Globalization

Economic "globalization" is a historical process, the result of human innovation and technological
progress. It refers to the increasing integration of economies around the world, particularly through
trade and financial flows. For developing counties, it means integration with the world economy. In
economic terms, globalization refers to theprocess of integration of world into one huge market.
Such unification calls for the removal of all trade barriers among countries. Even political and
geographical barriersbecome irrelevant. The term sometimes also refers to the movement of
people (labor) andknowledge (technology) across international borders. There are also broader
cultural,political and environmental dimensions of globalization that are not covered here.
Globalization encompasses the following:
It is a conglomerate of multiple units (located in different parts of the globe) but alllinked by
common ownership.
Giving up the distinction between the domestic market and foreign market anddeveloping a
global outlook of the business.
Multiple units draw on a common pool of resources such as money, credit, information, patents,
trade names and control systems. Thus, global orientation of organizationalstructure and
management culture.
Locating the production and other physical facilities on a consideration of the globalbusiness
dynamics, irrespective of national considerations.
The units respond to some common strategy. Basing product development and production
planning on global market considerations.
Global sourcing of factors of productions, i.e. raw materials, components,
machinery/technology, finance etc., are obtained from best the best source anywhere in the world.
Four Dimensions of globalization:
1. Economic
Economic globalization is the intensification and stretching of economic interrelations
around the globe. It encompasses such things as the emergence of a new global economic
order, the internationalization of trade and finance, the changing power of transnational
corporations, and the enhanced role of international economic institutions.
2. Political
Political globalization is the intensification and expansion of political interrelations around
the globe. Aspects of political globalization include the modern-nation state system and its
changing place in todays world, the role of global governance, and the direction of our
global political systems.
3. Cultural
Cultural globalization is the intensification and expansion of cultural flows across the globe.
Culture is a very broad concept and has many facets, but in the discussion on globalization,
Steger means it to refer to the symbolic construction, articulation, and dissemination of
meaning. Topics under this heading include discussion about the development of a global
culture, or lack thereof, the role of the media in shaping our identities and desires, and the
globalization of languages.
4. Ecological

Topics of ecological globalization include population growth, access to food, worldwide

reduction in biodiversity, the gap between rich and poor as well as between the global North
and global South, human-induced climate change, and global environmental degradation.
There are four aspects of globalization:
1.Trade:
Developing countries as a whole have increased their share of world trade from 19 percent in
1971 to 29 percent in 1999. For instance, the newly industrialized economies (NIEs) of Asia have
done well, while Africa as a whole has fared poorly. The composition of what countries export is
also important. The strongest rise by far has been in the export of manufactured goods. The share
of primary commodities in world exports such as food and raw materials that are often
produced by the poorest countries, has declined.
2. Capital movements:
Globalization sharply increased private capital flows to developing countries during much of the
1990s. It also shows that:
the increase followed a particularly dry period in the 1980s;
net official flows of aid or development assistance have fallen significantly since the early
1980s; and
the composition of private flows has changed dramatically. Direct foreign investment has
become the most important category. Both portfolio investment and bank credit rose but
they have been more volatile, falling sharply in the wake of the financial crises of the late
1990s.
3.Movement of people:
Workers move from one country to another partly to find better employment opportunities. The
numbers involved are still quite small, but in the period 1965-90, the proportion of labour forces
round the world that was foreign-born increased by about one-half. Most migration occurs between
developing countries. But the flow of migrants to advanced economies is likely to provide means
through which global wages converge. There is also the potential for skills tube transferred back to
the developing countries and for wages in those countries Tories.
4.Spread of knowledge (and technology):
Information exchange is an integral, often overlooked, aspect of globalization. For instance, direct
foreign investment brings not only an expansion of the physical capital stock, but also technical
innovation. More generally, knowledge about production methods, management techniques, export
markets and economic policies is available at very low cost, and it represents highly valuable
resource for the developing countries.

ADVANTAGES OF GLOBALISATION:

For successful globalization, countries need to chalk out strategies and policies to open up the
doors for the inflows of foreign direct investment (FDI).
1. The FDI by the MNCs brings with it flow of foreign exchange/ foreign capital, inflow of
technology, real capital goods, managerial and technical skills and know- how.
2. Globalization can easily promote exports of the country by exploiting its export potentials in
a right way. Globalization can be the engine of growth by facilitating export- led growth
strategy of developing country. ASEAN countries such as Indonesia, Malaysia and Thailand
have demonstrated their success of export- led growth strategy supported by the FDI under
globalization approach.
3. Globalization can provide sophisticated job opportunities to the qualified people and check
brain drain in a country.
4. Globalization would provide varieties of products to consumers at a cheaper rate when they
are domestically produced rather than imported. This would help in improving the economic
welfare of the consumer class.
5. Under globalization, the rising inflow of capital would bring foreign exchange into the
country. Consequently, the exchange reserve and balance of payments position of the
country can improve. This also helps in stabilizing the external value of the countrys
currency.
6. Under global finance, companies can meet their financial requirements easily. Global
banking sector would facilitate e banking and e-business. This would integrate countries
economy globally and its prosperity would be enhanced.
DISADVANTAGES OF GLOBALIZATION
Globalization is never accepted as unmixed blending. Critics have pessimistic views about its illconsequences.
1. When a country is opened up and its market economy and financial sectors are well
liberalized, its domestic economy may suffer owing to foreign economic invasion.
A developing economy hen lacks sufficient maturity; globalization may have adverse effect
on its growth.
2. Globalization may kill domestic industries when they fail to improve and compete with
foreign well-managed, well-established firms.
3. Globalization may result into economic imperialism.
4. Unguarded openness may become a playground for speculators.
5. Currency speculation and speculators attacks, as happened in case of Indonesia, Malaysia,
Philippines, Thailand, etc. recently, may lead to economic crisis.
6. It may lead to unemployment, poverty and growing economic inequalities.

Indian Economy and recent Trend of Globalisation and Liberalisation

For the Indian economy to grow with equality and economic justice, the informal sector,homebased production and cottage industries need to achieve high growth with policyand institutional

support. The contribution of these sectors to any economy cannot beignored. This is especially
true for a country like India, as they are important sources ofemployment and income for many
families. They have 40 percent share in the total
industrial output, 35 percent in exports, and over 80 percent in employment. However,many of
such sectors are not doing well in this era of globalisation, which encompasseseconomic
liberalisation. It has been found that in order to overcome the challenges andavail opportunities of
globalisation and economic liberalization, these sectors andassociated entrepreneurs need
institutional support for technology up gradation,infrastructure support for market penetration, and
adequate working capital finance fromthe banking sector.
MNCs
Jacques Maisonrouge, president of IBM world trade corporations defines an MNC as a company
that meets five criteria:
1) It operates in many countries at different levels of economic developments.
2) Nationals manage its local subsidiaries.
3) It maintains complete industrial organizations, including R and d and manufacturing facilities in
several countries.
4) It has a multinational central management.
5) It has multinational stock ownership.
James C. Baker also defines MNCs as a company:
1) Which has direct investment base in several countries.
2) Which generally derives from 20% to 50% or more its net profits from foreign operations.
3) Whose management makes policy decisions based on the alternatives available anywhere in
the world.
A significant share of the worlds industrial investment, production, employment and trade are
accounted for by these more than 65000 MNCs with over 8,00,000 affiliates.
MERITS OF THE MNCS: Multinationals offer advantages to host countries as well as to the countries of their origin as
explained below:
Advantages of the MNCs to the host countries: 1) Raise the rate of investment: - MNCs raise the rate of investment in the host countries and
thereby bring rapid industrial growth accompanied by massive employment opportunities in
different sectors of the economy.
2) Facilitate transfer of technology: -Multinationals act as agents for the transfer of technology to
developing countries and thereby help such countries to modernize there industries. They remove
technological gaps in developing countries by providing techno-managerial skills.
3) Accelerate industrial growth: - multinationals accelerate industrial growth in host countries
through collaborations, joint ventures and establishment of subsidiaries and branches. They
facilitate economic growth through financial, marketing and technological services. MNCs are

rightly called messengers of progress.

4) Promote export and reduce imports: - MNCs help the host countries to reduce the imports
and promote the exports by raising domestic production. Marketing facilities at global level are
provided by MNCs due to their global business contacts.
5) Provide services to professionals: - MNCs provide the services of the skilled professional
managers for managing the activities of the enterprises in which they are involved/interested. This
raises overall managerial efficiency or enterprises connected with multinationals. MNCs bring
managerial revolution in host countries.
6) Facilitate efficient utilization of resources: - Multinationals facilitate efficient utilization of
resources available in host countries. This leads to economic development.
7) Provide benefits of R&D activities: -Multinationals has enormous resources at their disposal.
Some are utilized for R and D activities. The benefits of R and D activities are passed on to the
enterprises operating in the host countries.
8) Support enterprises in host countries: - MNCs support to enterprises in the host countries in
order to support their own operations indirectly. This is how MNCs support enterprises in the host
countries to grow. Even consumers get new goods and services due to the operations of MNCs.
9) Break domestic monopolies: - MNCs raise competition in the host countries and thereby
break domestic monopolies.

ADVANTAGES OF MULTINATIONALS TO COUNTRIES OF THEIR ORIGIN: 1) Facilitate inflow of foreign exchange: - MNCs collect funds from the enterprises of other
countries in the form of fees, royalty, and service charges. This money is taken to the country of
their origin. MNCs make their home countries rich by facilitating inflow of foreign exchange from
other countries.
2) Promote global co-operations: - MNCs provide co-operation to poor or developing countries
to develop their industries. The countries of their origin participate in such international cooperation, which is beneficial to all countries- rich and poor.
3) Ensure optimum utilization of resources: -MNCs ensure optimum utilization of natural and
other resources available in their home countries. This is possible due to their worldwide business
contacts.
4) Promote bilateral trade relations: -MNCs facilitate bilateral trade relations between their home
countries and the other countries with which they have business relations.
DEMERITS OF MULTINATIONAL COMPANIES: 1) Provide outdated technologies: - MNCs design the technologies, which can be used in
different countries. They dont supply technology to poor countries for industrial development but
for profit maximization. The technologies designed for profit maximization and not purely for
meeting the needs of developing countries. The technologies supplied may be costly and may be
outdated and obsolete or may not be suitable for the needs of developing countries.
2) Harm the national interests: - the activities of MNCs in the host countries may be harmful to
the national interests as MNCs are solely guided by the profit maximization. They ignore the
interests of host countries. MNCs even make profits at the cost of developing countries.

