services between countries. This account

covers all the receipts and payments made with respect to raw
materials and manufactured goods. It also includes receipts
from engineering, tourism, transportation, business services,
stocks, and royalties from patents and copyrights. When all the
goods and services are combined, together they make up to a
country‟s Balance of Trade. There are various categories of
trade and transfers which happen across countries. It could be
visible or invisible trading, unilateral transfers or other
payments/receipts. Trading in goods between countries are
referred to as visible items and import/export of services
(banking, information technology etc) are referred to as
invisible items. Unilateral transfers refer to money sent as gifts
or donations to residents of foreign countries. This can also be
personal transfers like – money sent by relatives to their family
located in another country
Capital Account
All capital transactions between the countries are
monitored through the capital account. Capital transactions
include the purchase and sale of assets (non-financial) like land
and properties. The capital account also includes the flow of
taxes, purchase and sale of fixed assets etc by migrants moving
out/in to a different country. The deficit or surplus in the
current account is managed through the finance from capital
account and vice versa.
There are 3 major elements of capital account:
 Loans & borrowings – It includes all types of loans from
both the private and public sectors located in foreign
countries.
 Investments – These are funds invested in the corporate
stocks by non-residents.
 Foreign exchange reserves – Foreign exchange reserves

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held by the central bank of a country to monitor and

control the exchange rate does impact the capital account.
Balance of Trade
It refers to the difference between the monetary value
of a country‟s imports and exports over a given time period. A
positive trade balance indicates a trade surplus while a
negative trade balance indicates a trade deficit. It is an
important component in determining a country‟s current
account.
Balance of Trade= Value of exports- Value of imports.
Value of exports is the value of goods and services that
are sold to buyers in other countries. Value of imports is the
value of goods and services that are bought from sellers in
other countries. Whether a positive or negative balance of
trade is beneficial for an economy depends on the countries
involved, the trade policy decisions, the duration of the
positive or negative balance of trade and the size of the trade
imbalance among other things. Economists generally agree
that neither surplus or deficits are inherently bad or good for
the economy
Difference between Balance of Payment and Balance of
Trade
1. Meaning: Balance of Payment is the difference between
the payments and total receipts of a specified economy
during a certain period of time, balance of trade is the
difference between imports and exports of a given
economy during a certain period of time.
2. Scope: Balance of payment captures all visible and non-
visible economic transactions in the world. On the other
hand, balance of trade captures the value of goods on all
exports and imports.

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3. Economic View: While balance of payment gives an

overall view on the strength of a particular economy, the
balance of trade gives a partial view, based on the imports
and exports
4. Capital Transfers: Balance of payments includes capital
transfers while balance of trade does not include capital
transfers.
5. Transactions: While balance of payment records
transactions that have taken place relating to goods and
services transactions, balance of trade records transactions
that have occurred in relation to only goods.
6. Mode of Calculation: Balance of payment is computed by
summing up the reserve balance, current accounts balance,
and capital accounts balance. On the other hand, balance of
trade is derived by subtracting the value of imports from
the value of exports.
7. Net Effect: In balance of payment, the net effect is always
zero. However, in balance of trade, the net effect is either
positive, negative or zero.
Disequilibrium in Balance of Payment
(i) Economic Factors: Imbalance between exports and
imports, large scale development expenditure which causes
large imports, High domestic prices which lead to imports,
Cyclical fluctuations (like recession or depression) in
general business activity, new sources of supply and new
substitutes.
(ii) Political Factors: Experience shows that political
instability and disturbances cause large capital outflows
and hinder Inflows of foreign capital.
(iii) Social Factors: Changes in fashions, tastes and
preferences of the people bring disequilibrium in BOP by

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influencing imports and exports; High population growth

in poor countries adversely affects their BOP because it
increases the needs of the countries for imports and
decreases their capacity to export
Remedial measures
(i) Export promotion: Exports should be encouraged by
granting various bounties to manufacturers and exporters.
At the same time, imports should be discouraged by
undertaking import substitution and imposing reasonable
tariffs.
(ii) Import: Restrictions and Import Substitution are other
measures of correcting disequilibrium.
(iii) Reducing inflation: Inflation (continuous rise in prices)
discourages exports and encourages imports. Therefore,
government should check inflation and lower the prices in
the country
3.2 Special Economic Zones (SEZs)
A Special Economic Zone or SEZ is a specially marked
territory or enclave within the national borders of a country
that has more liberal economic laws than the rest of the
country. SEZ are geographical regions with liberal economic
laws compared to the domestic economic laws of a country. In
India, SEZ came to being after the government made a
pronouncement announcing the policy in April 2000 with a
view to attracting FDI, creating state of the art infrastructure
for business purposes and allowing trouble free custom duties.
The intention of the SEZ policy is to ensure and guarantee
economic growth that would be supported by cutting edge
infrastructures and technologies at all levels of government
(state and centre) with an effective regulation.
The regulations governing the special economic zones
in India is the SEZ Act 2005. The Act was promulgated in to

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Law on February 2006 Before the enactment of the SEZ Act

2005, the operations of SEZs were regulated by the Foreign
Trade Policy. The two mandates of the Act are to improve the
inflow of FDI, as well as guarantee a globally competitive
export environment.
Features of Indian SEZs
 The Indian SEZ were created by the contribution of the
government, joint sectors, and the private sector, this
provides equal opportunities to both international prospects
and Indian players.
 Allocation of over 1000 hectares of greenfield land by the
government
 Permission of 100% FDI, apart from those activities
classified in line with an unconstructive record.
 Commodities that are taken in to an SEZ from a Domestic
Tariff Area are regarded as exports.
 Commodities that are taken in to the Domestic Tariff Area
from an SEZ is recognized as imports.
Benefits of SEZs
A special economic Zone not only offers state of the art
infrastructure, but it also offers a viable opportunity to a pool
of skilled workers, as well as an attractive ROI to both
developers and companies. The following are the important
benefits of SEZs.
 Tax exemption: A SEZ offers 100 % tax exemption for 5
years duration and another extra 2 Years tax relief of 50%.
 FDI in the manufacturing industry are allowed 100% influx
through an automatic channel
 Establishment of off shore banking services

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 Exemption of central sales tax and Service tax

 Foreign borrowing to the tune of US $ 500 million is
permitted within a year through an approved banking
network.
 Players do not need the authorisation to carry out import.
 100% FDI in the areas of customary telephone facilities
 No custom tariffs when buying raw products, merchandise,
as well as spare parts
 Sales tax exemption
 No levy would be imposed by the state governments.
SEZ Background
An SEZ Policy was announced for the very first time in
2000 in order to overcome the obstacles businesses faced.
 There were multiple controls and many clearances to be
obtained before starting a venture.
 Infrastructure facilities were shoddy and well below world
standards in India.
 The fiscal regime was unstable as well.
 In order to attract huge foreign investments into the
country, the government announced the Policy.
 The Parliament passed the Special Economic Zones Act in
2005 after many consultations and deliberations.
 The Act came into force along with the SEZ Rules in 2006.
 However, SEZs were operational in India from 2000 to
2006 (under the Foreign Trade Policy).
Special Economic Zones Act, 2005
“It is defined as an Act to provide for the
establishment, development and management of the Special

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Economic Zones for the promotion of exports and for matters

connected therewith or incidental thereto.”
The chief objectives of the SEZ Act are:
1. To create additional economic activity.
2. To boost the export of goods and services.
3. To generate employment.
4. To boost domestic and foreign investments.
5. To develop infrastructure facilities.
SEZ Rules
The Rules provide for:
1. Simplified procedures to develop, operate and maintain
SEZs and also to set up units and conduct businesses in the
SEZs.
2. Single-window clearance to set up a Special Economic
Zone, and also to set up a unit in an SEZ.
3. Single-window clearance for matters connected to the
Central and State governments.
4. Simplified compliance procedures and documentation with
a focus on self-certification.
5. Different minimum land requirements for different classes
of Special Economic Zones.
SEZ Facilities and Incentives
The government offers many incentives for companies
and businesses established in SEZs. some of the important
ones are:
 Duty-free import or domestic procurement of goods for
developing, operating and maintaining SEZ units.
 100% Income tax exemption on export income for SEZ
units under the Income Tax Act for first 5 years, 50% for

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next 5 years thereafter and 50% of the ploughed back

export profit for next 5 years.
 Units are exempted from Minimum Alternate Tax (MAT).
 They were exempted from Central Sales Tax, Service Tax
and State sales tax. These have now subsumed
into GST and supplies to SEZs are zero-rated under the
IGST Act, 2017.
 Single window clearance for Central and State level
approvals.
 There is no need for a license for import.
 In the manufacturing sector, barring a few segments,
100% FDI is allowed.
 Profits earned are permitted to be repatriated freely with no
need for any dividend balancing.
 There is no need for separate documentation for customs
and export-import policy.
 Many SEZs offer developed plots and ready-to-use space.
SEZ in India
As of 31st January 2021; 265 SEZs are operational in
the country. About 64% of the SEZs are located in five states –
Tamil Nadu, Telangana, Karnataka, Andhra Pradesh and
Maharashtra.
The following table gives data about the SEZs as of
31st January 2021
SEZs approved 425
SEZs notified 378
SEZs approved in-principle 33
SEZs operational 265

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A few important figures related to SEZs in India:

 As of 31st December 2020; 22.84 lakh persons have been
employed in the SEZs, the division of which is given
below:
1. Number of persons employed in the Central
Government SEZs – 186768
2. Number of persons employed in the state/private SEZs
set up before 2006 – 98309
3. Number of persons employed in the SEZs notified
under the act – 1999871
 In the financial year 2020-21 (As of 31st December 2020)
the exports from SEZs have decreased by about 7.25%
when compared to the previous financial year (2019-2020).
Examples of SEZs in India:
1. SEEPZ Special Economic Zone (Mumbai),
2. Kandla SEZ
3. Cochin SEZ
4. Madras SEZ
5. Visakhapatnam SEZ
6. Falta SEZ
Challenges
 Since SEZs offer a wide range of incentives and tax
benefits, it is believed that many existing domestic firms
may just shift base to SEZs.
 There is a fear that the promotion of SEZs may be at the
cost of fertile agricultural land affecting food security, loss
of revenue to the exchequer and cause uneven growth with
adverse effects.

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 Apart from food security, water security is also affected

because of the diversion of water use for SEZs.
 SEZs also cause pollution, especially with the release of
untreated effluents. There has been a huge destruction of
mangroves in Gujarat affecting fisheries and dairy sectors.
 SEZs have to be promoted but not at the cost of the
agricultural sector of the country. It should also not affect
the environment adversely.
2.3 Export and Import Scenario in India
Export Import Policy or better known as Exim Policy
is a set of guidelines and instructions related to the import and
export of goods. The Government of India notifies the Exim
Policy for a period of five years (1997- 2002) under Section 5
of the Foreign Trade (Development and Regulation Act),
1992.Exports up 48.34 pc to USD 32.5 billion; trade deficit at
USD 9.37 billion in June. During April-June 2021, the exports
increased by 85.88 per cent to USD 95.39 billion. Imports
expanded to USD 126.15 billion during the first three months
of the fiscal as against USD 60.44 billion in the same period
last year, the data showed.
India's major exports included petroleum products,
gems and jewellery, and drug formulations. Additionally, the
value of the various types of machinery India exported was
valued at over 29 billion U.S. dollars. Other major exports
include spices, tea, coffee, tobacco in agriculture, along with
iron and steel.
2.4 FDI policy
Foreign Direct Investment (FDI) is an investment made
by a company or an individual in one country into business
interests located in another country. FDI is an important driver
of economic growth. The FDI policy is reviewed on an
ongoing basis, with a view to making it more investor-friendly.

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To attract higher levels of FDI, Government has put in place a

liberal policy on FDI, under which FDI up to 100%, is
permitted, under the automatic route, in most sectors/activities.
Benefits of FDI
FDI brings in many advantages to the country. Some of
them are discussed below.
1. Brings in financial resources for economic development.
2. Brings in new technologies, skills, knowledge, etc.
3. Generates more employment opportunities for the people.
4. Brings in a more competitive business environment in the
country.
5. Improves the quality of products and services in sectors.
Disadvantages of FDI
However, there are also some disadvantages associated
with Foreign Direct Investment. Some of them are:
1. It can affect domestic investment, and domestic companies
adversely.
2. Small companies in a country may not be able to withstand
the attack of MNCs in their sector. There is the risk of
many domestic firms shutting shop as a result of increased
FDI.
3. FDI may also adversely affect the exchange rates of a
country.
Government Measures to Increase FDI in India
1. Government schemes like Production-Linked Incentive
(PLI) scheme in 2020 for electronics manufacturing, have
been notified to attract foreign investments.
2. In 2019, the amendment of FDI Policy 2017 by the
government, to permit 100% FDI under automatic route in

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coal mining activities enhanced FDI inflow.