3) Charge heavy fees: - MNCs charge heavy fees and service charges from the enterprises in
the host countries. They repatriate profits of their subsidiaries to their home countries. This leads
the outflow of countries.
4) Develop monopolies: - MNCs restrict competition and acquire monopoly power in certain
areas in the host countries.
5) Use resources recklessly: -MNCs use the resources in the host countries in a very reckless
manner, which leads to fast reduction of non-renewable natural resources.
6) Dominate domestic policies: -MNCs use their money power for political purposes. They take
undue interest in political matters in the host countries. MNCs are being openly termed as an
extension of the imperialistic forces.
7) Adverse effects on life style/culture in the host countries: - MNCs create demand for
goods and services in developing countries through advertising and sales promotion techniques.
As a result, people purchase costly/ luxury goods which are not really useful nor within their
capacity to purchase. MNCs create adverse effects on the cultural background of many
developing countries.
8) Interfere in economic and political systems: - they put indirectly pressures for the formulation
of policies that are favorable to them. They even topple the government in the host countries if its
policies are against the MNCs and their operations.
9) Avoid tax liabilities: - transfer pricing enables multinational corporations to avoid taxes by
manipulating prices in the case of intra company transactions.
10) Lead to brain drain in developing countries: - multinationals are now entering in countries
like India in a bigger way. They hire qualified technocrats and managerial experts. These people
work for a few years in India, acquire experience and relocated as experts in Singapore, Korea or
the United States for managing the activities of MNCs. This leads to brain drain in developing
countries.

MNCS have helped and also harmed the developing countries. It is a peculiar mixture of virtues
and vices, boons and banes. However no country can afford to avoid MNCs only because it has
dangers associated with them. It may be concluded that MNCs constitute a mixed blessing to
developing countries. They are helping as well as harming the developing countries. It is rightly
said MNCs are bound to exist and eveloping countries have to learn to live with Them.

GROWTH OF MNCs & FACTORS CONTRIBUTING TO THE GROWTH OF MNCs

GROWTH OF MNCs
The MNCs share in global investment, production, employment and trade has assumed
considerable proportions.
According to the UN, there are 63,000 MNCs with 6,90,000 affiliates all over the globe with
2,40,000 in China and only 1400 in India. The US was the forerunner in giving births to MNCs.
Today, biggest MNCs are Japanese. THe global liberalization wave, paved the path for faster
expansion and growth of MNCs. The value added by the foreign affiliates of MNCs, as a
percentage of global GDP grew from 5% in the 1980s to about 7% by the end of 90s. The MNCs

control about a third of world output and the total sales of their foreign affiliates is almost equal to
the GNP of all developing countries. The value of the annual sales of the largest manufacturing
multinational General Motors, was about $178bn in 1996. The total sales of the 3 largest
automobile firms of the world, namely, General Motors, Ford and Toyota is greater than the value
of Indias GDP.
In terms of direct employment, the MNCs accounted for 73mn people worldwide and if indirect
employment is considered, the figure approximates 150mn people. Over 350m people were
employed by the foreign affiliates of MNCs in 1988.
A number of factors have contributed to the phenomenal growth of MNCs. Some of the important
factors are as follows: 1) Expansion of market territories: Rapid economic growth in a number of countries resulting in rising GDPs and per capita incomes
contributed to the growing standards of living. This in turn contributed to the continuous expansion
of market territories. MNCs, both contributed to the expansion of market territories and also grew
in size and spread as a result of expansion of market territories.
2) Market superiorities: In many ways, MNCs have an edge over domestic firms, such as: a) Availability of reliable and current data,
b) MNCs enjoy market reputation,
c) MNCs encounters relatively less problems and difficulties in marketing the products,
d) MNCs adopt more effective advertising and sales promotion techniques, and
e) MNCs enjoy faster transportation and adequate warehousing facilities
3) Financial superiorities: MNCs also enjoy a number of financial advantages over domestic firms. These are: a) Availability of huge financial resources with the MNCs helps them to transform business
environment and circumstances in their favor.
b) MNCs can use the funds more effectively and economically on account of their activities in
numerous countries.
c) MNCs have easy access to international capital markets, and
d) MNCs have easy assessed to international banks and financial institutions.
4) Technological superiorities: MNCs are technologically prosperous on account of high and sustained spend on R&D.
developing countries on account of their technological backwardness welcome MNCs to their
countries because of the attendant benefits of technology

FMB vs PMB
Family management implies the management and control of business operations by a group of
members belonging to a particular family and by their kith and kin regardless of their knowledge

about management. This kind of management practice was very common in India till recently.
Even at present many Indian industrial empires remain family managed. It is because top positions
in the management hierarchy are occupied by the owners. In a family-managed business,
decisions are made, policies are formulated and action programmes are made on the basis of
values and beliefs of the family. They are greatly influenced by family interests and business
becomes more an extension of the family. Even some disputes and disagreement related to family
matters would have a direct reflection in the functioning of the business organisation. There is
complete identity among goals, needs and values of business and family especially in small- and
medium-sized business organisations.
Family management implies:
1. Management and control by owners or their kith and kin.
2. Business is considered as an extension of the family.
3. Family matters and interests affect the conduct of business.
4. Identity between goals, values and needs of family and the business organisation.
5. Entrepreneurial style of management prevails.
6. Suitable for small and medium sized business organisations.

But in a professionally managed enterprise contrary to family managed, the ownership is

separated from management and control. The authority to manage and control business
operations is delegated to professionally qualified managers who have required managerial
knowledge in their respective areas. Since professional managers do not have an ownership
interest and they manage the enterprise independently by taking bold, balanced and factual
decisions, essentially professional management implies:
Induction of professionally qualified managers into the organisation who possess the required
basic knowledge of management with formal training in the various key and strategic areas.
To manage different areas and activities of organisation, relevant specialised modern
management knowledge should be applied to specific situations as per requirements. It should
also be followed by a scientific approach, thinking and attitude on the part of managers to make
superior quality of decisions and to manage the organisation efficiently.
To get better results and performance, professional managers require to use a combination of
theoretical knowledge along with practical experience, which they gain out of repetitive application
of management knowledge in practice.
In addition to these, the style of a modern manager is also marked by a high degree of
objectivity, creativity and use of various managerial skills and approaches so as to resolve conflicts
and integrate diverse interests.

 Professional managers have a different outlook and approach which is based on the philosophy
of the larger interests of the organisation. They also adopt and observe high ethical and moral
values and understand the implications of the human side of management in decision making.
Functional managers consider the organisation as an open adaptive system and introduce
dynamism into it to cope with the changing environment, they think and act strategically.

MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTPACT)

The principal objectives to be achieved through the MRTP Act was Prevention of concentration of economic power to the common detriment, control of monopolies,
and Prohibition of monopolistic and restrictive and unfair trade practices
In 1969 Govt. has passed an act and it had given the name monopoly and restrictive trade
practices (MRTP). It became popular with the name of MRTP 1969. This act has many provisions
to control the monopoly and to promote the competition. It has defined RTP and also explained the
powers of MRTP commission. But its scope was very narrow and Govt. of India has made new act
called competition act 2002. On the place of MRTP ACT 1969 after this MRTP act 1969 was fully
repealed.
Explanation of Competition Act 2002
Competition Act 2002 states that Indian traders must not do any activity for promoting monopoly. If
they will do any activity in the form of production, distribution, price fixation for increasing monopoly
and this will be against this act and will be void. This act is very helpful for increasing good
competition in Indian economy.
Under this act following are restricted practice and these practices are stopped by this act.
Price fixing: If two or more supplier fixes the same price for supply the goods then it will be
restricted practice.
Bid ragging: If two or more supplier exchange sensitive information of bid, then it will also be
restricted practice and against competition.
Re-sale price fixation: If a producer sells the goods to the distributors on the condition that he will
not sell any other price which is not fixed by producer.
Exclusive dealing: This is also restricted practice. If a distributor purchases the goods on the
condition that supplier will not supply the goods any other distributor.
Above all activities promote monopoly so under competition act these are void and action of
competition commission will not entertain by civil court.
Establishment of Competition Commission Under this law
Govt. of India appoints the chairman and other member of competition commission. Competition
act 2002 gives the rules and regulation regarding establishment and functions of this commission.
Qualification of chairperson of Competition commission
He or she should be Judge of high court + 15 years or more experience in the field of international
trade , commerce , economics , law , finance , business and industry .

Function of Competition commission:

1.
2.
3.

To stop activity and practice which are promoting monopoly.

To promote the competition.
To protect the interest of consumers.

DIFFERENCE B/W MRTP ACT AND COMPETITION ACT

1. Based on pre-1991 LPG
2. Premised on size
3. Procedure oriented
4. No teeth (reformatory)
5. Offences defined implicitly (cartels,
bid-rigging etc.)
6. Frowns on dominance (25% of
market share)
7. A large no. of per se offences
(against principles of natural justice)
8. Covers unfair trade practices
(individual consumer interest)
9. Political appointments of
chairperson/members
10. No competition advocacy role
11. Reactive

1. Based on post-1991 LPG

2. Premised on behavior/ conduct
3. Result oriented
4. Can bite (punitive
5. Offences defined explicitly
6. Frowns on abuse of dominance (no
percentage of market share)
7. Just four are per se offences (rest by
rule of reason)
8. Unfair trade practices excluded
(covered under consumer protection act)
9. Appointments by a collegium
10. CCI has competition advocacy role
11. Proactive

Foreign direct investment (FDI)

Foreign direct investment (FDI) has played an important role in the process of globalization during the
past two decades. The rapid expansion in FDI by multinational enterprises since the mid-eighties may
be attributed to significant changes in technologies, greater liberalization of trade and investment
regimes, and deregulation and privatization of markets in many countries including developing countries
like India. Capital formation is an important determinant of economic growth. While domestic
investments add to the capital stock in an economy, FDI plays a complementary role in overall capital
formation and in filling the gap between domestic savings and investment. At the macro-level, FDI is a
non-debt-creating source of additional external finances. At the micro-level, FDI is expected to boost
output, technology, skill levels, employment and linkages with other sectors and regions of the host
economy.
Benefits of Foreign Direct Investment
* Growth of capital stock
* Incorporated technologies
* Possibilities to gain managerial and labor skills
* Higher incomes and economic development. (Taxation for public sector)

- Finance education
- Finance health
- Finance infrastructure development, etc.
- Resource -transfer
- Employment
- Balance-of-payment (BOP)
* Import substitution
* Source of export increase
Costs of Foreign Direct Investment
* Adverse effects on the BOP
- Capital inflow followed by capital outflow + profits
- Production input importation
* Threat to national sovereignty and autonomy
- Loss of economic independence
Advantages
Economic development
Foreign direct investment is that it helps in the economic development of the particular country
where the investment is being made. This is especially applicable for the economically developing
countries. During the decade of the 90s foreign direct investment was one of the major external
sources of financing for most of the countries that were growing from an economic perspective.
Transfer of technologies
Foreign direct investment also permits the transfer of technologies. This is done basically in the
way of provision of capital inputs. The importance of this factor lies in the fact that this transfer of
technologies cannot be accomplished by way of trading of goods and services as well as
investment of financial resources. It also assists in the promotion of the competition within the local
input market of a country.
Human capital resources
The countries that get foreign direct investment from another country can also develop the human
capital resources by getting their employees to receive training on the operations of a particular
business. The profits that are generated by the foreign direct investments that are made in that
country can be used for the purpose of making contributions to the revenues of corporate taxes of
the recipient country.
Job opportunity
Foreign direct investment helps in the creation of new jobs in a particular country. It also helps in
increasing the salaries of the workers. This enables them to get access to a better lifestyle and
more facilities in life. It has normally been observed that foreign direct investment allows for the
development of the manufacturing sector of the recipient country. Foreign direct investment can
also bring in advanced technology and skill set in a country. There is also some scope for new
research activities being undertaken.
Income generation

Foreign direct investment assists in increasing the income that is generated through revenues
realized through taxation. It also plays a crucial role in the context of rise in the productivity of the
host countries. In case of countries that make foreign direct investment in other countries this
process has positive impact as well. In case of these countries, their companies get an opportunity
to explore newer markets and thereby generate more income and profits.
Export/Import
It also opens up the export window that allows these countries the opportunity to cash in on their
superior technological resources. It has also been observed that as a result of receiving foreign
direct investment from other countries, it has been possible for the recipient countries to keep their
rates of interest at a lower level.
FDI as a strategic component of investment is needed by India for its sustained economic growth
and development through creation of jobs, expansion of existing manufacturing industries, short
and long term project in the field of healthcare, education, Research and Development (R&D), etc.
Government should design the FDI policy such a way where FDI inflow can be utilized as means
of enhancing domestic production, savings and exports through the equitable distribution among
states by providing much freedom to states, so that they can attract FDI inflows at their own level.
FDI can help to raise the output, productivity and export at the sectoral level of the Indian
economy. However, it can observed the result of sectoral level output, productivity and export is
minimal due to the low flow of FDI into India both at the macro level as well as at the sectoral level.
Therefore for further opening up of the Indian economy, it is advisable to open up the exportoriented sectors and higher growth of the economy could be achieved through the growth of these
sectors
To sum up, FDIs have created tremendous opportunities for Indias development and helped to
boost the performance of local firms as well as the globalisation of some of them. This has
undeniably raised Indias stature among developing countries. India needs massive investments to
sustain high-quality economic growth, particularly in the energy and infrastructure sectors.
Policymakers are looking at FDI as the primary source of funds. It is important to keep in mind that
FDI on its own is not a panacea for rapid growth and development. What India needs is to put in
place a comprehensive development strategy, which includes being open to trade and FDI. This
should go a long way in fulfilling the ultimate goal of permanently eradicating poverty.

BUSINESS ENVIRONMENT
There are mainly two types of business environment, internal and external. A business has
absolute control in the internal environment, whereas it has no control on the external
environment. It is therefore, required by businesses, to modify their internal environment on the
basis of pressures from external.
INTERNAL ENVIRONMENT
The internal environment has received considerable attention by firms. Internal environment
contains the owner of the business, the shareholders, the managing director, the non-managers,

employees, the customers, the infrastructure of the business organization, and the culture of the
organization.
It includes 6 Msi.e.
Man (Human Resource)
Money (Financial Factors)
Marketing Resources
Machinery (Physical Assets)
Management Structure and Nature
Miscellaneous Factors (Research and Development, Company Image and Brand Equity, Value
Sys- tem, Competitive Advantage)
Usually, these factors are within the control of business. Business can make changes in these
factors according to the change in the functioning of enterprise.
Human Resource (MAN)
The human resource is the important factor for any organization as it contributes to the strength
and weaknessof any organization. The human resource in any organization must have
characteristics like skills, quality, high morale, commitment towards the work, attitude, etc. The
involvement and initiative of the people in an organization at different levels may vary from
organization to organization. The organizational culture and over all environment have bearing on
them. It is an internal factor and an organisation has absolute control on changing this factor as
per the needs of the enterprise and other forces.
Financial Factors (MONEY)
Factors like financial policies, financial positions and capital structure are another important
internal factor which has a substantial impact on business functioning and performance.
Financial facilities are required to start and operate the organisation. The sources of finance are
share capital, banking and other financial institutions and unorganized capital markets. The recent
changes in the Indian capital market indicate the availability of plenty of finance, both from the
financial institutions as well as from the general public. The availability of finance coupled with
various incentives attached is a facilitating internal factor.
Marketing Resources
Resources like the organization for marketing, quality of the marketing men, brand equity and
distribution network have direct impact on marketing efficiency of the company and thereby,
affecting the decision making component of the management. This, in lieu has great impact on the
internal environment of business.
Physical Assets and Facilities (MACHINERY)
Facilities like production capacity, technology are among the factors which influences the
competitiveness of the firm. The proper acquisition and working of the assets is indeed essential
for efficient working of the organization. An organisation invests money in plant and machinery
because it expects a positive rate of return over cost in future. The revenue from the use of plant
and machinery should be sufficient so as to cover the invested money, operating costs, and
generate enough profit to satisfy the organisation. The availability of plant and machinery is
dependent on technological development of the country and the governments approach towards
foreign technical collaboration.
Management Structure and Nature

The structure of the organization also influences the business decisions. Being internal forces, the
organizational structure like the composition of board of directors influences the decisions of
business. The structure and style of the organization directly has an impact on the decision making
decisions of a firm. These needs to be appropriately managed for smooth functioning and
operations. The strategies available to an organisation are determined by its structure. Different
strategies are better suited to different environments. Thus, if an organisation has to thrive, its
structure must fit its business environment in which it develops. Some markets and environments
change faster than others. A firm working in high technological environment, for example, needs to
have a fast reaction time because its competitors are introducing new products all the time. In
rapidly changing environments, organizations may find it difficult to stay up to date on all the
changes and implications of their own operations and activities. Organizations in slow markets
tend to have rigid, hierarchical structures, while those in changing markets are more adaptive.
They can create new divisions in their management structure, to
deal with emerging issues.
Miscellaneous Factors
The other internal factors that contribute to the business environment are as follows:
(i) Research and Development: Though Research and Development needs are mostly
outsourced from the external environment but it has a direct impact on working, operations and
decision making of the organization. This aspect mainly determines the companys ability to
innovate and compete. R&D mainly results in technological improvements of the Business
environment. A given technology affects an organisation, in the manner it is organised and faces
competition.
(ii) Company Image and Brand Equity: The image of the company in the outside market has the
impact on the internal environment of the company. It helps in raising the finance, making joint
ventures, other alliances, expansions and acquisitions, entering sale and purchase contracts,
launching new products, etc. Brand equity also helps the company in similar manner.
(iii) Value System: The principles of right and wrong that are accepted by an individual or
organisation are what comprise value system. The value system of the founders and those at the
helm of affairs has important bearing on the choice of business, the mission and the objectives of
the organization, businesspolicies and practices. These values helps guide the basic principles of
business for a period of time which molds an impression of positivism among people dealing with
the business. The values areindependent of business purposes and are integral part for success of
business.
(iv) Competitive Advantage: Competitor analysis is a critical aspect of analyzing the internal
business environment.
Competitors actions affect the ability of the business to make profits, because competitors
willcontinually seek to gain an advantage over each other, by differentiating their product and
service, andby seeking to provide better value for money. It involves:
identifying the actual competitors
assessing competitors objectives, strategies, strengths & weaknesses, and reaction patterns
selecting the strategies to deal with competitors.

The internal analysis of strengths and weaknesses focuses on internal factors that give an
organization certain advantages and disadvantages in meeting the needs of its target market
thereby gaining the competitive edge over the competitors.