3. FDI in manufacturing was already under the 100%
automatic route, however, in 2019, the government
clarified those investments in Indian entities engaged in
contract manufacturing is also permitted under the 100%
automatic route provided it is undertaken through a
legitimate contract.
4. Further, the government permitted 26% FDI in digital
sectors. The sector has particularly high return capabilities
in India as favourable demographics, substantial mobile
and internet penetration, massive consumption along
technology uptake provides great market opportunity for a
foreign investor.
5. Foreign Investment Facilitation Portal (FIFP) is the online
single point interface of the Government of India with
investors to facilitate FDI. It is administered by the
Department for Promotion of Industry and Internal Trade,
Ministry of Commerce and Industry.
6. FDI inflow is further expected to increase –
o as foreign investors have shown interest in the
government‟s moves to allow private train operations
and bid out airports.
o Valuable sectors such as defence manufacturing where
the government enhanced the FDI limit under the
automatic route from 49% to 74% in May 2020, is also
expected to attract large investments going forward.
New FDI Policy
According to the new FDI policy, an entity of a
country, which shares a land border with India or where the
beneficial owner of investment into India is situated in or is a
citizen of any such country, can invest only under the

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Government route. A transfer of ownership in an FDI deal that

benefits any country that shares a border with India will also
need government approval. Investors from countries not
covered by the new policy only have to inform the RBI after a
transaction rather than asking for prior permission from the
relevant government department. The earlier FDI policy was
limited to allowing only Bangladesh and Pakistan via the
government route in all sectors. The revised rule has now
brought companies from China under the government route
filter.
Types of FDI
Typically, there are two main types of FDI: horizontal
and vertical FDI.
(A)Horizontal: A business expands its domestic operations to
a foreign country. In this case, the business conducts the same
activities but in a foreign country. For example, McDonald‟s
opening restaurants in Japan would be considered horizontal
FDI.
(B)Vertical: A business expands into a foreign country by
moving to a different level of the supply chain. In other words,
a firm conducts different activities abroad but these activities
are still related to the main business. Using the same example,
McDonald‟s could purchase a large-scale farm in Canada to
produce meat for their restaurants.
However, two other forms of FDI have also been observed:
conglomerate and platform FDI.
(c)Conglomerate: A business acquires an unrelated business
in a foreign country. This is uncommon, as it requires
overcoming two barriers to entry: entering a foreign country
and entering a new industry or market. An example of this
would be if Virgin Group, which is based in the United
Kingdom, acquired a clothing line in France.

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(D)Platform: A business expands into a foreign country but

the output from the foreign operations is exported to a third
country. This is also referred to as export-platform FDI.
Platform FDI commonly happens in low-cost locations inside
free-trade areas. For example, if Ford purchased manufacturing
plants in Ireland with the primary purpose of exporting cars to
other countries in the EU.
Growth and Impact of FDI in Indian Economy.
Subject to the provisions of the FDI policy, foreign
investment in 'manufacturing' sector is under automatic route.
Further, a manufacturer is permitted to sell its products
manufactured in India through wholesale and/or retail,
including through e-commerce, without Government approval.
FDI helps Indian economy in more ways than one, some of
which are mentioned below:
1. FDI helps in balancing international payments.
2. It boosts development in various fields.
3. FDI helps to generate greater employment opportunities for
the people of India.
4. FDI encourages export from the host country.

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MODULE III
BUSINESS SUSTAINABILITY IN INDIA

3.1 Introduction:
A business should function to earn money in such a
way that it fulfils the expectation of the society. Every person
living in society has some obligation towards it. They have to
follow social values and norms of behaviour. A business is
permitted by society in order to carry on commercial or
industrial activities with help of that earn profit. But it is
obligatory on the side of business that not to do anything, that
is undesirable from point of view of society. The manufacture
and sale of adulterated goods, not paying due tax, doing
deceptive, polluting environment works exploitation are some
examples of undesirable practice in the point of view society.
Which may increase the enterprise‟s profits but on other hand
have adverse effect on society at large. Unlike to this,
supplying good quality product, having healthy working
condition paying taxes honestly, installing pollution
controlling devises or prevention of pollution and sincerely
solve customer complaints are some examples of socially
desirable activities which improve of business as well as make
them profitable. Business can get durable success though
socially responsible ethically upright behaviour.
Concept of Social Responsibility
The evolution of the concept of social responsibility of
business has passed through different stages of struggle.
Business began merely as an institution for the purpose of
making money.

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 Economic Responsibility
The business itself is an economic activity. Its main
function is to earn profits. To earn profits means to understand
the needs and demands of consumers whether it is regarding
the quality of the product or its price. While understanding the
perspective of the consumer and meeting their needs and
demand to earn a profit is the economic responsibility of a
business. When a business earns a profit, it also means that the
employees earn the profit in terms of incentives. The economic
growth of a business is not restricted to it but affects the
society as a whole.
 Legal Responsibility
Legal responsibilities are not only liable to the
individuals in the society but also to the businesses in the
society. As business is an entity itself, it must also follow laws
and rules. Every business has a responsibility to operate within
the boundaries set by the various commissions and agencies at
every level of the government. These rules and regulations are
set for maintaining balance and the greater good of the society.

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A law-abiding enterprise is a socially responsible

enterprise as well. The business is free to do business however
it wants but only within the boundaries of regulations of
various laws such as labour law, environmental law and
criminal law. For example, it‟s a business‟s duty to pay taxes
to the government and keep its account books clean as it helps
the government to track the economic state of the company.
 Ethical Responsibility
Ethical responsibilities include the behaviour of the
firm that is expected by the society but not codified in law. The
factors of ethical responsibility include that the business must
be environmentally friendly. The business should always be
aware of its activities and how do they affect the environment.
It is the moral and ethical responsibility of every human and
every business.
 Philanthropic Responsibility
Business is one the most important pillar of the society.
And therefore, it should support and improve the society
whenever it can. If a business is making significant profits, it is
the business responsibility that it should be philanthropic
towards the society by donating funds or its goods and
services.
It‟s the philanthropic responsibility of the business to
help different groups of the society. It should also work
towards providing free education by opening educational
institutes and training institutes or helping the people affected
by natural calamities such as floods and earthquakes. It is the
responsibility of the company management to safeguard the
capital investment by avoiding speculative activity and
undertaking only healthy business ventures which give good
returns on investment.

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Business and Society

Business and Society are correlated with each other. As
business fulfil the needs of society and society gives business
the resources required to it. The different businesses operating
in society play an important role in functioning of society in
different ways like business provide employment to various
people of society.
The basic objective of business enterprise is to develop,
produce and supply goods and service to customer. This need
to be done in such a way which allowed companies to make
profit, that in turn demands far more than just skills in
companies on fields and processes. The social skills of owners
of companies, together with maintain relationship with
customers, suppliers and business people, are always important
if companies want be run well and developed with view to
future.
Benefits to society
1. Supply goods and service which customer can‟t or do not
want to produce themselves.
2. Creating jobs for suppliers, co-workers, customer and
distributor. This people make money to support themselves
as well as their families, use their wages to purchase goods
and service and pay taxes.
3. Continually developing new process. Goods and service.
4. Investment in new technologies as well as in the skills of
employees.
5. Building up as well as spreading international standards,
for example environmental practice.
6. Developing good practice in different areas such as
environment and workplace safety.
The role of business in societal development can be

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measured in many ways. If company wants to progress and

develop, it must nurture relation with its stakeholder, of which
there may be plenty. Some have a strong influence and are of
fundamental importance for the survival of the business; this
includes customer, suppliers and employees. The authorities,
media, local resident and trade union are others stakeholders
with a vital influence. The role of business in society as well as
accompanying responsibility that transpire from that role is
highly contentious and debated topic.
The long-term survival of companies is partly
dependent on maintaining the relationship of trust. The
economist Milton Friedman famously contended that the
“business of business is business” and because of which it has
only one responsibility and that is to generate profit for
shareholder. In the contrary of that argument is thinking that
recognizes business as a system in society which affected by
and affects other system in society, for example government
body, natural environment, surrounding community other
types of organization etc. Thus, business required to work with
this system to attain its economic goals. In a way that will also
benefit the society as whole.
Importance of Social Responsibility
Social responsibility of business is important from the
following point of view.
1. From employees’ point of view: with the help of
company‟s employment and healthy working condition,
social responsibility of business is important for
employees.
2. From Customer point of view: under social
responsibility, business follows ethical practice and
manufacture the product which is as per expected quality
and reasonable price.

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3. From investor point of view: Business who understand

value of social responsibility is provide protection to the
investor fund with help of development and growth of its
business as well as expected return to investors with profit
earn by it.
4. From Suppliers point of view: The importance of social
responsibility is also required to perform in case of
suppliers as they are one to provide raw material to
business as well as other required material. When they are
paid on time as well as reasonable demands of them are
satisfied company, suppliers are loyal to business.
5. From government point of view: when business pay
regular taxes, follow the norms of government then it is
considered as social responsibility of business which is
duly fulfil by it.
6. From Society point of view: business need to work in
society, some importance of social responsibility is also
defined from society point of view. The business provides
good product, try to maintain clean environment, provide
opportunity to participate to business as well as work for
the overall development of society, these are some
examples of it.
3.2 MDG (Millennium Development Goals)
The Millennium Development Goals (MDGs) are eight
goals with measurable targets and clear deadlines for
improving the lives of the world's poorest people. To meet
these goals and eradicate poverty, leaders of 189 countries
signed the historic millennium declaration at the United
Nations Millennium Summit in 2000.
The following are the Millennium Development Goals
(MDGs)
1. Eradicate extreme poverty and hunger.

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2. Achieve universal primary education.

3. Promote gender equality and empower women.
4. Reduce child mortality.
5. Improve maternal health.
6. Combat HIV/AIDS, malaria and other diseases.
7. Ensure environmental sustainability.
8. Global partnership for development.
The United Nations Millennium Declaration, signed in
September 2000, commits world leaders to combat poverty,
hunger, disease, illiteracy, environmental degradation, and
discrimination against women. The MDGs are derived from
this Declaration. Each MDG has targets set for 2015 and
indicators to monitor progress from 1990 . Several of these
relate directly to health.
Features
1. It synthesizes, in a single package, many of the most
important commitments made separately at the
international conferences and summits of the 1990s.
2. Recognize explicitly the interdependence between growth,
poverty reduction and sustainable development;
3. Acknowledge that development rests on the foundations of
democratic governance, the rule of law, respect for human
rights and peace and security.
4. It is based on time-bound and measurable targets
accompanied by indicators for monitoring progress; and
5. It brings together, in the eight Goal, the responsibilities of
developing countries with those of developed countries,
founded on a global partnership endorsed at the
International Conference on Financing for Development in
Monterrey, Mexico in 2002, and again at the Johannesburg

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World Summit on Sustainable Development in August

2003.
3.3 Circular Economy - Initiatives and impacts
A circular economy is a systemic approach to
economic development designed to benefit businesses, society,
and the environment. In contrast to the 'take-make-waste'
linear model, a circular economy is regenerative by design and
aims to gradually decouple growth from the consumption of
finite resources.
In a circular economy, manufacturers design products
to be reusable. For example, electrical devices are designed in
such a way that they are easier to repair. Products and raw
materials are also reused as much as possible. For example, by
recycling plastic into pellets for making new plastic products.
A circular economy is an economic model designed to
minimize resource input, as well as waste and emission
production. Circular economy aims to reach the maximum
efficiency in the use of finite resources, the gradual transition
to renewable resources, and recovery of the materials and
products at the end of their useful life. Moreover, it targets to
rebuild all available types of capital, including financial,
human, social, and natural. Essentially, a circular economy
describes a regenerative economic system.
Core Principles of the Circular Economy
 Designing out waste and pollution.
The concept suggests the minimization of waste and
pollution by reducing damages from economic activities.
 Keeping products and materials in use.
A circular economy aims to extend the useful life of the
products and materials by creating the loops of the materials
and products circulating in the economy. The goal is achieved

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through the active reuse, repair, and remanufacturing of the

products and materials utilized in the economy.
 Regenerating natural systems.
The regeneration of natural systems is one of the
fundamental concepts of a circular economy. It enhances
natural capital and creates the necessary conditions for the
regeneration of natural systems.
3.4 SDG (Sustainable Development Goals)
Sustainable Development Goals (SDGs) are a set of 17
Goals adopted by 193 member countries of the United Nations
at the historic Summit held in New York on 25 September
2015. Came into force on 01 January 2016, the SDGs are
expected to stimulate developmental actions in areas of critical
importance such as ending poverty and hunger, providing
healthy lives and quality education, achieving gender equality,
providing modern energy, promoting sustainable economic
growth, reducing inequality, etc. till the year 2030. Also
known as the 2030 Agenda for Sustainable Development, the
SDGs aim at transforming the lives and livelihood of the
people across the globe.
The 17 goals under the Sustainable Development Goals
are as mentioned below:
1. End poverty in all its forms everywhere
2. End hunger, achieve food security and improved nutrition
and promote sustainable agriculture
3. Ensure healthy lives and promote well-being for all at all
stages
4. Ensure inclusive and equitable quality education and
promote lifelong learning opportunities for all
5. Achieve gender equality and empower all women and girls

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6. Ensure availability and sustainable management of water

and sanitation for all
7. Ensure access to affordable, reliable, sustainable and
modern energy for all
8. Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work
for all
9. Built resilient infrastructure, promote inclusive and
sustainable industrialisation and foster innovation
10. Reduce inequalities within and among countries
11. Make cities and human settlements inclusive, safe, resilient
and sustainable
12. Ensure sustainable consumption and production pattern
13. Take urgent actions to combat climate change and its
impact
14. Conserve and sustainably use the oceans, seas and marine
resources
15. Protect, restore and promote sustainable use of terrestrial
ecosystems, sustainably managed forests, combat
desertification and halt and reverse land degradation and
halt biodiversity loss
16. Promote peaceful and inclusive societies for sustainable
development, provide access to justice for all and build
effective, accountable and inclusive institutions at all levels
17. Strengthen the means of implementation and revitalise the
global partnership for sustainable development.
Sustainable Development Goals in India
India‟s record in implementing Sustainable
Development Goals

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 Mahatma Gandhi National Rural Employment Guarantee