EXTERNAL ENVIRONMENT
The external environment of an organisation comprises of all entities that exists outside its
boundaries, but have significant influence over its growth and survival. An organisation has little or
no control over its external environment but needs to constantly monitor and adapt to these
external changes. A proactive or reactive response leads to significantly different outcomes.
There are two types of external environment
Micro/Operating Environment
Macro/General Environment
MICRO ENVIRONMENT
The micro environment is also known as the task environment and operating environment because
the micro environmental forces, though are external factors, still have a direct bearing on the
operations of the firm. The micro environment consists of the factors in the companys immediate
invironment that affects the performance and working of the company. The micro environmental
factors are more intimately linked with the company than the macro factors. The micro forces need
not necessarily affect all the firms in a particular industry in the similar ways. Some of the micro
factors may be particular to any given type of organisation.
Micro environmental factors, internal factors close to a business that have a direct impact on its
strategy includes:
Customers
Employees
Suppliers
Shareholders
Media
Competitors
(i) Customers:Organizations survive on the basis of meeting customer needs and wants and
providing benefits to their customers. Failure to do so will result in a failed business strategy. This
includes offering customers the best quality products at reasonable prices.
(ii) Employees: Employing the correct staff and keeping staff motivated is an essential part of an
organizations strategic planning process. Training and development play a critical role in achieving
a competitive edge; especially in service sector marketing. Employees have a substantial influence
on the success of the enterprise. They help in executing the policies and plans of business. If this
factor is not given, as much attention as it requires, it may prove to be non-beneficial for the
organisation as employees after customer, are the backbone of the organisation.
(iii) Suppliers: Suppliers provide businesses with the materials they need to carry out their
manufacturing and production activities. A suppliers behavior will directly impact the business it
supplies. For example, if a supplier provides a poor service, this could increase timescales or
lower product quality. An increase in raw material prices will affect an organizations marketing mix

strategy and may even force price increases. Close supplier relationships are an effective way to
remain competitive and secure quality products.
(iv) Shareholders: A shareholder is an individual that invests into companys business. They own
shares of the company thereby end up owning the company itself. Therefore, they have the right to
vote on decisions that affect the operations of company. This means that shareholders affect the
functions of the business. The introduction of public shareholders brings new pressures as public
shareholders want a return from their money invested in the company. Shareholder pressure to
increase profits will affect organizational strategy. Relationships with shareholders need to be
managed carefully as rapid short term increases in profit could detrimentally affect the long term
success of the business, if all is distributed as dividend. On the other hand, to keep shareholders
motivation, appropriate dividends are needed to be distributed. There has to be a balance between
health of the organisation and interests of shareholders.
(v) Media:Positive media attention can make an organisation (or its products) and negative media
attention can break an are required. Organizations need to manage the media so that it helps
promote the positive things about the organisation and conversely reduce the impact of a negative
event on their reputation. Some organizations will even employ public relations (PR) consultants or
gurus to help them manage a particular event or incident. Consumer television programs with a
wide and more direct audience can also have a very powerful impact on the success of an
organisation. Some business recognizes this and uses media support for building their image and
reputation.
(vi) Competitors: The name of the game in marketing a product is differentiation. Can the
organisation offer benefits that are better than those offered by competitors? Does the business
have a unique selling point (USP)? Competitor analysis and monitoring is crucial if an organisation
is to maintain or improve its position within the market. If a business is unaware of its competitors
activities, they will find it verydifficult to beat them. The market can move very quickly, whether
that is a change in trading conditions,consumer behaviour or technological developments. As a
business, it is important to examine competitorsresponses to the changes, so that firm can
maximize the benefits.
MACRO ENVIRONMENT
Macro environment is also known as general environment and remote environment. Macro factors
are generallymore uncontrollable than micro environment factors. When the macro factors become
uncontrollable, the successof company depends upon its adaptability to the environment. This
environment has a bearing on thestrategies adopted by the firms and any changes in the areas of
the macro environment are likely to have a farreachingimpact on their operations.
The macro environment is primarily concerned with major issues and upcoming changes in the
environment.
The acronym for the macro analysis is STEEP. The five areas of interest are:
Socio-Cultural and Demographics
Technology
Economic Conditions
Ecology and Physical Environment
Political and Legal

(i) Socio Cultural and Demographics: Societal values and lifestyles change over time, and the
most importantof these; directly or indirectly leave an impact on the business environment. For
example, over thepast generation, it has become acceptable for women to work; people are not
retiring at 65; and peopleare more aware of the environment etc.
The social structure and the values that a society cherishes have a considerable influence onthe
functioning of business firms. For example, during festive seasons, there is an increase in
thedemand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate, the
consumers arebecoming more conscious of the quality of the products. Due to change in family
composition, morenuclear families with single child concepts have come up. This increases the
demand for the differenttypes of household goods. It may be noted that the consumption patterns,
the dressing and living stylesof people belonging to different social structures and culture vary
significantly.
Demographics refer to the size, density, distribution and growth rate of population. All these factors
have a bearing on the demand for various goods and services. For example, a country where
populationrate is high and children section of population, and then, there will be moredemand for
such products. Similarly, the demand of the people of cities and towns are different than that
of people of rural areas. The high rise of population indicates the easy availability of labour.
Theseencourage the business enterprises to use labour intensive techniques of production.
Moreover, availability
of skilled labour in certain areas motivates the firms to set up their units in such area. For
example,the business units from America, Canada, Australia, Germany, UK, are coming to India
due toeasy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the
demographic front and reads them accurately will find opportunities knocking at its doorsteps.
(ii) Technology: Technology is understood as the systematic application of scientific or other
organized knowledge to practical tasks. Technology changes fast and to keep the pace with the
dynamics ofbusiness environment; organisation must be on its toes to adapt to the changed
technology in theirsystem. The business in a country is greatly influenced by the technological
development. The technologyadopted by the industries determines the type and quality of goods
and services produced. Technologicalenvironment influences the business in terms of investment
in technology, consistent applicationof technology and the effects of technology on markets.
Technological environment include the methods,techniques and approaches adopted for
production of goods and services and its distribution. Thevarying technological environments affect
the designing of products in different countries. Technologyencompasses something more than
computers. Technology comes in many forms such as medicaldevices, new plastics, and
production techniques.
(iii) Economic: There is a close relationship between business and its economic environment.
Itobtains all inputs from economic environment and all its output is absorbed here with. The state
of theeconomy is usually in flux. The current situation (specific to the industry) and any changes
that may be forecast are important. The economy goes through a series of fluctuations associated
with generalbooms and recessions in economic activity. In a boom nearly all business are
benefited whereasrecession is a case vice versa. Business is influenced by economic aspects like
interest rates, wagerates etc. The survival and success of each and every business enterprise
depends fully on its economicenvironment. The main factors that affect the economic environment
are:

 Economic Conditions: The economic conditions of a country refer to a set of economic

factorsthat have great influence on business organizations and their operations. These include
grossdomestic product, per capita income, markets for goods and services, availability of capital,
foreignexchange reserve, growth of foreign trade, strength of capital market etc. All these help in
improvingthe pace of economic growth.
Economic Policies: All business activities and operations are directly influenced by the
economicpolicies framed by the government from time to time. Some of the important economic
policies are:
Industrial Policy
Fiscal Policy Monetary Policy
Foreign Investment Policy
Export Import Policy (EXIM Policy)
The government keeps on changing these policies from time to time in view of the
developmentstaking place in the economic scenario, political expediency and the changing
requirement. Everybusiness organization has to function strictly within the policy framework and
respond to the changestherein.
Economic System: The world economy is primarily governed by three types of economic
systems,viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. The type of
economicsystem influences greatly the choice of business.
(iv)Ecology and Physical Environment: The ecology and physical environment plays a large part
in manybusinesses especially for those which carry out production and manufacturing activities.
In fact, businesses are affected on daily basis due to environmental and ecological changes. For
example, the impactof climate change must be considered: water and fuel costs could change
dramatically, if the worldwarms by only a couple of degrees. The natural environment includes
geographical and ecologicalfactors that influence the business operations. These factors include
the availability of natural resources, weather and climatic condition, location aspect, topographical
factors, etc. For example, sugar factoriesare set up only at those places where sugarcane can be
grown. It is always considered better to establishmanufacturing unit near the sources of input.
Further, governments policies to maintain ecologicalbalance, conservation of natural resources
etc. put additional responsibility on the business sector.
(v) Political and Legal:Political environment refers to three political institutions viz. legislature,
executiveand the judiciary in shaping, directing, developing and controlling business activities. The
political environmentof a country is influenced by the political organisations such as philosophy of
politicalparties, ideology of government or party in power, nature and extent of bureaucracy
influence of primarygroups. The political environment of the country influences the business to a
great extent. Thepolitical environment includes the political system, the government policies and
their attitude towardsthe business community. All these aspects have a bearing on the strategies
adopted by the businessfirms. The stability of the government also influences business and related
activities to a great extent. Itsends a signal of strength, confidence to various interest groups and
investors. Further, ideology of thepolitical party also influences the business organisation and its
operations. Political changes are closelytied up with legal changes. Legal environment includes
flexibility and adaptability of law and other legalrules governing the business. It may include the
exact rulings and decision of the courts. These affectthe business and its managers to a great
extent. This refers to set of laws, regulations, which influencethe business organisations and their
operations. Every business organisation has to obey, and workwithin the framework of law.