Act (MNREGA) is being implemented to provide jobs to
unskilled labourers and improve their living standards.
 National Food Security Act is being enforced to provide
subsidized food grains.
 The government of India aims to make India open
defecation free under its flagship programme Swachh
Bharat Abhiyan.
 Renewable energy generation targets have been set at 175
GW by 2022 to exploit solar energy, wind energy and other
such renewable sources of energy efficiency and reduce the
dependence on fossil fuels.
 Atal Mission for Rejuvenation and Urban Transformation
(AMRUT) and Heritage City Development and
Augmentation Yojana (HRIDAY) schemes have been
launched for improving the infrastructure aspects.
 India has expressed its intent to combat climate change by
ratifying the Paris Agreement.
Constituents of SDGs
 Inter-connectedness: SDGs have been formulated keeping
in mind the growing realisation that problems relating to
development are no more limited to national boundaries,
but rather increasingly becoming global in nature. What
happens in one country influences the other - whether it is
poverty or environmental degradation. All these issues are
becoming trans-boundary in nature. Thus, the essential
philosophy of the SDGs is based on the interconnectedness
of the global problems.
 Multi-Dimensional Approach - 17 Goals and 169
Targets: Spread over 169 targets, the 17 SDGs are evenly
spread and balanced across the three dimensions of

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sustainable development - with 6 predominantly social

goals (Goals - 1 to 6), 5 economic goals (Goals - 7 to 11)
and 4 environmental goals (Goals - 12 to 15). A separate
goal (Goal - 16) on peaceful societies and effective
institutions tackles the enablers of development. A stand-
alone goal (Goal - 17) on global partnership has been
included to provide financial, technological and systemic
support to the developing countries.
 Means of Implementation: A core feature of the SDGs is,
in fact, their strong focus on means of implementation - the
mobilization of financial resources, capacity-building and
transfer of environmentally sound technologies, as well as
data and institutions. Thus, separate „means of
implementation‟ targets have been included under each of
the Goals.
 Monitoring and Review: Review and monitoring have
been accorded special priority in SDGs so as to track the
progress of the developmental goals and targets. The UN
Resolution underlines the importance of follow-up at the
national, regional as well as global levels. A Global
Indicator Framework of 243 indicators have been
developed for evaluating the progress of SDGs. At the
global level, the High-Level Political Forum (HLPF) on
Sustainable Development has also been established. It has
a central role in the follow-up and review of the SDGs at
the global level and also provides further guidance.
 Voluntary National Review: As part of its follow-up and
review mechanisms, countries are encouraged to conduct
regular reviews of progress at the national and sub-national
levels. These reviews are to be voluntary, state-led,
undertaken by both developed and developing countries.
Therefore, these are called Voluntary National Reviews
(VNRs). The voluntary national reviews (VNRs) aim to

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facilitate the sharing of experiences, including successes,

challenges and lessons learned, with a view to accelerating
the implementation of the 2030 Agenda. India submitted its
VNR in 2017.
SDGs and India
 SDGs Mirror India's Development Objectives: The
Prime Minister of India attended the UN Summit convened
to adopt the 2030 Agenda for Sustainable Development
held in New York in 2015. One of the highlights of the
statement of our Prime Minister is that - much of India's
development agenda is mirrored in the SDGs. This is
reflective of the fact that even before the SDGs were
formulated and adopted, India had initiated numerous
developmental programmes.
 India's Participation in the Formulation of Goals and
Target: As a member of the Open Working Group (OWG)
constituted for preparing a proposal on the SDGs, India
vociferously advocated the concerns of the developing
countries. India emphasised on the priorities for lifting vast
number of poor people out of poverty through rapid and
inclusive economic growth. It has also maintained that
while a lot of work has already been done for
infrastructural development, taking development to all
sections of society still remain a massive challenge. These
challenges continue to be faced by all the developing
countries across the world. India took the position that the
SDGs has to be an agenda for development. While issues
of poverty eradication and development through inclusive
economic growth are the main development agenda,
additional resources and capability building initiatives are
required to undertake these mammoth tasks. India,
therefore, has emphasized on international cooperation to
facilitate development, and also insisted on adequate

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means of implementation such as enhanced Official

Development Assistance (ODA) and technology transfer
on favourable terms for helping the developing countries.
 NITI Aayog: The NITI Aayog has been overseeing the
implementation of SDGs at the national level. As part of
this implementation process, the NITI Aayog has carried
out a mapping of all SDGs, Central Ministries and the
Centrally-sponsored Schemes. It is also undertaking
national and regional level consultations with other
stakeholders including States and Union Territories.
Besides other documents, NITI Aayog has brought out the
SDG India Index: Baseline Report 2018 (December 2018);
and Localising SDGs: Early Lessons from India, 2019
(July 2019). On the basis of performance of the States/UTs,
NITI Aayog has not only categorised them into Achievers,
Front Runners, Performers and Aspirants, but also has
identified more than 100 aspirational districts for focused
interventions.
 MoSPI: The Ministry of Statistics and Programme
Implementation (MoSPI) is also one of the key players in
the implementation of SDGs. As indicators are key to
measure the progress and the extent of achievement of the
targets and Goals in India, MoSPI has developed 306
national indicators in line with the 169 SDG targets and the
Global Indicators Framework. Out of the 306 indicators, 62
priority indicators have also been identified for tracking the
most important developmental objectives for India.
Progress Profile of India
Based on 62 priority indicators identified by the NITI
Aayog, and out of 306 national indicators developed by the
Ministry of Statistics and Programme Implementation, the
SDG India Index: Baseline Report 2018 was brought out
reflecting the progress profile of India on different individual

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Goals. It is, in fact, an attempt to measure Goal-wise progress

primarily based on the outcomes of the interventions and
schemes of the Government of India. However, evaluation of
only 13 SDGs out of 17 (leaving Goals 12, 13, 14 and 17) have
been undertaken. Progress on SDGs 12, 13 and 14 could not
be measured since the relevant state level data could not be
processed by the time the Report was prepared in December
2018. SDG 17 was left out as the focus of the Goal is on
international partnerships.
A composite score has been computed based on the
performance towards achieving the Goals and respective
targets on a score ranging between 0 to 100, 0 being the lowest
and 100 being the highest. As per the SDG Index score, with
the target of 100 to be achieved, the national score (all India) is
57. The performance of the States ranges between 42 and 69,
and that of the Union Territories (UTs) ranges between 57 and
68. Among the States, Kerala and Himachal Pradesh are the
front runners with a score of 69. Among the UTs, Chandigarh
is the front runner with a score of 68. Based on their
performances, the States and the UTs have been categorised as
performers, front runners and aspirants.
Impact of SDG & MDG
The Millennium Development Goals were the stepping
stone for the United Nations members to look for a developed
and brighter future for their countries and the people living
there. In 2000, the MDG was accepted and the final report
presented in 2015 clearly mentions the decrease in infant
mortality rate, reduction of poverty, provision of safe drinking
water, sanitation and drastically improving the mental health of
people.
Following its footsteps, the Sustainable development
goals are set to make the world a better place to live by 2030.
The plan was accepted in 2015 and up till 2020, the reports

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presented by the UNDP prove that various actions have been

taken for the betterment of the Nation and improvement in the
livelihood of people across the world has been seen.
The Sustainable Development Goals have resulted in
the decline of the maternal mortality rate, reduced poverty,
worked for the improved health of the people, spread
awareness about the communicable and non-communicable
diseases and also the vaccines required for children. Efforts are
being taken for providing better medication to the world and
mental illness is also being taken as a major concern.
Overall, the Sustainable Development goals tend to
make the world a better place to live by fulfilling its targets
within the stipulated time of 15 years and remove poverty,
improve health, provide employment, empower women,
reduce inequalities and follow all the seventeen targets that
have been set by the UN.
Sustainable Development Goals Report 2020
On July 7, 2020, the Sustainable Development Goals
Report 2020 was released. As per the report, the COVID-19
pandemic unleashed an unprecedented crisis which has lead to
further disruption to SDG progress. Given below are the key
points based on the SDG report:
 Improvements have been noticed in areas such as
improving maternal and child health, expanding access to
electricity and increasing women‟s representation in
government
 An estimated 71 million people are expected to be pushed
back into extreme poverty in 2020, the first rise in global
poverty since 1998. The main cause of this is said to be
loss of employment and people who were earlier secure
also could find themselves at risk of poverty

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 Approximately 1.6 million vulnerable workers across the

world were either left unemployed or underemployed, with
incomes estimated to have fallen by 60 per cent during the
crisis
 Women and children, and people living in slums were the
worst affected sections during the pandemic
 School closures have kept 90 per cent of students
worldwide (1.57 billion) out of school and caused over 370
million children to miss out on school meals they depend
on
 The cases of poverty, unemployment and risk of lives has
increased the risk of child labour and trafficking
Apart from the above-mentioned points, the report
suggests that climate change is still occurring much faster than
anticipated. The year 2019 was the second warmest on record
and the end of the warmest decade of 2010 to 2019.
3.5 Financial Inclusion
Financial Inclusion is described as the method of
offering banking and financial solutions and services to every
individual in the society without any form of discrimination. It
primarily aims to include everybody in the society by giving
them basic financial services without looking at a person‟s
income or savings. Financial inclusion chiefly focuses on
providing reliable financial solutions to the economically
underprivileged sections of the society without having any
unfair treatment. It intends to provide financial solutions
without any signs of inequality. It is also committed to being
transparent while offering financial assistance without any
hidden transactions or costs. Financial inclusion wants
everybody in the society to be involved and participate in
financial management judiciously.
Objectives

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 Financial inclusion intends to help people secure financial

services and products at economical prices such as
deposits, fund transfer services, loans, insurance, payment
services, etc.
 It aims to establish proper financial institutions to cater to
the needs of the poor people. These institutions should
have clear-cut regulations and should maintain high
standards that are existent in the financial industry.
 Financial inclusion aims to build and maintain financial
sustainability so that the less fortunate people have a
certainty of funds which they struggle to have.
 Financial inclusion also intends to have numerous
institutions that offer affordable financial assistance so that
there is sufficient competition so that clients have a lot of
options to choose from. There are traditional banking
options in the market. However, the number of institutions
that offer inexpensive financial products and services is
very minimal.
 Financial inclusion intends to increase awareness about the
benefits of financial services among the economically
underprivileged sections of the society.
 The process of financial inclusion works towards creating
financial products that are suitable for the less fortunate
people of the society.
 Financial inclusion intends to improve financial literacy
and financial awareness in the nation.
 Financial inclusion aims to bring in digital financial
solutions for the economically underprivileged people of
the nation.
 It also intends to bring in mobile banking or financial
services in order to reach the poorest people living in
extremely remote areas of the country.

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 It aims to provide tailor-made and custom-made financial

solutions to poor people as per their individual financial
conditions, household needs, preferences, and income
levels.
Need for Financial Inclusion
 Financial inclusion enhances the financial system of the
country comprehensively. It strengthens the availability of
economic resources. Most importantly, it toughens the
concept of savings among poor people living in both urban
and rural areas. This way, it contributes towards the
progress of the economy in a consistent manner.
 Many poor people tend to get cheated and sometimes even
exploited by rich landlords as well as unlicensed
moneylenders due to the vulnerable condition of the poor
people. With the help of financial inclusion, this serious
and hazardous situation can be changed.
 Financial inclusion engages in including poor people in the
formal banking industry with the intention of securing their
minimal finances for future purposes. There are many
households with people who are farmers or artisans who do
not have proper facilities to save the money that they earn
after putting in so much effort.
Financial Inclusion Schemes in India
The Government of India has been introducing several
exclusive schemes for the purpose of financial inclusion. These
schemes intend to provide social security to the less fortunate
sections of the society. After a lot of planning and research by
several financial experts and policymakers, the government
launched schemes keeping financial inclusion in mind. These
schemes have been launched over different years. Let us take a
list of the financial inclusion schemes in the country:
 Pradhan Mantri Jan Dhan Yojana (PMJDY)

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 Atal Pension Yojana (APY)

 Pradhan Mantri Vaya Vandana Yojana (PMVVY)
 Stand Up India Scheme
 Pradhan Mantri Mudra Yojana (PMMY)
 Pradhan Mantri Suraksha Bima Yojana (PMSBY)
 Sukanya Samriddhi Yojana
 Jeevan Suraksha Bandhan Yojana
 Credit Enhancement Guarantee Scheme (CEGS) for
Scheduled Castes (SCs)
 Venture Capital Fund for Scheduled Castes under the
Social Sector Initiatives
 Varishtha Pension Bima Yojana (VPBY)
Financial Inclusion Programmes Organised by The
Reserve Bank of India (RBI)
The Reserve Bank of India works on exclusive
programmes and plans in order to have financial inclusion in
the nation effectively. It applies a bank-led strategy in order to
attain financial inclusion smoothly. The central bank of India
also has firm regulations in place that need to be followed by
every bank. The RBI also is offering qualified assistance to
every bank in the nation in order to attain its financial
inclusion objectives.
Let us take a look at some of the programmes
introduced by the RBI in order to achieve its goals:
 The RBI instructed every bank to have Basic Saving Bank
Deposits (BDSD) accounts for the economically weaker
sections of the society. These are no-frill accounts where
account holders do not have to maintain any minimum
balance or minimum deposit. These account holders can
withdraw cash at any ATM or at the bank branch. They

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should also be given the opportunity to make use of

electronic payment channels for receiving and transferring
money to others.
 The RBI also asked banks to have simple Know Your
Client (KYC) regulations for the less fortunate people of
the society. There are many people in rural areas who are
unable to open bank accounts due to strict KYC norms.
Hence, the RBI wants banks to have simplified KYC
requirements particularly if a low-income individual is
interested in opening a bank account with an amount not
above Rs.50,000.
 Keeping in mind about the lack of bank branches in rural
areas, the RBI has asked all banking institutions to open
more and more branches in villages across the nation in
order to provide good banking services to the villagers.
 The Reserve Bank of India is promoting the establishment
of Financial Literacy Centres (FLCs). It has made many
modifications and revisions regarding the functioning of
Financial Literacy Centres (FLCs). The rural branches of
various scheduled commercial banks and financial literacy
centres are now required to improve financial awareness on
a larger scale and enhance their financial literacy activities
by organising catchy and simple financial literacy camps.
 With the objective of distributing the branches of
Scheduled Commercial Banks (SCBs), the RBI has
instructed banks to establish their branches in Tier 2 to Tier
6 centres that have less than 1 lakh people. These branches
can be opened with a general permission from the RBI.
 The central bank of the nation also asked banks to discuss
and create Financial Inclusion Plans (FIPs). These plans
will include details about staff employed, branches opened,
facilities offered in each of these branches, steps being

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taken to convert the unbanked sections of the society to

individuals with basic access to banking services, etc. The
plan will also include information about no-frills accounts
opened with each public or private bank. The RBI has been
checking each bank‟s FIP with full dedication and
providing them with constructive feedback.
 The RBI has also asked banks to set up intermediate brick
and mortar structures between the base branch of a bank
and the other branch locations. This should be done for the
purpose of organising and administering cash, redressing
customers‟ grievances, collecting and maintaining
mandatory documents systematically, monitoring of branch
activities, etc.
 The RBI also has invested huge amounts in technology for
banking services so that innovative techniques can be
incorporated to making banking processes simple, quick,
and cost-effective. The scheduled commercial banks have
been asked to utilise information and communications
technology (ICT) to offer affordable digital banking
services. Banks have also started to offer door-step
delivery of bank accounts, loans, and other financial
services with the help of technology. Moreover, with the
introduction of technology in banking, it is okay if
customers are illiterates. They can make use of
technological devices and operate through biometrics. This
also makes sure that customers have safe and secure
transactions without any scope for scams or frauds. This
will also make the unbanked sections of the society rely on
the banking system.
Operations of Financial Inclusion
Under financial inclusion, the main aspect is access to
financial sources. This can be broadly divided into credit,
wealth creation, and contingency planning.