Additionally, an industry may have specific laws and regulations. For e xample,a pet store would
deal with federal animal welfare and prohibited pet laws as wells as state lawsconcerning animal
cruelty, housing, veterinary care and so on.A stable political and legal environment is
indispensable for business growth.
GLOBAL INTEGRATION AND BUSINESS ENVIRONMENT
(LIBERALISATION PRIVATISATION & GLOBALISATION)
The economic environment of business in India has been changing at a fast rate mainly due to the
changes inthe economic policies of the government and also due to global integration. At the time
of independence, theIndian economy was basically agrarian with a weak industrial base. To speed
up the industrial growth and solvevarious economic problems, the government took several steps
like state ownership on certain categories ofindustries, economic planning, reduced role of private
sector, etc. The Government adopted several controlmeasures on the functioning of private sector
enterprises. All these efforts results in a mixed response. Therewas growth in net national product,
per capita income and development of capital goods sector and infrastructure.
But rate of industrial growth was slow, inflation increased and government faced a serious foreign
exchangecrisis during eighties. As a result, the government of India introduced a radical change in
economicpolicies in 1991. This policy abolished industrial licensing in most of the cases, allowed
private participation inmost industries; disinvestment was carried out in many public sector
industrial enterprises and opened up the economy considerably. Foreign Investment Promotion
Board was set up to channel foreign capital investment inIndia. Let us discuss the developments
under three heads, viz.,
Liberalisation
Privatisation
Globalisation
Liberalisation
Liberalisation refers to the process of eliminating unnecessary controls and restrictions on the
smooth functioningof business enterprises. It includes:
Abolishing industrial licensing requirement in most of the industries
Freedom in deciding the scale of business activities
Freedom in fixing prices of goods and services
Simplifying the procedure for imports and exports
Reduction in tax rates
Simplified policies to attract foreign capital and technology to India
Through this liberalisation process, Indian Economy has opened up and started interacting with the
world in abig way. This has resulted in easy entry of foreign business organizations in India. This
has further resulted instiff competition and efficiency. Ultimately, liberalization has helped us in
achieving a high growth rate, easy availability of goods at competitive rates, a healthy and
flourishing stock market, high foreign exchange reserve,low inflation rate, strong rupee, good
industrial relations, etc.
Privatisation
Privatization, which has become a universal trend, means transfer of ownership and/or
management of anenterprise from the public sector to the private sector.It also means the
withdrawal of the state from an industry or sector, partially or fully. Another dimension

ofprivatization is opening up of an industry that has been reserved for the public sector to the
private sector.Privatization is an inevitable historical reaction to the indiscriminate expansion of the
state sector and the associatedproblems. Even in the communist countries it became a vital
measure of economic rejuvenation.
The objects are:
To improve the performance of PSUs so as to lessen the financial burden on taxpayers
To increase the size and dynamism of the private sector, distributing ownership more widely in
thepopulation at large
To encourage and to facilitate private sector investments, from both domestic and foreign
sources
To generate revenues for the state
To reduce the administrative burden on the state
Launching and sustaining the transformation of the economy from a command to a market model
The important routes of privatization are:
Divestiture, or privatization of ownership, through the sales of equity
Denationalization or re privatization
Contracting - under which government contracts out services to other organizations that produce
anddeliver them
Franchising- authorizing the delivery of certain services in designated geographical areas- is
commonin utilities and urban transport
Government withdrawing from the provision of certain goods and services leaving then wholly or
partlyto the private sector
Privatization of management, using leases and management contracts
Liquidation, which can be either formal or informal. Formal liquidation involves the closure of an
enterpriseand the sale of its assets. Under informal liquidation, a firm retains its legal status even
thoughsome or all of its operations may be suspended
The benefits of privatization are as follows:
It reduces the fiscal burden of the state by relieving it of the losses of the SOEs and reducing the
size ofthe bureaucracy
Privatization of SOEs enables the government to mop up funds
Privatization helps the state to trim the size of the administrative machinery
It enables the government to concentrate more on the essential state
The functions of privatization are as follows:
Privatization helps accelerate the pace of economic developments as it attracts more resources
fromthe private sector for development
It may result in better management of the enterprises
Privatization may also encourage entrepreneurship
Privatization may increase the number of workers and common man who are shareholders. This
couldmake the enterprises subject to more public vigilance
Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a
halt and theprivate sector registered fast growth in the post liberalised period.
The issues of Privatisation include:

 reduction in the number of industries reserved for the public and the introduction of selective
competitionin the reserved area
disinvestment of shares of selected public sector industrial enterprises in order to raise
resources andto encourage wider participation of general public and workers in the ownership in
business
improvement in performance through an MOU system by which managements are to be granted
greaterautonomy but held accountable for specified results
In India, as a result of these steps, the post liberalisation phase has witnessed a massive
expansion ofthe private sector business in India
Globalisation
Indias economic integration with the rest of the world was very limited because of the restrictive
economicpolicies followed until 1991. Indian firms confined themselves, by and large, to the home
market.
Foreign investment by Indian firms was very insignificant. With the new economic policy ushered in
1991, therehas, however, been change. Globalization has in fact become a buzzword with Indian
firms now and many are expanding their overseas business by different strategies.
Globalization may be defined as the growing economic interdependence of countries worldwide
through increasingvolume and variety of cross border transactions in goods and services and of
international capitalflows, and also through the more rapid and widespread diffusion of
technology.
Globalization may be considered at two levels viz
at the macro level (i.e., globalization of the world economy)and at the micro level (i.e.,
globalization of the business and the firm).
Globalization of the world economy is achieved, quite obviously, by globalizing the national
economies. Globalizationof the economies and globalization of business are very much
interdependent.
Reasons for Globalisation
The rapid shrinking of time and distance across the globe thanks to faster communication,
speediertransportation, growing financial flows and rapid technological changes
The domestic markets are no longer adequate rich. It is necessary to search of international
marketsand to set up overseas production facilities
Companies may choose for going international to find political stability, which is relatively good in
othercountries
To get technology and managerial know-how
Companies often set up overseas plants to reduce high transportation costs
Some companies set up plants overseas so as to be close to their raw materials supply and to
themarkets for their finished products
Other developments also contribute to the increasing international of business.
The US, Canada and Mexico have signed the North American Free Trade agreement (NAFTA),
whichwill remove all barriers to trade among these countries
The creation of the World Trade Organization (WTO) is stimulating increased cross-border trade
The following are the features of the current phase of globalization:
New Markets

 Growing global markets in services banking, insurance and transport.

New financial markets - deregulated, globally linked, working around the clock, with action at a
distancein real time, with new instruments such as derivatives.
Deregulation of anti - trust laws and proliferation of mergers and acquisitions.
Global consumer markets with global brands

New Rules and Norms

Market economic policies spreading around the world, with greater privatization and liberalization
thanin earlier decades
Widespread adoption of democracy as the choice of political regime
Human rights conventions and instruments building up in both coverage and number of
signatories and growing awareness among people around the world
Consensus goals and action agenda for development
Conventions and agreements on the global environment biodiversity, ozone layer, disposal of
hazardouswastes, desertification, climate change
Multilateral agreements in trade, taking on such new agendas as environmental and social
conditions
New multilateral agreements- for services, intellectual property, communications more binding
onnational governments than any previous agreements
The multilateral agreements on investment under debate
What is a social audit?
A social audit is a way of measuring, understanding, reporting and ultimately improving an
organizations social and ethical performance. A social audit helps to narrow gaps between
vision/goal and reality, between efficiency and effectiveness. It is a technique to understand,
measure, verify, report on and to improve the social performance of the organization.
Social auditing creates an impact upon governance. It values the voice of stakeholders, including
marginalized/poor groups whose voices are rarely heard. Social auditing is taken up for the
purpose of enhancing local governance, particularly for strengthening accountability and
transparency in local bodies.
The key difference between development and social audit is that a social audit focuses on the
neglected issue of social impacts, while a development audit has a broader focus including
environment and economic issues, such as the efficiency of a project or programme.
Objectives of social audit

Assessing the physical and financial gaps between needs and resources available for local
development.
Creating awareness among beneficiaries and providers of local social and productive
services.
Increasing efficacy and effectiveness of local development programmes.
Scrutiny of various policy decisions, keeping in view stakeholder interests and priorities,
particularly of rural poor.
Estimation of the opportunity cost for stakeholders of not getting timely access to public
services.

Advantages of social audit

(a) Trains the community on participatory local planning.
(b) Encourages local democracy.
(c) Encourages community participation.
(d) Benefits disadvantaged groups.
(e) Promotes collective decision making and sharing responsibilities.
(f) Develops human resources and social capital
To be effective, the social auditor must have the right to:

seek clarifications from the implementing agency about any decision-making, activity,
scheme, income and expenditure incurred by the agency;
consider and scrutinize existing schemes and local activities of the agency; and
access registers and documents relating to all development activities undertaken by the
implementing agency or by any other government department.

This requires transparency in the decision-making and activities of the implementing agencies. In a
way, social audit includes measures for enhancing transparency by enforcing the right to
information in the planning and implementation of local development activities.
National Income Concepts and Measurement
Meaning of National Income:
National income is the total market value of all final goods and services produced in an economy
including net factor income from abroad during an accounting year. In order to avoid double
counting of the goods and services in the national income, only final goods are taken into
consideration and for calculating Net National Income, the Wear N Tear and depreciation charges
are deducted from Gross National Income. National income also refers to the aggregate of factor
income earned by the normal residents of a nation during a given period (say a year) as a result of
their productive services.
Gross National Product (G.N.P.)
Gross National Product is defined as the total market value of all final goods and services
produced in a year. It is a measure of the current output of economic activity in the country.
There are three different methods to measure GDP:
I.
The Product Method: In this method, the value of all goods and services produced in
different industries during the year is added up. This is also known as the Value Added Method to
GDP or GDP at Factor Cost by Industry of Origin. The following items are included in India in this:
agriculture and allied services; mining; manufacturing; construction; electricity; gas and water
supply; transport; communication and trade; banking and insurance; real estate and ownership of
dwellings and business services; and public administration and Defence and other services (or
government services).

II.
The Income Method: The people of country who produce GDP during a year receive income
from their work. Thus GDP by income method is the sum of all factor income: Wages and Salary
(compensation of employees)+ Rent + Interest + Profit
III.
Expenditure Method: This method focuses on goods and services produced within the
country during one year. GDP by expenditure method includes:
i.
Consumer expenditure on services and durable and non-durable goods (C),
ii.
Investment in fixed capital such as residential and non-residential building, machinery and
inventories (I),
iii.
Government expenditure on final goods and services (G),
iv.
Export of goods

MEASUREMENT OF NATIONAL INCOME

There are three methods of measurement of national income:
1.
Product Method of Value Added Method.
2.
Income Method.
3.
Expenditure Method.
On the basis of these methods, national income so calculated would be identical i.e. gross national
product, gross national income and gross national expenditure is identical.
GNP=GNI=GNE PRODUCT METHOD OF VALUE ADDED METHOD
This is also known as the Inventory Method or Commodity Service Method. This method
approaches national income from the output side.
INCOME METHOD
This method approaches national income from the distribution side. In other words, this method
measure the national income after it has been distributed and appears as income earned of
received by individuals of the country. Thus, according to this method, nation income is obtained
by summing up of the incomes of all individuals in the country.
In this approach, payments for factor, viz., wages, salaries, rents, interest and profits are directly
aggregated together to obtain estimates of value added.
EXPENDITURE MEETHOD
This method arrives at national income by adding up all the expenditure made on goods and
services during a year. Income can be spent either on consumer goods or investment goods.
Thus, we can get national income by summing up all consumption expenditure and investment
expenditure made by all individuals as well as the government of a country during a year. Hence,
the gross national product is found by adding up the following.
(a)
Personal Consumption Expenditure: What private individual spend on consumer goods and
services.
(b)
Gross Domestic Private Investment: What private businesses spend on replacement,
renewals, and new investment.

(c)
Net Foreign Investment: What the foreign countries spend on the goods and services of the
national economy over the above what this economy spends on the output of the foreign countries,
i.e., export minus imports.
(d)
Government Purchases: What the government spends on the purchase of goods and
services, i.e., government purchases.
NATIONAL INCOME AS A MEASURE OF ECONOMIC WELFARE
Gross National product (GNP) is not a satisfactory measure of economic welfare because the
quantitative estimates of national income do not include certain production activities and services
which definitely affect the overall welfare of the people. Some of these factors not taken into
consideration in computing GNP are as follows:
1.
Leisure
2.
Quality of Life
3.
Non-market Transactions
4.
Structure of Production
5.
Availability of Essential Consumer Goods
6.
Externalities
DIFFICULTIES IN THE CALCULATION OF NATIONAL INCOME
Although all methods are used almost in all countries to calculate national income, yet the
calculation is a complex affair and is beset with conceptual and statistical difficulties. Kuznets
mentions the following difficulties:
1.
Difficulty of Defining the Nation
2.
Non-marketing Services
3.
Inapplicability of any one Method
4.
Which Stage to Choose
5.
Paucity of Statistics
6.
How to Avoid Double Counting
7.
Identification of Transfer Payments
8.
Self-consumption Production
9.
Multiple Occupations
10.
Incorrect Statistics
IMPORTANCE OF NATIONAL INCOME STUDIES
The growing importance of national income studies in recent years is due to the following reasons:
1.
Rate of Economic Growth
2.
Economic Welfare of the People
3.
Knowledge of the Distribution of National Income
4.
Economys Structure
5.
Standard of Living Comparison
6.
Economic policy
7.
Economic Planning
8.
Distribution of Grants-in aid
9.
Relative Role of Public and Private Sectors
10.
Defence and Development

Energy Audit
Energy Audit is the key to a systematic approach for decision-making in the area of energy
management.
It attempts to balance the total energy inputs with its use, and serves to identify all the energy
streams in a facility. It quantifies energy usage according to its discrete functions.
Industrial energy audit is an effective tool in defining and pursuing comprehensive energy
management programme.
As per the Energy Conservation Act, 2001, Energy Audit is defined as "the verification, mon- itoring
and analysis of use of energy including submission of technical report containing
recommendations for improving energy efficiency with cost benefit analysis and an action plan to
reduce energy consumption".
Need for Energy Audit
In any industry, the three top operating expenses are often found to be energy (both electrical and
thermal), labour and materials. If one were to relate to the manageability of the cost or potential
cost savings in each of the above components, energy would invariably emerge as atop ranker,
and thus energy management function constitutes a strategic area for cost reduction.
Energy Audit will help to understand more about the ways energy and fuel are used in any
industry, and help in identifying the areas where waste can occur and where scope for
improvement exists.
The Energy Audit would give a positive orientation to the energy cost reduction, preventive
maintenance and quality control programmes which are vital for production and utility activities.
Such an audit programme will help to keep focus on variations which occur in the energy costs,
availability and reliability of supply of energy, decide on appropriate energy mix, identify energy
conservation technologies, retrofit for energy conservation equipment etc.
In general, Energy Audit is the translation of conservation ideas into realities, by lending technically
feasible solutions with economic and other organizational considerations within a specified time
frame.
The primary objective of Energy Audit is to determine ways to reduce energy consumption per unit
of product output or to lower operating costs. Energy Audit provides a " bench-mark" (Reference
point) for managing energy in the organization and also provides the basis for planning a more
effective use of energy throughout the organization.
Type of Energy Audit
The type of Energy Audit to be performed depends on:
- Function and type of industry
- Depth to which final audit is needed, and
- Potential and magnitude of cost reduction desired
Thus Energy Audit can be classified into the following two types.
i) Preliminary Audit
ii) Detailed Audit
Preliminary Energy Audit Methodology
Preliminary energy audit is a relatively quick exercise to:
Establish energy consumption in the organization
Estimate the scope for saving
Identify the most likely (and the easiest areas for attention
Identify immediate (especially no-/low-cost) improvements/ savings

 Set a 'reference point'

Identify areas for more detailed study/measurement
Preliminary energy audit uses existing, or easily obtained data
Detailed Energy Audit Methodology
A comprehensive audit provides a detailed energy project implementation plan for a facility, since it
evaluates all major energy using systems.
This type of audit offers the most accurate estimate of energy savings and cost. It considers the
interactive effects of all projects, accounts for the energy use of all major equipment, and includes
detailed energy cost saving calculations and project cost.
In a comprehensive audit, one of the key elements is the energy balance. This is based on an
inventory of energy using systems, assumptions of current operating conditions and calculations of
energy use. This estimated use is then compared to utility bill charges.
Detailed energy auditing is carried out in three phases: Phase I, II and III.
Phase I - Pre Audit Phase
Phase II - Audit Phase
Phase III - Post Audit Phase

WTO
The World Trade Organization came into force on January 1, 1995, fully replacing the previous
GATT Secretariat as the organization responsible for administering the international trade regime.
The basic structure of the WTO includes the following bodies (see organizational diagram):

The Ministerial Conference, which is composed of international trade ministers from all
member countries. This is the governing body of the WTO, responsible for setting the
strategic direction of the organization and making all final decisions on agreements under its
wings. The Ministerial Conference meets at least once every two years. Although voting can
take place, decisions are generally taken by consensus, a process that can at times be
difficult, particularly in a body composed of 136 very different members.

The General Council, composed of senior representatives (usually ambassador level) of all
members. It is responsible for overseeing the day-to-day business and management of the
WTO, and is based at the WTO headquarters in Geneva. In practice, this is the key
decision-making arm of the WTO for most issues. Several of the bodies described below
report directly to the General Council.

The Trade Policy Review Body is also composed of all the WTO members, and oversees
the Trade Policy Review Mechanism, a product of the Uruguay Round. It periodically
reviews the trade policies and practices of all member states. These reviews are intended to

provide a general indication of how states are implementing their obligations, and to
contribute to improved adherence by the WTO parties to their obligations.

The Dispute Settlement Body is also composed of all the WTO members. It oversees the
implementation and effectiveness of the dispute resolution process for all WTO agreements,
and the implementation of the decisions on WTO disputes. Disputes are heard and ruled on
by dispute resolution panels chosen individually for each case, and the permanent Appellate
Body that was established in 1994. Dispute resolution is mandatory and binding on all
members. A final decision of the Appellate Body can only be reversed by a full consensus of
the Dispute Settlement Body.

The Councils on Trade in Goods and Trade in Services operate under the mandate of
the General Council and are composed of all members. They provide a mechanism to
oversee the details of the general and specific agreements on trade in goods (such as those
on textiles and agriculture) and trade in services. There is also a Council for the Agreement
on Trade-Related Aspects of Intellectual Property Rights, dealing with just that agreement
and subject area.

The Secretariat and Director General of the WTO reside in Geneva, in the old home of
GATT. The Secretariat now numbers just under 550 people, and undertakes the
administrative functions of running all aspects of the organization. The Secretariat has no
legal decision-making powers but provides vital services, and often advice, to those who do.
The Secretariat is headed by the Director General, who is elected by the members.

The Committee on Trade and Development and Committee on Trade and Environment
are two of the several committees continued or established under the Marrakech
Agreement in 1994. They have specific mandates to focus on these relationships, which are
especially relevant to how the WTO deals with sustainable development issues. The
Committee on Trade and Development was established in 1965. The forerunner to the
Committee on Trade and Environment (the Group on Environmental Measures and
International Trade) was established in 1971, but did not meet until 1992. Both Committees
are now active as discussion grounds but do not actually negotiate trade rules

TRIPS TRIMS GATS

TRIPS
TheWTOsTRIPSAgreementisanattempttonarrowthegapsinthewaytheserightsareprotected
aroundtheworld,andtobringthemundercommoninternationalrules.

Establishesminimumlevelsofprotectionthateachgovernmenthastogivetotheintellectualpro

pertyoffellowWTOmembers.Indoingso,it
strikesabalancebetweenthelongtermbenefits(sinceIPRencouragescreationandinvention)
andpossibleshorttermcoststosociety.
Governmentsareallowedtoreduceanyshorttermcoststhroughvariousexceptions,forexampl
etotacklepublichealthproblems,throughcompulsorylicensing
And,whentherearetradedisputesoverintellectualpropertyrights,theWTOsdisputesettleme
ntsystemisnowavailable.

Theagreementcoversfivebroadissues:

howbasicprinciplesofthetradingsystemandotherinternationalintellectualpropertyagr
eementsshouldbeapplied
howtogiveadequateprotectiontointellectualpropertyrights
howcountriesshouldenforcethoserightsadequatelyintheirownterritories
howtosettledisputesonintellectualpropertybetweenmembersoftheWTO
specialtransitionalarrangementsduringtheperiodwhenthenewsystemisbeingintrodu
ced.