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 According to the concept of financial inclusion, under the

credit aspect, a low-income individual needs proper
access to emergency loans, consumer loans, housing loans,
and business livelihood loans at affordable rates.
 Under the wealth creation aspect, a poor individual should
be able to make excellent savings and have access to
reliable investment options that generate good returns.
Every low-income household should also have basic
financial literacy and understand the concept of risk in
finance clearly.
 Under the contingency planning segment of the financial
inclusion system, a poor person should have access to
funds that can be utilised exclusively in the future. It is not
enough if these people have only meant to improve their
income and enhance their lifestyle. They should also have
the right resources to be prepared for the future, especially
when they get old. Many of the poor people may not be
aware of retirement plans. They should be provided with
affordable retirement plans that will give them good
returns in the later stages of their lives.
Financial products offered for attaining financial inclusion
Keeping in mind that low-income people living in rural
and urban areas have very limited access to financial products
and services, scheduled commercial banks (SCBs) have been
asked by the Reserve Bank of India to design and offer
exclusive financial products to the economically weaker
sections of the society. Many of them are only aware of basic
financial services such as savings schemes, savings
accounts, personal loans, crop loans, microfinance, etc. They
do not know anything about credit cards or debit cards.
However, due to their lack of access to instant credit
facilities, banks were instructed to issue cost-efficient credit

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cards to the low-income groups of the society. Some of the

special financial products provided to them include:
 General Credit Cards (GCC): Banks were asked by the
RBI to launch and offer General Credit Card facilities with
an amount of up to Rs.25,000 at their branches located in
semi-urban and rural areas.
 Kissan Credit Cards (KCC): The Reserve Bank of India
also instructed banks to provide Kissan Credit Cards
exclusively to small farmers who earn very low incomes
and who have very limited funds due to which they cannot
invest in proper farming tools, fertilisers, pesticides, crop
seeds, tractors, land for farming, storage warehouses, etc.
They are forced to rely on other wealthy landlords for
getting land to sow crops. These Kissan Credit Cards are
intended to help farmers make instant purchases whenever
required. Many a time, farmers give up on purchasing
things required for their occupation due to lack of funds.
 ICT-Based Accounts via BCs: The Reserve Bank also
devised a plan to help banks to reach out to the unbanked
individuals of the society by offering Information and
Communications Technology (ICT)-based bank accounts
with the help of Business Correspondents (BCs). These
accounts allow users to make withdrawals of cash, create
deposits, and apply for loans and other forms of credit
through electronic forms. This type of account makes
banking inexpensive and simple.
 Increase in ATMs: The Reserve Bank of India also
reported that many rural parts of the nation do not have
enough automated teller machines (ATMs) and this is
hampering many buying and selling operations of the
people residing in those areas. In order to increase the
availability of physical cash for these people, the number
of ATMs increased massively.

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MODULE IV
BUSINESS IN 21ST CENTURY

4.1 Need for infrastructural development

The importance of infrastructure for sustained
economic development is well recognized. High transactions
costs arising from inadequate and inefficient infrastructure can
prevent the economy from realizing its full growth potential,
regardless of the progress on other fronts. Physical
infrastructure covering transportation, power, and
communication, through its backward and forward linkages,
facilitates growth; social infrastructure including water supply,
sanitation, sewage disposal, education and health, which are in
the nature of primary services, has a direct impact on the
quality of life. The visible signs of shortfalls in capacity and
inefficiencies include increasingly congested roads, power
failures, long waiting lists for installation of telephones, and
shortages of drinking water illustrate the widening gap
between demand and supply of infrastructure, and raise
questions concerning the sustainability of economic growth in
future.
The efficacy of private sector participation in
infrastructure development would be contingent upon the
capability to commercialize these projects whereby recovery of
investments would be through a system of user charges. There
is a potential for Public Private Partnerships (PPPs) to
contribute more and to help bridge the infrastructure gap in
India. There has been considerable progress in the last ten
years in attracting private investment into the infrastructure
sectors; first in telecommunications, then in ports and roads,
and in individual projects in other sectors.
With the current GDP growth of 8 per cent, in which

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there is contribution of nearly 51 per cent from services, and

16 per cent from manufacturing sector, there is a need for
proper alignment of resources. To sustain this growth, India
needs to develop sound infrastructure so that the right input of
a) skilled, qualified, and socially contented labour;
b) visible and reliable supply chains;
c) prompt and accurate information for decision making; and
d) efficient process and updated technology can be given to
the operations of manufacturing and services.
The demand for infrastructural services has increased
rapidly after industrial liberalization of the Indian economy.
Unfortunately, infrastructural bottlenecks remain the biggest
stumbling block of industrial progress in the country. By their
very nature, infrastructure projects involve huge initial
investments, long gestation periods and high risk. The
resulting bottlenecks are beginning to pose serious
impediments to enhancing productivity. Urban infrastructure
includes water supply and sanitation which are important basic
needs for improvement in the quality of life and enhancement
of the productive efficiency of citizens. There has been a
steady increase in the urban population on account of rapid
industrialization, natural growth, and migration from rural
areas. This has prompted the working out of alternative ways
of meeting the increasing demand for transport given the
constraints of land and capital, and the need to control energy
consumption, pollution, and accidents.
Infrastructural development in a country helps to run
the operations of any company efficiently and effectively. The
availability of adequate, efficient and affordable infrastructural
facilities both economic and social constitutes the core of
development strategy and efforts. In the absence of
infrastructure services, enterprises are forced to seek higher

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cost alternatives which impact profits and production levels

adversely. In India, the demand for infrastructural services has
increased rapidly since the industrial liberalization of the
economy. Unfortunately, infrastructural bottlenecks remain the
biggest stumbling block of industrial progress in the country.
By their very nature, infrastructure projects involve huge initial
investments, long gestation periods, and high risk.
4.2 GIG Economy and impact
21st century has been remarkable for so many things
including social media, disruptive innovation, a period of
recession, geopolitical surprises and above all the rise of the
gig economy. The gig economy in a simple word represents
the state of the modern market. It refers to the rising trends of
part time employment where more and more people are using
their skills to pick up and fulfil gigs rather than getting
employed full time in traditional jobs.
Most often the gig economy is appreciated for the
higher level of autonomy it brought for the workers and the
cost advantage it generated for the employers. One important
factor that supported the growth of the gig economy was the
internet. It helped create new connections that could be
exploited to generate employment for people who would
otherwise find it difficult to get a traditional full-time job.
Advantages of GIG Economy
 Higher Independence and Variety: -Apart from money,
independence is the most important factor that has drawn
millennials towards the gig economy. They want more
flexibility and higher independence in their jobs. As gig
workers, they do not just enjoy more control over their
jobs, but also have more freedom over choosing the kind of
work they want to do. In traditional employment, they had
to work for set hours whereas in the gig economy, they

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have a relatively higher degree of flexibility where they

can work as long as they wish. Moreover, the people who
want to learn new skills and explore new avenues can find
great new opportunities in the gig economy. Apart from
independence, the gig economy provides variety where you
find options to try new jobs and juggle between several
roles. This is good for new as well as experienced workers.
It is also a main reason that a very large number of people
do it of their own choice and are satisfied with the results.
To some people, it is just a method of earning extra money.
They may have other regular resources of income but since
they have skills they can earn extra income as freelancers.
 Large Scale Employment: The gig economy has
generated employment on a very large scale. The
recessionary period had changed the employment
landscape and people were retrenched in large numbers.
The economic hardships born of the recession were an
important factor that gave rise to the need for paid gigs.
Globally, it has created new options and helped people
connect with new opportunities and exploit their skills
which would otherwise remain unused. The digital
platforms bridged a major gap bringing customers and
workers closer and helping fill a large gap in employment.
 Cost advantage for businesses: A large number of
businesses have also been able to utilize external talent
since the arrival of the gig economy. There are many odd
jobs inside companies hiring a full-time worker for which
would be costly. In such cases, businesses can hire a
freelancer online and get its tasks completed. This is a
major cost advantage which is helping both the companies
and workers. Workers can find jobs as per their preference
with reasonable payments. Hiring a full-time worker with
payment and benefits for the same jobs can raise the HR
costs for a business.

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Disadvantages or Complications related to the Gig

Economy:
 Compliance issues: Gig economy has created jobs that do
not fall in the traditional category and it is why it has also
given rise to controversies and legal struggles. The rights
of the gig workers are not as well defined as the traditional
employees. The contractual agreements and legal definition
of a gig worker may vary from country to country and
market to market. In cases where the legal rights of the gig
workers are not well defined, discrimination and
discrepancy can occur. In October 2016, the Uber drivers
in UK won a legal battle classifying them as workers rather
than as independent contractors.
 Lack of benefits and gig worker friendly policies: The
traditional benefit model is designed for the regular
employee. Organizational policies also favour the
employees and not the gig workers. It can have a negative
impact on the career of the gig workers who are not
entitled to the same benefits as the regular employees.
While on the one hand, it benefits the employers, saving
costs, on the other it can make gig workers feel like being
discriminated against. The gig worker can feel a lack of
friendly policies since he is not entitled to the same health
or other benefits like employees.
 Career management issues: The gig workers are in short
term relationships with the employers and therefore do not
have a definite career. While the highly skilled workers
may find better security because of high demand and low
availability, the less skilled workers may often find it
difficult to obtain suitable gigs and consistent employment.
A gig worker does not always make a planned move or
does not have a stable career as the traditional worker.
Moreover, they do not have the same support available as

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the traditional employees. They do not have any support

related to career management or performance review. The
entire burden remains on the gig worker who can grow
frustrated in seasons he does not find suitable gigs. So, if
you are not a very dedicated and highly motivated worker,
you may sometimes have to struggle with finding jobs and
inconsistency and lack of full-time work and fixed
schedules can have a negative effect on your psychological
health.
 Over-expectations: Sometimes the gig workers start
expecting too much of themselves and from the gigs they
are paid for. The flexibility offered by the gig economy
may make them overwork themselves as happened in the
case of several Uber riders who would fall asleep while on
the wheels. In case of other gig workers too, during the
peak season when the demand is high, the workers may
end up doing more work than their physical and
psychological health allows which may result in adverse
effects in both short and the long term. Some psychologists
call it a slow accident where job insecurity, low pay and
isolation can result in moments of heightened stress. You
can start missing the social settings when you are
employed as gig worker and on one of those virtual
platforms.
 Lack of training and skill development opportunities:
Inside the organizations, training and skill development
models are available only to the regular employees. The
gig workers do not have such resources available to them.
They can only find methods of self-training and managing
their career is also their own burden. Organizations provide
their employees the chances for training and skill
development. However, these opportunities are not
available to the gig workers. There are no HR or line
managers to take care of their skill development or advise

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them on career management. In such a case, many times

the gig workers have to make do with their limited skills
and chances of acquiring new skills remain low unless you
are well paid and have access to great training and skill
development resources. Moreover, communication and
engagement are also difficult with the gig workers. The
organizational values that apply to the regular employees
do not apply to them even if some organizational rules
apply. Communication is easier with the internal
employees but not so easy in case of the gig workers. You
can communicate face to face with your regular employees
and engage them using new and better methods but when it
comes to the gig workers a gap always remains because the
relationship is very short lived.
Gig Economy Examples
The gig economy definition encompasses all sorts of
contingent work arrangements, for example:
 Freelancers
 Consultants
 Independent contractors and professionals
 Temps (temporary contract workers)
And the list should also include:
 On-call workers
 Multiple job holders
 Contingent and part-time workers
 Highly skilled contractors
 Seasonal workers
 Consultants
 And many others

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4.3 Technological Business Advancements in the Economy

Technology is one of the important determinants of the
success of a firm. Technological / technical environment exerts
considerable influence on business. G.K. Galbraith defines
technology as a “systematic application of scientific or other
organized knowledge to practical tasks.” Technological
factors: Innovations, govt. policy, technological orientations,
research and development, technology import and absorption
are the factors constituting technological environment.
Technology is one of the factors to evaluate the global
competitiveness of the firms.
Features of Technological Environment
 The first featured is technology changes fast. Technology
forces change on people whether they are prepared for it or
not.
 The time gap between idea and implementation is falling
rapidly. The time between introduction and peak
production is shortening considerably.
 Business leaders must always watch for changes and
development taking place. New developments must be
adopted and new ideas explored, otherwise the business
units would perish.
 The effects of technology are widespread. Technology
ripples through society until every community is affected
by it.
 Technology is reinforcing in its own. Technology feeds on
itself. Technology makes technology possible.
 Technological environment is a complex set of knowledge,
ideas, and methods. It is likely to be the result of a variety
of internal and external activities.