TRIPScoverscopyrights,trademarks,geographicalindications,industrialdesigns,patents,
(allothersinthediagramabove)andcurbinganti-competitivelicensingcontracts.
Todealwithmisuseofmarketpower,governmentscanissuecompulsorylicenses,allowingaco
mpetitortoproducetheproductorusetheprocessunderlicensed
Patentprotectionmustbeavailableforbothproductsandprocesses,inalmostallfieldsoftechnol
ogy.Governmentscanrefusetoissueapatent
foraninventionifitscommercialexploitationisprohibitedforreasonsofpublicorderormorality.
Developingcountriesinparticular,seetechnologytransferaspartofthebargaininwhichtheyhav
eagreedtoprotectintellectualpropertyrights.TheTRIPSAgreementincludesanumberofprovi
sionsonthis.Forexample,itrequiresdeveloped-
countrygovernmentstoprovideincentivesfortheircompaniestotransfertechnologytoleast-
developedcountries.
IndiaandTRIPS
SignedTRIPsin1994
IndiahasmetitsentireTRIPSobligationsby2005invariousstagesstartingfromprovidingmailb
oxapplicationsin1999withretrospectiveeffectandsubsequentlyrecognisingproductpatentsi
npharmaceuticals
AmendmenttothePatentActin2002
o ThisamendmentbroughttheIndianPatentActmoreorlessona
parwiththedevelopedcountriesbyprovidinga20yearpatentterm
o Safeguardednationalinterestbyremodellingcompulsorylicenceprovisionsbyintroducin
gBolar3andImportProvisions

3rdamendmenttoPatentsactin2005providedproductpatentinginpharmaceuticals,food,
andchemicals,rationalisingandreducing
timelinesforprocessingofpatentapplicationsanddoingawaywithExclusiveMarketingRig

hts
Issues&Resolutions
EffectonIndiaspharmaceuticalindustryincreaseindrugpricesduetoexitingoflocalfirms
o Resolution:theindustryistakingstepstocopewiththechallenge.
ItisincreasingitsinvestmentinR&D.Movingfromimitativeresearchtoinnovativeresear
ch
o Recentuseofcompulsorylicensing
EffectonotherknowledgebasedindustriesinIndia,suchastheITindustry,biotechnology
,andmicroelectronics
Itisnotclearhowtechnologytransferwouldbeconductedbydevelopedcountriestodevelopingc
ountries
needclearerframework.TRIPshasclampeddownonreverseengineeringleadingtoslowingdo
wnoftechnologytransfer

Effectonlimitingmonopolies
o Resolution:thereisvoluntarylicensingandcompulsorylicensing.
Forimportantdrugsthegovernmentcanresorttocompulsorylicensing.
Thegrantofpatentsonnon-
originalinnovations(particularlythoselinkedtotraditionalmedicines)whicharebasedonwhatis
alreadyapart ofthetraditionalknowledgeofthedevelopingworldisacauseofconcern
o CSIRsuccessfullychallengedtheUSPatentonthewoundhealingpropertiesofturmeric.Si
milarlypatentonNeemwasquashed.
o Theseissuesneedtobeaddressedjointlybythedevelopingandthedevelopedworlds
o CSIRhascreatedaTraditionalKnowledgeDigitalLibrary(TKDL)
GeographicalindicationshouldincludeBasmatirice

WayForward
Indiashouldnurtureastronginnovationbasethroughabalancedsystemofrecognitionandrewa
rds

Indiawillhavetoinvestliberallytoenhancetheskillsandknowledgebaseofscientistsandonun
derstanding,interpretingandanalysingthetechno-
legalbusinessinformationcontainedinIPdocumentsandindraftingofIPdocument

TRIMS
TheAgreementonTradeRelatedInvestmentMeasures(TRIMs)arerulesthatapplytothedomestic
regulationsacountryappliestoforeigninvestors,oftenaspartofanindustrialpolicy.Theagreementwas
agreeduponbyallmembersoftheWorldTradeOrganization.Theagreementwasconcludedin1994an
dcameintoforcein1995.

Policiessuchaslocalcontentrequirementsandtradebalancingrulesthathavetraditionallybeenusedto
bothpromotetheinterestsofdomesticindustriesandcombatrestrictivebusinesspracticesarenowbann
ed.
Undertheagreement,countriesmustinformfellow-membersthroughtheWTO
ofallinvestmentmeasuresthatdonotconformwiththeagreement.Developedcountrieshadtoeliminat
etheseintwoyears(bytheendof1996);developing
countrieshadfiveyears(totheendof1999);andleast-
developedcountriesseven.InJuly2001,theGoodsCouncilagreedtoextendthistransitionperiodforan
umberofrequestingdevelopingcountries.
Localcontentrequirements,tradebalancingrequirements,andexport
restrictionsareprohibited.Theeffortsofdevelopingcountrieswouldbetoreducetheprohibitionsinview
oftheexperienceofthesecountriesbasedontheoperationoftheagreement.TheAgreementallowsdev
elopingcountriestodeviatetemporarilyfromitsprovisionsonbalanceofpayments(BOP)grounds.
IndiaandTRIMS
AspertheTRIMsagreement,Indianotifiedthreetraderelatedinvestment
measuresasinconsistentwiththeprovisionsoftheAgreement:
Localcontent(mixing)requirementsintheproductionofnewsprint
Localcontentrequirementintheproductionofrifampicinandpenicillin-G
Dividendbalancingrequirementininvestmentin22categoriesconsumergoods.
Allhavebeeneliminated.
Latestdevelopmentsregardinglocalcontentrequirementwhichisnotallowed:
casewasbroughtbyUSandEUagainstIndia(India-
Autos)in2000.InthatcasebothEUandUShadexpressedconcernsovermeasuresundertheIn
dianpolicyandregulationsrequiringmanufacturingfirmsinthemotorvehiclesectortoachieves
pecifiedleveloflocalcontentinordertobeeligibleforIndianImportlicensesforcertainmotorvehi
clepartsandcomponents.ThePanelruledagainstIndiaforviolationofArticleIIIandXIofGATTan
dArticle2ofTRIMs.IndiawithdrewitsappealbeforetheAppellateBody,therebyjustifyingthefind
ingsofthePanelandbrought itsmeasuresinlinewiththesamewithinfivemonths.
TheJawaharlalNehruSolarMission(JNSM)hascomeunderharshcriticismfromtheUSandE
Uowingtoitspolicywhichrequiresuseoflocalcontentfortheproject.TheMinistryofNewandRe
newableEnergyisexecutingthemissionwiththeobjectiveofpromotingtheuseofsolarenergy.
Similarly,30%requirementinsingle-brandretailwillcallforoppositionfromUS andEU asit
isagainstTRIMS
TheTRIMsAgreementhasbeenfoundbythedevelopingcountriestobestandinginthewayofsustained
industrializationofdevelopingcountries,withoutexposingthemtobalanceofpaymentshocks,byreduc
ingsubstantiallythepolicyspaceavailabletothesecountries.
Developedcountries,ontheotherhand,havebeenarguingforafurtherexpansioninthelistofprohibited
TRIMs
GATS
TheGeneralAgreementonTradeinServices(GATS)isthefirstandonlysetofmultilateralrulesgovernin
ginternationaltradeinservices.NegotiatedintheUruguayRound,itwasdevelopedinresponsetothehu

gegrowthoftheserviceseconomyoverthepast30yearsandthegreaterpotentialfortradingservicesbr
oughtaboutbythecommunicationsrevolution.
Servicesrepresentthefastestgrowingsectoroftheglobaleconomyandaccountfortwothirdsofglobalo
utput,onethirdofglobalemploymentandnearly20%ofglobaltrade.
Features:
Totalcoverage:Theagreementcoversallinternationally-tradedservices
Itdefinesfourmodesoftradingservices
o Mode1(CrossBorderSupply)
servicessuppliedfromonecountrytoanother(eginternationaltelephonecalls)
developingcountries
o Mode2(Consumptionabroad)
consumersorfirmsmakinguseofaservicesinanothercountry(egtourism)
o Mode3(Commercialpresence)
aforeigncompanysettingupsubsidiariesorbranchestoprovidedservicesinanothercountry
(eg.Foreignbankssettingupoperationsinacountry)developedcountries
o Mode4(Presenceofnaturalpersons)
individualstravellingfromtheirowncountrytosupplyservicesinanother(eg.Fashionmodels
orconsultants)developingcountries
GeneralFeatures:
o MFNtreatment:favorone,favorall
o Transparency:TheGATSrequireseachmembertopublishpromptly"allrelevantmeasures
ofgeneralapplication"thataffectoperationoftheagreement.
o MarketAccess:Marketaccessisanegotiatedcommitmentin
specifiedsectors.TheGATSalsosetsoutdifferentformsofmeasureaffectingfreemarketacc
essthatshouldnotbeappliedtotheforeignserviceoritssupplierunlesstheiruseisclearlyprov
idedforintheschedule.Forexample:
Limitationsonthenumberofservicesuppliers
Limitationsonthetotalvalueofservicestransactionsorassets
o Nationaltreatment:eachmembershallgivetreatmenttoforeign
servicesandservicesupplierstreatment,inmeasuresaffecting
supplyofservices,nolessfavourablethanitgivestoitsownservicesandsuppliers.
o Otherfeaturesincludetransparency,regulations(whichshouldbeobjectiveandreasonable
),recognition,internationalpaymentsandtransfers
India and GATS
IndiasnegotiatingpositiononserviceshasundergoneaparadigmshiftsincetheUruguayRound(UR).F
rombeingaleadingopponentoftheGATSintheearlystages,Indiahasnowemergedasoneoftheforerun
nersoftheservicestradeliberalisationundertheGATS.ThismorerecentnegotiatingstanceofIndiaon
servicesispartlyattributabletothegrowingimportanceoftheservicessectorin
itseconomy.Withavastpoolofeducatedandskilledworkersinitsworkforce,thecountryalsohasahugeof
fensiveinterestintheexportofMode1andMode4-
basedservices.HenceIndiaisaggressivelyparticipatedinGATS2000negotiationspredominantlywitht
heaimofsecuringitsoffensiveinterestsintheaforesaidtwomodesoftheservicestrade.AlthoughIndias
InitialOffer, submittedinJanuary2004,wasratherconservative,Indiacameoutwithan
ambitiousRevisedOfferinAugust2005.