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 Technological environment is dynamic. Business means

have to adopt the latest technology to survive and to have
the competitive edge.
Technological Environment and Businesses:
 Technology is the invisible input in business. Science and
technology make lot of differences in economic and social
life.
 Industrial and agrarian development in the present era is
technology driven
 Technology is all pervasive. Small and big industries,
agricultural and secondary sectors, service and
infrastructural sectors, rural and urban sectors all need
technology.
 Availability of appropriate technology, technology
development, technology absorption and technology
upgradation influence businesses very much.
 Import of technology and development of indigenous
technology are the two eyes for industrial and business
development.
 Businesses must manage technology, instead of being
dictated by technology. That is technology should be used
for human and business development together.
 Modernization of businesses through planned obsolescence
is one aspect of technology management.
 Development hinges on technology, hence the relevance of
technological environment.
 Technology forecasting is needed so that businesses can
plan for future in a firm way.
 If in a country technology is not given due importance, its
businesses will stand no ground in the competitive world.

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4.4 Demonetisation and Its Impact in Indian Economy

Demonetization refers to withdrawal of a particular
form of currency from circulation. It is necessary whenever
there is a change of national currency; the old currency must
be removed and substituted with the new currency unit. The
currency was demonetizing first time in 1946, and second time
in 1978. On 8th Nov. 2016 the currency is demonetized third
time by present Modi Government. The chaos was created in
every stratum of the society whether upper, middle or lower.
Where some welcomed the move as it was seen for curbing
black money, many are suffering by this movement
India had an experience of demonetization of its
currency twice before. The first was when Rs. 1000, Rs. 5000
and Rs 10000 notes were taken out of circulation on 12th
January 1946. The highest denomination notes ever printed by
RBI in India was Rs. 10000 notes introduced for the first time
in the year 1938. However, all three of Rs. 1000, Rs 5000 and
Rs. 10000 notes were again reintroduced in 1954.
The second phase of demonetization was done on 16th
January 1978 when an ordinance was promulgated to phase out
notes with denomination of Rs. 1000, Rs 5000 and Rs. 10000.
On 12th January 1946 demonetization was resorted to but the
Direct Tax Enquiry Committee in its interim report observed,
Demonetization was not successful then, because only a very
small proportion of total notes in circulation were demonetized
in 1946 and its worth was Rs. 1,235.93 crores. On 16th
January 1978, demonetization of high denomination notes was
introduced. The high demonetization notes as on that day
amounted to Rs. 146 crore and total notes tendered to RBI
amounted to Rs. 125 crores as per data available till August
1981.

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Positive & Negative Impact of Demonetization: -

1. Impact on Black Money and Corruption: ' Black Money'
or 'Dirty Money' is the money on which not tax is paid to
the Government and it goes unaccounted in the duration of
country tax assessment period which causes revenue loss to
the government. It is argued that steps taken by the
government of demonetization can help curbing black
money in the country. Corruption will also be
automatically reduced by removing black money from
economy.
2. Impact on Counterfeit Currency: The Biggest positive
impact of the demonetization will be on the
counterfeit/fake currency as it currently thrown out of the
system fully.
3. Impact on GDP: GDP become down because circulation
of currency is less because of cash crunch in the country.
The GDP formation could be impacted by this measure,
with reduction in the consumption demand. Moreover, this
expected impact on GDP may not be significant as some of
this demand will only be deferred and re-enter the stream
once the cash situation becomes normal.
4. Lower Inflation: Inflation arises due to higher liquidity in
the market. Because of demonetization there is less
liquidity and less cash flow in the market that‟s why
inflation becomes down. As the black money goes out of
the system the money supply will shrink to some degree.
This will reduce inflation rate in the Lower absence of any
open market interventions by the Reserve Bank of India.
Inflation is of four types.
Creeping Inflation (2% – 4%)
Walking Inflation (5% – 10%)
Galloping Inflation (10% – 20%)

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Hyper Inflation (more than 20%)

5. Impact on Purchasing Power: The move of
demonetization has affected the purchasing power. This is
mainly affecting those assets that are used as long-term
investments like Real Estate, Vehicles and core sectors of
cement and steel. The stock prices of the companies of
these sectors will have a negative impact. Purchasing
power of consumer is also affected due to the shortage of
cash because 90% transactions taking place in cash in the
Indian economy.
6. Impact on Real Estate Sector: Demonetization smashed
the real estate market and it will result in more than 50%
drop down and it will remain for further 5 to 6 months.
While the short-term impact is negative, Experts hoping
that rate cuts in the coming months would boost home
sales.
7. Impact on Banks and Financial Institutions: The
demonetization effects on banks will be both on the
positive side and the negative side. However, In the long
run it will be more on the positive side. As per directions of
Government people have to deposit their money with the
banks which will increase the liquidity of the banks for
short term. This liquidity can be used by banks for lending
purpose for long run. As the liquidity of banks increases,
they are expected to enhance the borrowing cycle by the
lending money at lower rate of interest. However, the
negative impact also as the earning of the banks will also
take a hit for the next 2-3 quarters. We may not see loan
book growing as the banks will be busy in facilitating the
demonetization process.
8. Impact on Lending Rate: Lending rate become down
because of banks getting money at Repo rate and banks‟
lending money at Base Rate. In this situation Repo Rate

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become less and automatically Base Rate will become

down and banks having sufficient money to lend so lending
rate become down.
9. Impact on Ecommerce: Impact of demonetization on
Ecommerce mostly bad, some good. For the online retail
market, Gross Merchandise Value (GMV) of players fell
by 40-50% in first few weeks after demonetization, in the
middle of their biggest quarter for sales. Things may
remain bleak till March. Even high-value items like
expensive smart phones are selling less. Products returned
are up by 50%. And experts feel consumer sentiment won‟t
improve quickly. But the boost to digital payments (100%
jump in transactions) has led industry to hope for a bright
medium term. Also, grocery and food delivery set-ups are
doing better since they sell essential items. Some saw new
customer orders jump to 25%, from the usual 15-16%
10. Impact on Tourism: Cash Crisis badly hits the tourism
sector. It is very difficult for people for getting the money
from the banks and ATMs. The travel and hospitality
industries are facing a tough time. Peak tourism period of
November-December badly hit. For tourist destinations
beyond metros, business may be down by as much as 40%.
Tourism business in metros may go down by 10%. Cash
shortage at airports and hotels are a big problem. And
many national monuments entry points don‟t have card
payments facilities.
11. Online Transactions and others modes of payment: The
Government wants to go cashless; Demonetization will
have positive impact on digital transactions and other mode
of payment. With cash transactions facing a reduction,
alternative forms of payment will see a surge in demand.
Digital transaction systems, E wallets, online transactions
using E banking, usage of Plastic money (Debit and Credit

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Cards), UPI, EFTPOS, Net Banking Aadhar card, etc. will

definitely see substantial increases in demand. This should
eventually lead to strengthening of such systems and the
infrastructures required.
4.5 Angel investors and Start Ups
Angel investors are high net worth individuals who
invest their personal income in business start-ups or small and
medium scale companies. An angel investor (also known as
a business angel, informal investor, angel funder, private
investor, or seed investor) is an individual who provides
capital for a business start-up, usually in exchange
for convertible debt or ownership equity. Angel investors
usually give support to start-ups at the initial moments (where
risks of the start-ups failing are relatively high) and when most
investors are not prepared to back them. A small but increasing
number of angel investors invest online through equity
crowdfunding or organize themselves into angel
groups or angel networks to share investment capital, as well
as to provide advice to their portfolio companies. Over the last
50 years, the number of angel investors has greatly increased.
Features
 An angel investor is usually a high net worth individual
who funds start-ups at the early stages, often with their
own money.
 Angel investing is often the primary source of funding for
many start-ups who find it more appealing than other, more
predatory forms of funding
 The support that angel investors provide start ups fosters
innovation which translates into economic growth.
 The angel investments are risky and usually do not
represent more than 10 % of the angel investors portfolio.

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Importance
 An angel investor plays a vital role in the development of
the economy by providing the risk capital which
contributes to the economic growth and technological
advances.
 Early financing of the start-ups to some extent has become
more dependent on angel investors.
 They are more focused on the commitment and passion of
the founders and the larger market opportunities that they
have identified.
 Angel investors make a prominent difference with start-ups
success as well as its failure. Most of the time they are the
first and the foremost investors.
Advantages
The greatest advantage of receiving funding from an
angel investor is that is less risky than if you take out a small
business loan. Unlike loans, you do not have to pay back the
funding from an angel investor because they receive equity in
exchange for financing. Angel investors are typically
experienced investors who take a long-term view and
understand that they may not see a return on their investment
for a long period of time.
Other benefits that a start-up gets by taking on an angel
investors include,
 Credibility from being associated with the investor
 Contacts for potential customers or employees
 Contacts with investment bankers, accountants, lawyers
and other professionals
 Marketplace knowledge and strategies used in similar
companies

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Disadvantages
 Higher investor expectations: With unlimited funds, there
come higher expectations. Angel investors take a lot of
risks while investing a boom in start-ups than in result,
they even expect greater profits.
 Steady funding process: The funding process is quite
slow and lengthy. The overall angel investment process
takes approximately up to nine months. Foremost, finding
an angel investor is one of the biggest tasks and takes up a
huge amount of time.
Types of Angel investors
Angel investor is a somewhat general term, and you
can find this type of investor in many different forms,
including the following:
 Friends and family: This is the most common source of
funding for start-ups and is usually where start-ups begin
when looking for financing.
 Wealthy individuals: Depending on the business, people
who have a high net worth, such as doctors, lawyers or
successful business people, are often willing to invest a
large sum of money in exchange for equity in a business.
 Groups: Many angel investors are increasingly starting to
operate as part of a group. This raises the potential for the
level of investment significantly.
 Crowdfunding: This type of funding is becoming
increasingly common. It involves having large groups of
people invest small amounts of money online to reach a
specific financial goal.
Start ups
Start-up India was a campaign that was first addressed
by the PM Narendra Modi on 15th August 2015 at Red Fort,
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New Delhi. This campaign was introduced under the

Government of India as an initiative to develop over 75 start
up support hubs in the country.
Launched on 16th January 2016, the start-up India
initiative has rolled out several programs with the objective of
supporting entrepreneurs, building a robust start up ecosystem
and transforming India into a country of job creators instead of
job seekers. These programs are managed by a dedicated start
up India team, which reports to the Department for Industrial
Policy and Promotion (DIPP).
The major objective of Start-up India is to discard
some of the restrictive States Government policies which
include:
1. License Raj
2. Land Permissions
3. Foreign Investment Proposals
4. Environmental Clearances
The Start-up India scheme is based majorly on three
pillars which are mentioned below:
1. Providing funding support and incentives to the various
start-ups of the country.
2. To provide Industry-Academia Partnership and Incubation.
3. Simplification and Handholding.
Registration for Start-up India
A person must follow the below-mentioned steps that
are important for the successful registration of their business
under the Start-up India scheme:
1. A person should incorporate their business first either as a
Private Limited Company or as a Limited Liability
Partnership or as a Partnership Firm along with obtaining

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the certificate of Incorporation, PAN, and other required

compliances.
2. A person needs to log in to the official website of Start-up
India where he/she has to fill all the essential details of the
business in the registration form and upload the required
documents.
3. A letter of recommendation, Incorporation/Registration
Certificate, and a brief description of the business are some
of the essential documents required for the registration
purpose.
4. Since the start-ups are exempted from income tax benefits,
therefore, they must be recognized by the Department of
Industrial Policy and Promotion (DIPP) before availing
these benefits. Also, they should be certified by the Inter-
Ministerial Board (IMB) to be eligible for IPR related
benefits.
5. After successful registration and verification of the
documents, you will be immediately provided with a
recognition number for your start up along with a
certificate of recognition.
Eligibility to apply under Start up India scheme
An entity is eligible to apply when:
 It is incorporated as a private limited company or
partnership firm or a limited liability partnership in India
 It has less than 10 years of history i.e., less than 10 years
have elapsed from the date of its incorporation/registration
 The turnover for all of the financial years, since the
incorporation/ registration has been less than INR 100
crores.
Benefits of Start-up India
After the launch of the Start-up India scheme, a new

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program was launched by the government named the I-MADE

program which focused on helping the Indian entrepreneurs in
building 1 million mobile app start-ups. The government of
India had also launched the Pradhan Mantri Mudra Yojana
which aimed to provide financial supports to entrepreneurs
from low socio-economic backgrounds through low-interest
rate loans. Some of the key benefits of Start-up India are as
follows:
1. To reduce the patent registration fees.
2. Improvement of the Bankruptcy Code ensuring a 90-day
exit window.
3. To provide freedom from mystifying inspections and
capital gain tax for the first 3 years of operation.
4. To create an innovation hub under the Atal Innovation
Mission.
5. Targeting 5 lakh schools along with the involvement of 10
lakh children in innovation-related programs.
6. To develop new schemes that will provide IPR protection
to start-up firms.
7. To encourage entrepreneurship throughout the country.
8. To promote India as a start-up hub across the world
Government Measures to promote Start Up in India
1. As part of the “Make in India” initiative, the government
proposes to hold one Start-Up fest at the national level
annually to enable all the stakeholders of the Start-up
ecosystem to come together on one platform.
2. Launch of Atal Innovation Mission (AIM) – to
promote Entrepreneurship through Self-Employment and
Talent Utilization (SETU), wherein innovators would be
supported and mentored to become successful

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entrepreneurs. It also provides a platform where innovative

ideas are generated.
o Incubator set up by PPP – To ensure professional
management of Government-sponsored or funded
incubators, the government will create a policy and
framework for setting-up of incubators across the
country in public-private partnerships. The incubator
shall be managed and operated by the private sector. 35
new incubators in existing institutions. Funding support
of 40% shall be provided by the Central Government,
40% funding by the respective State Government and
20% funding by the private sector for establishment of
new incubators.
o 35 new private sector incubators. A grant of 50%
(subject to a maximum of INR 10 crore) shall be
provided by Central Government for incubators
established by the private sector in existing institutions.
3. A Start-up India Seed Fund Scheme has been implemented
with effect from April 1, 2021. The scheme aims to
provide financial assistance to start-ups for proof of
concept, prototype development, product trials, market
entry and commercialisation.
4.6 Make in India - Skill India
Make in India
Make in India is an international marketing
campaigning slogan coined by the Prime Minister of India to
encourage multinational companies and domestic companies to
manufacture their products in India as an important
investment destination and a global hub for
manufacturing, design, and innovation. The campaign is aimed
to attract foreign firms to set up their manufacturing units in
India and to seek greater foreign investment. The objective of

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the campaign is to get manufacturing sector to grow over 100

percent on a sustainable basis over a long run. The govt will
look into all regulatory processes to ease the burden of
investors. A dedicated cell has been created to answer queries
from business entities through a fresh created web portal.
Through this campaign, the Union Government aims to
clear the daunting image of complex rules and bureaucratic red
tape of Indian administration. It will facilitate the world
investors to foster their investment decisions. This will
facilitate in realizing the aim of liberalized economy. Make in
India will act as a primary reference point for guiding foreign
investors on all aspects of regulatory and policy problems and
assists them in getting regulatory clearances. Through Make
in India initiative, government will focus on building physical
infrastructure as well as creating a digital network to make
India global hub for manufacturing of goods ranging
from cars to satellites to submarines, pharmaceuticals to
ports and paper to power.
Objectives of Make in India
 To make India a renowned manufacturing hub.
 Inviting various companies from around the world and
encourages them to set up their factories and expand their
facilities in India.
 To use the talents and skills of Indian manpower for
creating zero defect products.
Purpose of Make in India
 Creating jobs, especially for the young generation.
 Development of the Indian Economy.
 Getting global recognition.

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Advantages of Make in India:

Let‟s have a look on the biggest advantages of Make in
India.
1) Boost India’s Economic Growth: The make in India
campaign will lead to an increase in exports and
manufacturing. An increase in exports will improve the
economy and India will be transformed into a global hub of
manufacturing through global investment using the current
technology. Manufacturing will also boost India‟s economic
growth and GDP.
2) More Job Opportunities: It will lead to the creation of
many job opportunities. Around ten million people are
expected to get jobs. An increase in investment will bring
employment opportunities for the skilled labour force and this
will form a job market.
3) Attract More Foreign Direct Investment (FDI): It will
welcome more FDI. Since the government had promised to
improve the ease of running businesses in India, it is going to
attract many FDI. At the moment it has already received an
amount of INR 20 K million from a proposal that was made on
October 2014.
4) Investment in India: Through Make in India Project more
companies are looking to set up factories, a unit known as
“Invest India” is in the process of being put to place. This unit
will be under the department of commerce and will be
available any time to make it easy to carry out regulatory
clearance within the shortest time possible ensuring that
businesses are run in India easily.
5) Improvement in Areas: When a factory or an industry is
set up in an area, it attracts labour, markets, and other people.
With this, the financial status of the families which are living
nearby to these areas will also improve. The area, its

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neighbouring places and the people living in these places will

develop all together.
6) Increasing the Value of Rupees: Make in India will be
attracting more Foreign Direct Investment and which will
result in increasing the value of Indian Rupee against the
American Dollar. This will also reduce the effect of the
dominion of Dollar over Indian Rupee.
7) A Shift from International Brand to Native Brands:
Indians are attracted to international brands and do not pay
attention to the indigenous brands, and this brings loss to
indigenous producers. With Make in India, the indigenous
products will get its recognition in the country, and these
producers will start making profits.
8) Technological Advancements: Make in India allows
Indians to use the latest technology. This campaign encourages
Indians to make new technology. Attention is also given to
improving the skills of labour in the country.
9) Simplifying Business: Make in India is an open invitation
to manufacturers present in every corner of the world. For
inviting as many manufacturers as possible, the government
has removed many restrictions.
10) Innovative Ideas from Young Generation: The young
generation of India never gets an environment within the
boundaries of the country to develop their skills and implement
their innovative ideas in the country, and therefore they leave
India for getting better opportunities. Make in India will
provide the needed environment in the country itself and will
take innovative ideas from the talented young generation of the
country.
11) Development of Rural India: When a factory is set up, it
not only attracts labour but also attract development in that
particular region. When a factory is set up in rural areas, then

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such areas are blessed with schools, healthcare facilities,

markets, etc.
Disadvantage of Make Inn India:
Now let‟s have a look the biggest disadvantages of
Make in India.
1. Exclusion of Agriculture: India is an agrarian country with
61 percent of the total land under cultivation. But, Make in
India encourages industrial development and excludes
agriculture from it.
2. Exploitation of Resources: Resources are limited in nature,
while the demands of human beings have no end. Make in
India focuses on developing manufacturing industries that
consume many natural resources. This will endanger the
survival of the population soon.
3. Loss to Small Entrepreneurs: Make in India welcomes
other countries in India, and when these countries set up its
manufacturing unit in India, they attract the local people
toward them, and this brings loss to small entrepreneurs who
are already struggling to set up their position.
4. Loss of Cultivable Land: The campaign focus on setting up
of manufacturing unit in India. These manufacturing units can
be set up at any place, and sometimes it also settles on those
lands which are used for cultivation. Therefore, make in India
will destroy the worth of cultivable land.
5. Loss to Other Sectors: The Indian economy has three
sectors, named the Primary sector, Industrial or Secondary
sector, and Service sector, but Make in India is emphasising on
Secondary sector leaving all sectors behind. As the economy
cannot develop by developing one sector only, complete
attention on the manufacturing sector will not bring economic
development to the country.

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6. Pollution: According to the data available, the Pollution

Index of India is 76.50, and this level will surely increase after
Make in India Campaign.
7. Loss for Small Entrepreneurs: The make in India
campaign, welcomes foreign countries to manufacture in India
with open arms, this automatically eases up the various
restrictions over trade with foreign countries, inviting attention
of the international commercial companies. However, these
companies will not only seduce the Indian population but also
would dominate the small local entrepreneurs and force them
out of business.
8. Manufacturing based Economy: Indian economy is one of
the largest economies in the world. It constitutes of three
sectors i.e., agriculture, industry and services. Now the Indian
economy majors up from the service sector which contributed
up to 57% of the GDP. But with the introduction of the make
in India campaign the economy is likely to rely completely on
the manufacturing and exporting while the import industry will
remain static. This eventually will be a huge loss for the other
economic sectors and would automatically reduce the
advancement of make in India.
Make In India: Impact on Indian Economy
The main focus of Make in India Campaign is mainly
on 25 sectors. The supreme objectives of Make in India are as
follows: 1. Automobiles 2. Food processing 3. Renewable
energy 4. Automobile components 5. IT and BPM 6. Roads
and highways 7. Aviation 8. Leather 9. Space 10.
Biotechnology 11. Media, Entertainment 12. Textiles and
garments 13. Chemicals 14. Mining 15. Thermal power 16.
Construction 17. Oil and gas 18. Tourism, Hospitality 19.
Défense manufacturing 20. Pharmaceuticals 21. Wellness 22.
Electrical machinery 23. Ports 24. Electronic system 25.
Railways.

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Almost every sector is capital-intensive and demands a

lot of skill. So, with the more and more investment in these
sectors, the main focus will be on increasing employment and
the use of advanced technology. It‟s Creates a policy
framework to ease foreign investment, ease of business and
management of intellectual property. This helps industries to
establish their manufacturing bases in India. Exports from such
industries help in contributing to our foreign exchange reserve.
Most importantly, such an initiative helps bring critical
knowledge about manufacturing and production into the Indian
population. This initiative, by Mr Modi is literally inviting the
rich and semi-rich countries to step in India and invest their
money for the future of India. It‟s like inviting the countries to
set up their companies in India and manufacture in the territory
of our country. Now, this initiative has a great impact on the
economy of our country. Obviously, if the big companies will
setup their branches here, it will directly affect the GDP of
India. The main thing is that the focus is on the manufacturing
sector, and the population of India is majorly middle-class or
lower middle-class. So, the products manufactured by the
foreign companies will be entirely for the upper section of the
society. Hence, it is possible that the goals and aspirations of
Make in India may not find much success. Make in India
initiative is an honest attempt to revive the fortunes of Industry
/ Manufacturing sector. Revival of Industry sector is key role
to revival of Indian economy. Digital India will help to
maintain contribution of Service sector but manufacturing /
industry sector has to grow at much faster pace to out-pace
service sector. It is not an easy task. Government should target
to increase contribution of Industry / manufacturing from
existing 16% to 35% in next 5 years. Make in India will help
to achieve this goal but it comes with its own set of challenges.
Manufacturing is capital and resources intensive sector which
will require conductive environment for business. Labour

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issues will be major hurdle which the govt. is trying to handle

through labour reforms. Besides this, a major push is required
to upgrade infrastructure of country. Govt. has also set up
10,000 Cr start up fund to encourage entrepreneurship.
Basically, objective is to create ecosystem of small industries
in periphery of manufacturing hub similar to Maruti model.
Government will provide all the approvals under Make in India
initiate in a time bound manner through single online portal..
Challenges in Implementation of -Make in India:
No doubt Make in India concept will boost up our
economic growth and the initiatives taken by the present
government is being welcome by every corner of the world. It
is very clear that countries and private sector players are
showing their keen interest in this concept and are willing to
invest in manufacturing sector, but following are certain grey
area‟s which needs immediate attention of the government for
smooth implementation and success of this concept.
 India‟s labour laws are still ancient by most standards
which makes hiring and firing and shutting down of
inefficient units next to impossible.
 India, in one sense has a federal structure which reduces
the Central government‟s power in pulling off such
schemes and ideas.
 Provision of utilities such as electricity, water,
infrastructure development such as roads, law and order,
land allotment, are all under state government‟s gambit.
Thus, cooperation of state governments is an absolute
necessity for “Make in India.”
Skill India:
This new programme, called „Skill India‟, is supposed
to be a multi-skill programme. It will be launched in March
2015. Like all other programmes, „Skill India‟ too is a dream

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project of Narendra Modi and the work to launch this

programme has already been initiated. The main goal is to
create opportunities, space and scope for the development of
the talents of the Indian youth and to develop more of those
sectors which have already been put under skill development
for the last so many years and also to identify new sectors for
skill development. The new programme aims at providing
training and skill development to 500 million youth of our
country by 2020, covering each and every village. Various
schemes are also proposed to achieve this objective.
Objectives
The chief objective of the Skill India Mission is to
provide market-relevant skills training to more than 40 crore
young people in the country by the year 2022.
 The mission intends to create opportunities and space for
the development of talents in Indian youth.
 It aims to develop those sectors which have been put under
skill development for the last many years, and also to
recognize new sectors for skill development.
Other objectives are:
1. Closing the gap between skill required by the industry and
skills people possess for employment generation.
2. Reducing poverty in the country.
3. Increasing the competitiveness of Indian businesses.
4. Ensuring that skill training imparted is relevant and of
quality.
5. Preparing Indians to take on the world manpower/resources
market.
6. Diversifying the existing skill development programmes to
meet today‟s challenges.

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7. Building actual competencies rather than giving people

mere qualifications.
8. Offering opportunities for lifelong learning for developing
skills.
9. Augmenting better and active engagement of social
partners and building a strong public-private partnership in
skill development.
10. Mobilising adequate investments for financing skills
development sustainable.
Features of Skill India
 The emphasis is to skill the youths in such a way so that
they get employment and also improve entrepreneurship.
 Provides training, support and guidance for all occupations
that were of traditional type like carpenters, cobblers,
welders, blacksmiths, masons, nurses, tailors, weavers etc.
 More emphasis will be given on new areas like real estate,
construction, transportation, textile, gem industry,
jewellery designing, banking, tourism and various other
sectors, where skill development is inadequate or nil.
 The training programmes would be on the lines of
international level so that the youths of our country can not
only meet the domestic demands but also of other countries
like the US, Japan, China, Germany, Russia and those in
the West Asia.
 Another remarkable feature of the „Skill India‟ programme
would be to create a hallmark called „Rural India Skill‟, so
as to standardise and certify the training process.
 Tailor-made, need-based programmes would be initiated
for specific age groups which can be like language and
communication skills, life and positive thinking skills,

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personality development skills, management skills,

behavioural skills, including job and employability skills.
 The course methodology of „Skill India‟ would be
innovative, which would include games, group discussions,
brainstorming sessions, practical experiences, case studies
etc
Why does India need a skills development programme?
As of a 2014 report, India‟s formally skilled workforce
is just 2%. Additionally, there is a huge problem of
employability among the educated workforce of the country.
Lack of vocational or professional skills makes it difficult for
the youth to adapt to changing demands and technologies of
the marketplace. The high level of unemployment is due to the
failure to get jobs and also due to a lack of competency and
training.
 A study by the Skill Development Council (NSDC)
indicates that there will be a need for around 12 crores of
skilled manpower by 2022 across 24 key sectors.
 Casual workers, who constitute about 90% of the labour
force, are poorly skilled as they do not get adequate
training. Current vocational training programmes do not
meet their demands.
 There is a problem of social acceptability when it comes to
vocational education. Vocational courses are looked down
upon and this needs to change.
 Another factor that acts as an obstacle to skill development
in India is the myriad labour laws. However, the
government has started simplifying and codifying the
labour laws. With simpler laws, practising skill
development should be easier.
 Changing technology is a big challenge and opportunity for