IndianeedstotakeadvantageofthecurrentDohaimpassetoreconsiderandreassessitsaggressivepoli
cystanceonservices.ItwouldbeabetterstrategyonthepartofIndiatoholdbackanyfurtherambitiousoffe
rsinservicesforthetimebeingsothatthoseoffersmaybeusedasabargainingchipinfuturenegotiationst
opushthroughitsaggressiveagendainModes1and4.Indiashouldalsorefrainfromconsideringanycom
promiseonitsinterestsinagricultureandNon
AgriculturalMarketAccess(NAMA)forpushingthroughitsoffensiveinterestsinservices.Giventhepess
imisticscenarioinModes1and4,therearenotenoughgroundsforIndiatocompromiseonthelivelihoodo
fmillionsofvulnerablefarmersofthecountryortoputthesurvivalofmanyadomesticindustryat stake.
India has also called for abolition of numerical visa quotas and visa restrictions
Corporate Governance - Definition, Scope and Benefits
What is Corporate Governance?
Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders
desires. It is actually conducted by the board of Directors and the concerned committees for the
companys stakeholders benefit. It is all about balancing individual and societal goals, as well as,
economic and social goals.
Corporate Governance is the interaction between various participants (shareholders, board of
directors, and companys management) in shaping corporations performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organization
must be healthy and there should be no conflict between the two. The owners must see that
individuals actual performance is according to the standard performance. These dimensions of
corporate governance should not be overlooked.
Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between the
owners and the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In todays market- oriented
economy, the need for corporate governance arises. Also, efficiency as well as globalization are
significant factors urging corporate governance. Corporate Governance is essential to develop
added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as minority
shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that
the organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.
2. Strong corporate governance maintains investors confidence, as a result of which,
company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve objectives that
are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastages, corruption, risks and
mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all.

IMPROVING THE BUSINESS ENVIRONMENT THROUGH EFFECTIVE REGULATION

In Effective regulatory delivery provides a mechanism to move from economic, societal and
environmental risks to the outcomes that we all want to see in our local communities. It protects
individuals from public health risks, by ensuring clean and safe local places. It safeguards
employees from harm at work, enabling a healthy and productive workforce. It ensures that
products are fairly priced and traded, protecting consumers from detriment and maintaining their
confidence in markets.
Regulatory interventions identify and address market failures to protect stakeholders and
environmental resources. They enable competitive markets, which provide incentives to invest,
innovate and improve efficiency, maintain consumer confidence and encourage responsible
consumption. They enable businesses to invest in compliance and promote confidence in local
and national markets.
India began its regulatory reforms in the early 1990s, reducing state involvement through the
privatisation of companies, by putting in place independent regulatory mechanisms to boost
competition and private-sector-led growth, and to strengthen consumer protection. But the reform
efforts lacked coherence and, more recently, they have stalled. Even though the economy grew
rapidly over the past decade, the slowing-down of reforms created an image of a country where
doing business is difficult.
As a consequence, the License Raj title, which described the system of controls introduced in
1951 to regulate entry and production activities but was used more generally to describe Indias
approach to regulatory governance, did not fully disappear.
OECD data confirm that Public involvement in business operations remains higher than in many
other emerging countries and the governance of state-owned enterprises is weak, reflecting a lack
of accountability, integrity, and transparency. Similarly, barriers to entrepreneurship are more

severe due to complex regulatory procedures, considerable administrative burdens on startups,

and a strong regulatory production of incumbent firms. One of the few bright spots is in the area of
financial regulation, where important reforms have taken place.
Improving regulations also requires strengthening the institutions and processes through which
regulations are implemented and enforced. India lacks a modern overall regulatory governance
regime. Rule-making is complex due to the different layers of government. Based on the
Constitution, all levels of government can regulate, including the Central
Government and 29 state governments, along with 7 union territories. This leads to differences
and sometimes even inconsistencies in regulations across regions. The creation of national
Regulatory Commissions since 2005 was a positive move, but there is lack of accountability and
consistency of the overall regulatory system.
Establishing a whole-of-government approach to regulation, using international best practice tools
and systems such as regulatory impact assessments and public consultation, and building
effective institutions for regulatory quality management, are key. In this sense, India needs to catch
up with other emerging economies such as China, Mexico and Vietnam, which have already taken
important steps in that direction, in line with the OECDs 2012 Recommendation on Regulatory
Policy and Governance.
Why is this important for India?
Improving the business environment is essential for boosting investment and productivity growth. A
more business-friendly regulatory environment would also create strong incentives for small
businesses to join the formal economy. Effective regulatory institutions are critical for India not only
for improved economic performance but also for promoting social equality and environmental
sustainability, and for ensuring trust in public institutions.

Indias strategy for Growth in clean energy

India is the fastest-growing major economy in the world. It is the fourth largest greenhouse gas
(GHG) emitter, accounting for 5.8 percent of global emissions. Indias emissions increased by
67.1 percent between 1990 and 2012, and are projected to grow 85 percent by 2030 under a
business-as-usual scenario.
By other measures, India's emissions are relatively low compared to those of other major
economies. India accounts for only 4 percent of global cumulative energy-related emissions since
1850, compared to 16 percent and 15 percent for the United States and China.[i] India produces
about 2 tons of CO2e per capita, versus 20 tons and 8 tons, respectively, in the United States and
China.
Coal accounted for 43.5 percent of the total energy supply in 2011, followed by biofuels and waste
(24.7 percent), petroleum (22.1 percent), natural gas (6.7 percent), hydropower (1.5 percent) and
nuclear (1.2 percent).[ii] India is working to meet growing energy demand by securing affordable
supplies and attracting infrastructure investment in. By 2022, it aims to provide electricity to the 25
percent of the population (more than 300 million people) who dont have it.[iii]
India pledged under the Copenhagen Accord to reduce its CO2 intensity (emissions per GDP) by
20 to 25 percent by 2020 compared to 2005 levels.[iv] India appears on track to achieve its

voluntary pledge, though emissions are not projected to peak until around 2050 or later. On
October 1, 2015, India formally submitted its intended nationally determined contribution (INDC) to
the climate agreement due in December 2015 in Paris. Among its key elements:
To reduce the emissions intensity of its GDP by 33 to 35 percent by 2030 from 2005 level.
To achieve about 40 percent cumulative electric power installed capacity from non-fossil fuel based
energy resources by 2030, with the help of transfer of technology and low cost international
finance including from Green Climate Fund (GCF).
To create an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional
forest and tree cover by 2030.
Policies Contributing to Climate Mitigation
India has a number of policies that contribute to climate mitigation by reducing or avoiding GHG
emissions. In June 2008, the Prime Minister released Indias first National Action Plan on Climate
Change, which identified eight core national missions running through 2017. A C2ES summary of
the National Action Plan is available here. Indias current Five-Year Plan (2012-2017), which
guides overall economic policy, includes goals to:
Achieve average 8 percent annual GDP growth;
Reduce emissions intensity in line with Indias Copenhagen pledge; and
Add 300,000 MW of renewable energy capacity.[v]
Since taking office in May 2014, Prime Minister Narendra Modi has taken steps to scale up clean
energy production and has initiated a shift in Indias stance in international climate negotiations.
One of his first acts was to rename the environment ministry the Ministry of Environment, Forests
and Climate Change. In January, the newly reconstituted Prime Ministers Council on Climate
Change launched new initiatives on wind energy, coastal zone management, health and waste-toenergy.
Renewable energy At the federal level, India has implemented two major renewable energyrelated policies: the Strategic Plan for New and Renewable Energy,[vi] which provides a broad
framework, and the National Solar Mission, which sets capacity targets for renewables.[vii] The
original Solar Mission includes the following targets for 2017: 27.3 GW wind, 4 GW solar, 5 GW
biomass and 5 GW other renewables. For 2022, these targets increase to: 20 GW solar, 7.3 GW
biomass and 6.6 GW other renewables.
Solar In November 2014, the Indian government announced that it would increase the solar
ambition of its National Solar Mission to 100 GW installed capacity by 2022, a five-time increase
and over 30 times more solar than it currently has installed. To this end, the government also
announced its intention to bring solar power to every home by 2019 and invested in 25 solar parks,
which have the potential to increase Indias total installed solar capacity almost tenfold.
Wind The Twelfth Five Year Plan proposes a National Wind Energy Mission, similar to the
National Solar Mission, and the Indian government recently announced plans to boost wind energy
production to 50,000 to 60,000 MW by 2022. It is also planning to promote an offshore wind
energy market.
Coal A tax on coal has raised $2.85 billion for Indias clean energy fund. The tax rose in July
2014 from Rs. 50 ($.80) to Rs. 100 ($1.60) per ton, and doubled again in March 2015 to Rs 200
($3.20) per ton. The Indian coal-power sector has numerous
Energy Efficiency and Conservation Indias National Mission for Enhanced Energy Efficiency[viii]
implements the Perform, Achieve and Trade (PAT) Mechanism, covering the countrys largest
industrial and power generation facilities.[ix] PAT covers more than 50 percent of fossil fuel use

and set a target to reduce energy consumption at participating facilities 4-5 percent in 2015
compared to 2010 levels.
Transportation -- In early 2014, India announced new vehicle fuel-economy standards (Indian
Corporate Average Fuel Consumption standard) of 4.8 liters per 100 kilometers (49 MPG) by
2021-2022, a 15 percent improvement. Biofuel legislation has set a target of 20 percent blending
of ethanol and biodiesel in 2017.[x]
Smart Cities Prime Minister Modi has launched an initiative to create 100 smart cities with
better transport systems, utilities, and energy networks to address the challenges of urban growth.
[xi] Indias National Mission on Sustainable Habitat also includes initiatives such as the Energy
Conservation Building Code, mandated for commercial buildings in eight states, and actions to
support recycling, waste management, and improved urban planning