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the labour force. Employees will have to constantly

upgrade their skills if they are to remain relevant in the job
market.
 There is a problem with the lack of infrastructure in the
current training institutes.
 Another problem is the poor quality of trainers available.
Students trained by such trainers are not employable in the
industry.
 There is a big issue with the standardisation of skills in the
country. New schemes are designed to resolve this issue by
having nationwide standards that also stand up to
international benchmark.
Sub Schemes under Skill India
Skill India is an umbrella mission under which there
are multiple schemes and programmes with specialised focus
areas. The sub-schemes are as follows.
 National Skill Development Mission (NSDM)
The NSDM was launched for creating convergence
across various sectors and different states with respect to
activities relating to skills training. The mission, apart from
consolidating and coordinating skilling efforts, would also
facilitate decision making across sectors to achieve quality
skilling on a large scale.
 Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
PMKVY is a skill certification scheme that aims to
encourage the young population of the country to take up
training which is industry-relevant and builds them in skill
development.
 Indian Skill Development Service
The Indian Skill Development Services (ISDS) is a

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new central government service that has been created

especially for the training directorate of the Ministry of Skill
Development and Entrepreneurship. It is a Group „A‟ service
and is expected to give a big push to the government‟s skilling
initiatives by drastically enhancing the effectiveness and
efficiency of the various schemes in this domain. The
qualifying exam for this service is the Indian Engineering
Service Exam conducted by the UPSC. The idea behind the
ISDS is to attract young and talented people into the skill
development domain and make skilling initiatives successful in
the country.
 National Policy for Skill Development and
Entrepreneurship 2015
The chief objective of this policy is to match the
challenge of skilling at scale with speed, standard (quality),
and sustainability. It aims to offer an umbrella framework to
all skilling activities carried out within India, to align them to
common standards and connect skilling with demand centres.
In addition to laying down the objectives and expected
outcomes, the policy also identifies the overall institutional
framework which will act as a means to achieve the expected
results.
 Skill Loan Scheme
Under this scheme, loans ranging from Rs.5000 to Rs.
1.5 lakhs will be provided for those seeking to attend skill
development programmes. The idea behind the scheme is to
remove financial hurdles for people who want to upgrade their
skills and learn new skills.
 Other schemes:
The Ministry is implementing many other schemes in
the skill development domain along with the above major
schemes. One such important scheme is the Pradhan Mantri
Yuva Udyamita Vikas Abhiyan (PM-YUVA).

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 PM-YUVA:
It is a centrally-sponsored scheme related to
entrepreneurship education and training.
 Objectives:
o The development and education of entrepreneurship to all
citizens free of cost through Massive Open Online Courses
(MOOCs) and eLearning systems.
o The designing of assessment and certification mechanism
for the same.
o To equip institutes (schools and colleges) to help them
deliver entrepreneurship educational programmes of global
standards.
o Also, to focus on social entrepreneurship promotion.
o The creation of an online web-based platform that connects
entrepreneurs, investors, financial institutions, and business
services such as legal, accounting, HR, and technology
services.
o The setting up of a national mentor network for budding
entrepreneurs.
o Create a network of incubators, credit agencies, business
service providers, and accelerators.
o Establishment of a National Entrepreneurship Resource
and Coordination Hub to coordinate and support
entrepreneurship development programmes.
o The creation of a culture of dynamic entrepreneurship by
way of branding and the media.
o Promote entrepreneurship research and advocacy.
o Include social entrepreneurship awareness programmes for
the marginal sections like SC/ST and minority.

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 Apprenticeship Protsahan Yojana:

This scheme revamps the Apprenticeship Act, 1961 to
make the legal framework conducive to both the industry as
well as young people.
4.6 Digital Economy and Artificial Intelligence
The digital economy refers to a broad range of
economic activities that use digitized information and
knowledge as key factors of production. The digitization of the
economy creates benefits and efficiencies as digital
technologies drive innovation and fuel job opportunities and
economic growth.
The digital economy, also known as the Internet
economy, the Web economy, refers to the economy that is
based in a large part on digital technologies, including digital
communications networks (Internet, intranets, etc.), computers,
software, and other related information technologies .In other
words, the term digital economy refers to the convergence of
computing and communication technologies through the
Internet and the resulting flow of information and technology
that is stimulating e-commerce and spurring vast
organizational changes. Digital networking and
communication infrastructures provide a global platform to
interact, communicate, collaborate and search for information.
This unique platform includes the following components:
 A wide area of products made of digital bits - databases,
news and information, books, magazines, TV and radio
programming, movies, electronic games, musical CDs, and
software - that are delivered over the digital infrastructure
anytime, anywhere in the world in the 24/7 mode.
 Consumers and firms conduct financial transactions
digitally through digital currencies or financial tokens

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downloaded and carried on smart cards via networked

computers and mobile devices.
 Physical goods such as home appliances and automobiles
are embedded with microprocessors and networking
capabilities.
Key features of the digital economy
There are a number of features that are increasingly
prominent in the digital economy and which are potentially
relevant from a tax perspective. While these features may not
all be present at the same time in any particular business, they
increasingly characterise the modern economy. They include:
 Mobility
Mobility, with respect to (i) the intangibles on which
the digital economy relies heavily, (ii) users, and (iii) business
functions as a consequence of the decreased need for local
personnel to perform certain functions as well as the flexibility
in many cases to choose the location of servers and other
resources.
 Reliance on data
It is common in the digital economy for businesses to
collect data about their customers, suppliers, and operations.
For example, the use of a product or service by a user may
provide data about the user that has value to the business as an
input either in improving existing products and services or in
providing products and services to another group of customers.
 Network effects
These network effects are an important feature of many
businesses in the digital economy. Network effects are seen
whenever compatibility with other users is important, even
where the primary purpose of a particular technology may not
be to interact with others. For example, a widely-adopted

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operating system will generally have a larger amount of

software written for it, resulting in a better user experience.
These effects are known as positive externalities, meaning
situations in which the welfare of a person is improved by the
actions of other persons, without explicit compensation. For
example, when additional people join a social network, the
welfare of the existing users is increased, even though there is
no explicit agreement compensation among the users for this
improvement.
 Multi-sided business models
A multi-sided business model is one that is based on a
market in which multiple distinct groups of persons interact
through an intermediary or platform, and the decisions of each
group of persons affects the outcome for the other groups of
persons through a positive or negative externality. In a multi-
sided business model, the prices charged to the members of
each group reflect the effects of these externalities. If the
activities of one side create a positive externality for another
side (for example more clicks by users on links sponsored by
advertisers), then the prices to that other side can be increased.
 Volatility
Technological progress has led to progress in
miniaturisation and a downward trend in the cost of computing
power. In addition, neither an Internet end user nor in many
cases the service provider is required to pay a marginal price
for using the network. These factors, combined with increased
performance and capital expenditure have markedly reduced
barriers to entry for new Internet-based businesses. These
factors have combined to foster innovation and the constant
development of new business models. As a result, in short
periods of time, companies that appeared to control a
substantial part of the market and enjoyed a dominant position
for a short period of time have found themselves rapidly losing

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market share to challengers that built their businesses on more

powerful technology, a more attractive value proposal, or a
more sustainable business model. Due to the fast pace of
innovation, the few companies that have managed long-term
success typically have done so by investing substantial
resources in research and development and in acquiring start-
ups with innovative ideas, launching new features and new
products, and continually evaluating and modifying business
models in order to leverage their market position and maintain
dominance in the markets
The Impact of Digital Economy on Business
According to Bloch and Segev (1996), the impact of
digital economy on business can be divided into three major
categories: -
 Improving direct marketing: There are numerous
impacts of B2C direct marketing, and they include: product
promotion, new sales channels, direct savings, customer
service, brand or corporate image, customization,
advertising, ordering systems, markets, reduced cycle time.
As an example, the delivery of digitized products and
services can be reduced to seconds. Even the
administrative work related to physical delivery across
international borders can be reduced significantly, cutting
the cycle time by more than 90%.
 Transforming organizations: Transforming organizations
is based on the premise that rapid progress in digital
economy forces companies to adapt quickly to the new
technologies and offers them an opportunity to experiment
with new products, services and business models. People in
organizations are forced to learn and adapt immediately,
and this process of adaptation is followed by strategic and
structural changes. At the same time, the nature of work
itself has to be transformed. Digital economy workers have

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to be very flexible and very few will have truly secure jobs
in the traditional sense. Many will work from home.
 Redefining organizations: There are many potential
changes that will redefine organizations. Completely new
products are created and existing ones are customized.
Such changes redefine organizations‟ missions and the
manner they operate. Mass customization enables
manufacturers to create specific products for each
customer. Using the Web, customers can design or
reconfigure products for themselves (T-shirts, furniture,
jewelry, and even cars). Digital economy affects entire
industries. This leads to the use of new business models
that are based on the wide availability of information, for
example, electronic intermediaries.
Other impacts include the influence on manufacturing,
on finance and accounting, and on human resource
management, training and education. An interesting concept is
that of virtual manufacturing, which is the ability to run global
plants as though they were one single plant. The widespread
adoption of wireless and mobile networks, devices, and
middle-ware creates an opportunity to use new applications
online. The way of conducting e-commerce via wireless
devices is referred to as mobile commerce, m-commerce, m-
business, and pervasive computing.
Artificial Intelligence
The term artificial intelligence was coined in 1956,
Artificial Intelligence (AI) is a branch of science which deals
with helping machines find solutions to complex problems in a
more human-like fashion. This generally involves borrowing
characteristics from human intelligence, and applying them as
algorithms in a computer friendly way. A more or less flexible
or efficient approach can be taken depending on the
requirements established, which influences how artificial the

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intelligent behaviour appears. Artificial Intelligence is an

emerging technology that facilitates intelligence and human
capabilities of sense, comprehend, and act with the use of
machines. Some of the technologies that can allow these
systems in analysing and understanding all the information that
is received are Natural Language Processing (NLP) and
inference engines. Artificial Intelligence is a system that
provides action through technologies such as expert systems
and inference engines to undertake operations in the physical
world.
Artificial intelligence can be viewed from a variety of
perspectives. From the perspective of intelligence, artificial
intelligence is making machines "intelligent" -- acting as we
would expect people to act . From a business perspective AI is
a set of very powerful tools, and methodologies for using those
tools to solve business problems. From a programming
perspective, AI includes the study of symbolic programming,
problem solving, and search.
Advantages of Artificial Intelligence:
 Time-saving
 Easy execution of complex tasks
 It can be operated 24×7
 Reduces human error
 More accurate and precise
Importance of AI
 Healthcare: AI plays an important role in the field of
healthcare by addressing issues of high barriers particularly
in rural areas that lack poor communication and a
professional healthcare system. Some of the emerging
application includes AI-driven diagnostics, personalized
treatment, early identification of potential pandemics, and
imaging diagnostics.

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 Agriculture: AI has a major role to play in driving a food

revolution and meeting the increased demand for food.
Applied AI addresses challenges such as lack of assured
irrigation, inadequate demand prediction, excess use of
pesticides, fertilizers, and fungicides. Some uses include
improved crop production through advanced detection of
pest attacks, prediction of crop prices, and real-time
advisory.
 Transports, Logistics, and Smart Mobility: This domain
mainly includes various autonomous and semi-autonomous
features, for example, monitoring and maintaining a
predictive engine along with driver-assist. Other
applications of AI include improved traffic management,
autonomous trucking, and delivery.
 Retail: Being one of the early adopters of AI solutions, it
provides applications such as developing user experience
by personalized suggestions, image-based product
searches, and preference-based browsing. Other uses
include customer demand anticipation, improved inventory
management, and efficient delivery management.
 Manufacturing: It can enable „Factory of the Future‟
through flexible and adaptable technical systems to
facilitate various processes and machinery to respond to
unfamiliar or unexpected situations by making smart
decisions. Impact areas include engineering, supply chain
management, production, maintenance, quality assurance,
and in-plant logistics and warehousing.
 Energy: Potential use of Artificial Intelligence also
includes modelling and forecasting of the energy system to
reduce unpredictability. Artificial Intelligence also focuses
on increasing the efficiency of power balancing and
enabling the storage of energy in renewable energy
systems. This process uses smart meters to enable

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intelligent grids, thus, improving the affordability and

reliability of solar energy. Apart from these, AI may also
be deployed for predictive maintenance of grid
infrastructure.
 Smart Cities: Incorporation of applied AI in developing
cities could also help in meeting the demands of a rapidly
growing population and providing them with enhanced
quality of life. Traffic control for reducing congestion
enhanced security by providing improved crowd
management are some of the potential uses of AI systems.
 Education and Skilling: AI plays a major role in the
Indian education sector by providing solutions for quality
and access issues including augmentation and enhancement
of the learning experience through personalized learning,
automating and expediting administrative tasks, and
predicting the need for student intervention to reduce
dropouts or recommend vocational training.
Challenges of AI
 Absence of collaborative effort between various
stakeholders
 Concerns on privacy and security of data, including a lack
of formal regulation around anonymization of data.
 Lack of sufficient talent to build and deploy AI systems at
scale. An estimate claims that only 4% of AI professionals
in India have worked on emerging technologies such as
deep learning and neural networks. There is also a
significant gap in Ph.D. research scholars in the field.
 Difficulty in access to industry-specific data required to
build customized platforms and solutions is now currently
in the hands of a few major players. It is challenging for
new beginners to provide customized services that can
compete with the existing data that includes rich

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incumbents such as Facebook or Google. This

phenomenon results in the creation of a virtuous cycle
which reinforces the hegemony of the big few, creating a
huge entry barrier for start-ups.
 High cost and low availability of computing infrastructure
required for development, training, and deployment of AI-
based services. Cloud infrastructure, though growing
rapidly, has limited capability.
 Lack of infrastructure is the major reason for many Indian
AI start-ups that aims to incorporate their business outside
the country, thus, making AI outside the reach of Indian
researchers in government labs and many industries.
Initiatives like GI Cloud (MeghRaj), are in the right
direction.
 Lack of AI awareness in resolving business-related issues
in most of the public enterprises and government agencies
has led to the scarcity of AI professionals in obstructing
adoption
4.7 Initiatives for Women Entrepreneurs and its Impact in
Indian Economy
Women Entrepreneurs means the women or a group of
women who initiate, organize and operate a business
enterprise. A woman entrepreneur is therefore a confident,
creative and innovative woman desiring economic
independence individually and simultaneously creating
employment opportunities for others.
The term “women entrepreneur” deals with that section
of the female population who venture out into industrial
activities i.e. manufacturing, assembling, job works,
repairs/servicing and other businesses. The Government of
India has treated women entrepreneurs of a different criteria-
level of women participation in equity and employment

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position of the enterprise. Women entrepreneurs have taken

initiative in promoting and running an enterprise by having a
controlling interest in that particular enterprise. “Women who
innovate initiate or adopt business actively are called women
entrepreneurs.” -J.Schumpeter
Features
 They should be educated and skilful.
 Must have professional education to become better
entrepreneur.
 She should be capable enough to do innovations and be
able to bear risks and uncertainties.
 Able to make utilisation of various schemes, and aids given
by government.
 She should be capable enough to face male competitors
and should possess guts to move ahead.
 She should be capable enough to make autonomous
investment.
 She must possess some ethics and egoism and should be
egotist as well.
Women Entrepreneur- Indian Perspectives:
Indian women are changing and they are fast emerging
as potential entrepreneurs. Role modelling of women in non-
traditional business sectors to break through traditional views
on men‟s and women‟s sectors. Women companies are fast-
growing economies in almost all countries. The latent
entrepreneurial potential of women has changed little by little
by the growing awareness of the role and status of economic
society. Skills, knowledge and adaptability of the economy led
to a major reason for women in business.
Women entrepreneurs are critical to the economic

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growth of any country, which can be realized only by

encouraging equality and enhancing opportunity for women in
all walks of life. The inequalities and a huge gender gap persist
in business in India, even though it has been well established
through various research studies, worldwide, that female
founded and cofounded enterprises perform better than those
managed with all male(s). Women secure higher than the Men
in key skills related to a business enterprise e.g., team work,
problem solving and orientation. It was the realization of
immense untapped women‟s potential that GOI has taken a
large number of policy initiatives for mainstreaming women
and to provide them a level playing field so that they could put
their best in the country‟s economic growth. Women in India
run around 8 million enterprises constituting about 14 per cent
of the total entrepreneurs. The figure may not encourage, when
we see that women constitute 48.95% of the population but the
situation is in a away promising as 35.5% of start-ups have
women as Directors and 58% of entrepreneurs started their
business at the age of 20 to30 years. As such, any success to
increase the number of women led enterprises or for increase
in their productivity has a direct bearing on the country‟s
economy.
Realizing the above, the Ministry of Women and Child
Welfare brought out the draft National Policy for Women
(2016), which envisaged that all important micro level
policies. A large number of programmes has been undertaken
by different Ministries of GOI for encouraging
entrepreneurship in the county wherein care has been taken to
ensure adequate participation and share of Women, by way of
special provisions and added incentives for them.
 Start-up India Programme was launched in February
2016 and over the period it had become the 3 rd. largest
start-up ecosystem in the world, providing handholding,
funding support, incentives, industry –academic

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partnership to provide conducive environment for start-ups

in the Country. A corpus fund of 10,000 crores has been
earmarked for the programme to build a strong ecosystem
by nurturing innovation and start-ups. 10% of the corpus
fund is reserved for women led start-ups. This would act as
catalyst in creating an enabling environment for
innovations start-ups to flourish, having a multiple effect
on employment generation and social transformation
leading to growth.
 Prime Minister’s Employment Generation Programme
(PMEGP) the scheme being implemented by Khadi and
Village Industries Commission as the nodal agency
through KVIC Directorates, State Khadi and Village
industries Board (KVIBs), District Industries Centres and
Banks. It is credit linked subsidy scheme to promote and
set up MSME‟S and to generate employment in rural and
urban areas. For setting up new enterprises, subsidy level
in the Programme to special categories ,including women,
is 25% and 35% in urban areas and rural areas, as
compared to 15% and 25% in respective areas for General
Category.
 Udhyam Shakti Portal for Women Entrepreneurs: An
initiative of Ministry of Micro, Small and Medium
Enterprises, launched on the eve of International Women‟s
Day 2018, for nurturing social entrepreneurship creating
business model, revolving around low cost products and
services. It caters to the need of around 8 million Indian
women and others to start, built and grow business and
provide assistance for preparing business plan, incubation
facility, training programs, providing mentor, market
survey facility etc. Project with maximum cost of Rs.25
lakhs are covered under the Scheme (Rs.10 lakhs cost is for
service-based projects). The portal has been incessantly

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involved in revolutionizing the role of women outside the

four walls of their home.
 Stand up India Scheme: As part of MSME Policy, the
Program was launched in 5th April 2016 for facilitating
credit to women entrepreneurs with an objective of
providing loans ranging from Rs.1 lakhs to Rs.1 Crore to at
least one-woman entrepreneur by one Bank each. In case
of non-individual enterprise covered under the Scheme, 51
per cent of the share capital and controlling stake should be
that of the women. The scheme focusses on only SC/ST
and women entrepreneurs.
 Credit Guarantee Fund Trust for Micro and Small
Enterprises (CGTMSE): Small Industries Development
Bank of India (SIDBI) and Ministry of Micro, Small and
Medium Enterprises launched the scheme to make
available collateral-free credit to the micro and small
enterprise sector. Both the existing and the new enterprises
are eligible to be covered under the scheme. for which a
Trust named Credit Guarantee Fund Trust for Micro and
Small Enterprises (CGTMSE) to implement the Credit
Guarantee Fund Scheme for Micro and Small Enterprises
has been established to provide credit facilities up to Rs
200 lakh per eligible borrower covered provided they are
extended on the project viability without collateral security
or third-party guarantee. The extent of guarantee cover is
80% for Micro and Small Enterprises being operated
and/or owned by Women; for credit facilities up to Rs 50
lakh. In case of default, Trust settles the claim up to 75%
of the amount in default of the credit facility extended by
the lending institution for credit facilities up to Rs 200
lakh.
 Micro & Small Enterprises - Cluster Development
Programme: The Ministry of Micro, Small and Medium

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Enterprises (MSME), Government of India (GOI) has

adopted the Cluster Development approach as a key
strategy for enhancing the productivity and
competitiveness as well as capacity building of Micro and
Small Enterprises (MSEs) and their collectives in the
country. A cluster is a group of enterprises located within
an identifiable and as far as practicable, contiguous area or
a value chain that goes beyond a geographical area and
producing same/similar products/complementary
products/services, which can be linked together by
common physical infrastructure facilities that help address
their common challenges. The objective of the scheme is to
support the sustainability and growth of MSEs by
addressing common issues such as improvement of
technology, skills & quality, market access, etc, capacity
building through formation of self help groups, consortia,
set up Common Facility Centres (for testing, training, raw
material depot, effluent treatment, complementing
production processes, et) Women Owned enterprises are
given special consideration in all the programmes.
 Mudra Yojana Scheme for Women: This scheme has
been launched by the Govt. of India for individual women
wanting to start small new enterprise and businesses like
beauty parlours, tailoring units, tuition centres, etc as well
as group of women wanting to start a venture together. The
loan doesn‟t require any collateral security and can be
availed for an amount up to 50,000 to 10 Lakhs.
Financing Schemes offered by Banks: A large number of
banks have schemes to support entrepreneurship among
women by providing certain concessions in the rate of interest,
collateral security etc. Some of these schemes are listed below:
 Shri Shakti Package for Women Entrepreneurs: SBI
run scheme offering concessions to women with majority

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ownership over 50% in a business provides interest

concession 0.05% on loans exceeding Rs 2 lakhs with no
security for loan upto Rs 5 lakhs.
 Cent Kalyan Scheme: Central Bank of India scheme for
new entrepreneurs and self-employed women for
macro/small enterprises. Loan up to Rs 1 crore without any
collateral security.
 Mahila Udyam Nidhi Scheme: Offered by Punjab
National Bank and SIDBI to support women enterprises to
set up new small scale ventures extending loan up to Rs 10
lakhs to be repaid in 10 years. Similar support to women
enterprises is being offered and loan even up to Rs1 Crore,
without any collateral security to women entrepreneur. To
name a few, Oriental Mahila Vikas Yojana Scheme by
Oriental Bank of Commerce, Bhartiya Mahila Bank
Business Loan, Dena Shakti Scheme by Dena Bank,
Udyogini Scheme by Punjab and Sindh Bank etc.
Realising the importance of these programmes and in
order to motivate and encourage more and more women and
girls to convert themselves into entrepreneurs the National
Commission for Women celebrated its 26th Annual day with a
Panel Discussion on “Empowering Women through
Entrepreneurship” at India Habitat Centre New Delhi on 31st
January 2019. Huge gathering of young women, students from
different Colleges and Universities with 5 eminent panellist
evoked considerable interest and active participation of
audience.
Similarly, NCW held a Consultation on “Assisting
Women Led Enterprises “in collaboration with Ministry of
Micro Small and Medium Enterprises on 11th March 2020 at
India International Centre New Delhi .The Consultation was
attended by Women Entrepreneurs, NGOs and Senior Officers
of Govt of India and was intended to prepare a road map for

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reaching out to the clusters of women led MSMEs, with the

objective of improving their skills, the Commission had also
organised Regional Seminar on the subject at Shillong
(Meghalaya) on 15th March, 2019 in collaboration with
Meghalaya State Commission for Women, at Gangtok
(Sikkim) on 26th March 2019 in collaboration with Sikkim
State Commission for Women and at Tiruchirappalli Tamil
Nadu on 2nd August, 2019 in collaboration with Tamil Nadu
National Law University and at Jammu University, Jammu on
22nd Jan, 2020 .
4.8 New Initiatives in Service Sectors and its Impacts.
The service sector, also called tertiary sector, is the
third of the three economic sectors. The other two are the
primary sector, which covers areas such as farming, mining
and fishing; and the secondary sector which covers
manufacturing and making things. The service sector provides
a service, not an actual product that could be held in your
hand. Activities in the service sector include retail, banks,
hotels, real estate, education, health, social work, computer
services, recreation, media, communications, electricity, gas
and water supply. The existence of a strong and competitive
service sector is a pre-condition for economic development of
a country. In fact, the transition from agriculture to services
via manufacturing is a clear indicator of progress of a country.
Government Initiatives to Improve Service Sectors in India
The Government of India recognises the importance of
promoting growth in services sector and provides several
incentives across a wide variety of sectors like health care,
tourism, education, engineering, communications,
transportation, information technology, banking, finance and
management among others.
The Government of India has adopted few initiatives in

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the recent past, some of these are as follows:

 Under Union Budget 2021-22, the government allocated
Rs. 7,000 crore (US$ 963.97 million) to the Bharat Net
programme to boost digital connectivity across India.
 FDI limit for insurance companies has been raised from
49% to 74% and 100% for insurance intermediates.
 In May 2021, the Ministry of Commerce and Industry
announced that India received an FDI inflow of US$ 81.72
billion, the highest FDI during FY 2020-21.
 In March 2021, the central government infused Rs. 14,500
crore (US$ 1.99 billion) capital in Central Bank of India,
Indian Overseas Bank, Bank of India and UCO Bank
through non-interest-bearing bonds.
 On January 15, 2021, the third phase of Pradhan Mantri
Kaushal Vikas Yojana (PMKVY) was launched in 600
districts with 300+ skill courses. Spearheaded by the
Ministry of Skill Development and Entrepreneurship, the
third phase will focus on new-age and COVID-related
skills. PMKVY 3.0 aims to train eight lakh candidates.
 In January 2021, the Department of Telecom, Government
of India, signed an MoU with the Ministry of
Communications, Government of Japan, to strengthen
cooperation in the areas of 5G technologies, telecom
security and submarine optical fibre cable system.
 On November 4, 2020, the Union Cabinet, chaired by the
Prime Minister, Mr. Narendra Modi, approved to sign a
memorandum of understanding (MoU) between the
Ministry of Communication and Information Technology
and the Department of Digital, Culture, Media and Sports
(DCMS) of United Kingdom Government to cooperate in
the field of telecommunications/information and
communication technologies (ICTs).

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 In October 2020, the government selected Hughes

Communications India to connect 5,000 village panchayats
in border and Naxal-affected states and island territories
with satellite broadband under Bharat Net project by
March 2021.
 In September 2020, the government announced that it may
infuse Rs. 200 billion (US$ 2.72 billion) in public sector
banks through recapitalisation of bonds
 In the next five years, the Ministry of Electronics and
Information Technology is working to increase the
contribution of the digital economy to 20% of GDP. The
government is working to build cloud-based infrastructure
for collaborative networks that can be used for the creation
of innovative solutions by AI entrepreneurs and start-ups.
 On Independence Day 2020, Prime Minister Mr. Narendra
Modi announced the National Digital Health Mission
(NDHM) to provide a unique health ID to every Indian and
revolutionise the healthcare industry by making it easily
accessible to everyone in the country. The policy draft is
under „public consultation‟ until September 21, 2020.
 In September 2020, the Government of Tamil Nadu
announced a new electronics & hardware manufacturing
policy aligned with the old policy to increase the state's
electronics output to US$ 100 billion by 2025. Under the
policy, it aims to meet the requirement for incremental
human resource by upskilling and training >100,000
people by 2024.
 Government of India has launched the National Broadband
Mission with an aim to provide Broadband access to all
villages by 2022.

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