AN EXAMPLE OF HOW GLOBAL BUSINESS ENVIRONMENT CHANGES

For the fourth quarter of 2014, Apple AAPL -2.68% reported a recordbreaking profit of $18 billion which is the largest ever reported by a
public company while Samsung said its profits actually dropped 37%
year-on-year. After those results, there was speculation that Apple had
become the worlds largest smartphone manufacturer again.
Apple sold 74.8 million iPhones compared to Samsungs sales of 73
million smartphones in the fourth quarter of last year. This is a
dramatic change from one year earlier when Samsung sold 83.3 million
smartphones against Apples 50.2 million iPhone sales.
Lenovo took the third place spot through its sales of Lenovo and
Motorola mobile phones for the fourth quarter of 2014. Lenovo hit a
6.6%
market
share,
which
is
47.6%
growth
year-overyear. Lenovo acquired Motorolas mobile division in October 2014.
Chinese mobile company Xiaomi is nipping at the heels of the major
smartphone players by offering high quality Android devices at a lower
cost. Out of all of the global smartphone makers, Xiaomi saw the
largest jump at triple its sales compared to a year ago. Xiaomi shipped
18.6 million smartphones in Q4 2014, behind Huaweis 21 million and
Lenovos 24 million.
Apple is currently dominating the premium phone market and Chinese
mobile phone companies are offering quality devices in the lower cost
market. This is causing Samsung to feel the pressure in both markets.
Samsung has to stay innovative to maintain its strong market share,
otherwise its profits will continue to drop.

India's Five Year Plans: All at a Glance

This topic will help to get a glimpse of all five year plans till now and recommended for
students/ aspirants of SBI Clerical Exams going to be held shortly. For more details please visit
Planning Commission of India's website here
Planning Commission (Estb. 1950)
In March 1950, Government of India constituted a statutory body with the Prime Minister of
India as its Chairman-called the Planning Commission. Pt. Jawaharlal Nehru was the first
Chairman of the Planning Commission.
National Planning Council (Estb. 1965)
It is an advisory body attached to the Planning Commission and was established in 1965. It
includes experts representing a cross-section of the Indian economy.
National Development Council (Estb. 1951)
Chief Ministers of the states, together with the members of the Planning Commission, constitute
the National Development Council. The Prime Minister of India presides over the Council.
Five Year Plans
The development plans are drawn by the Planning Commission to establish India's economy on a
socialistic pattern in successive phases of five year Periods-called the Five Year Plans. The
organisation was set up to formulate basic economic policies, draft plans and watch its progress
and implementation. It consists of:
(I) Planning Commission of India
(ii) National Planning Council
(iii) National Development Council and State Planning Commissions
Introduction: Indian planning is an open process. Much of the controversy and the debates that
accompany the preparation of the plans are public. The initial aggregate calculations and
assumptions are either explicitly stated or readily deducible, and the makers of the plans are not
only sensitive but responsive to criticism and suggestions from a wide variety of national and
international sources. From original formulation through successive modifications to
parliamentary presentation, plan making in India has evolved as a responsive democratic
political process and the culmination of the same in the final document is an impressive
manifestation of the workings of an open society. But by its very nature it also generates many
problems from the point of view of mapping an optimal strategy for economic development.
History of Planning in India & Origin of Five Year Plans:
Though the planned economic development in India began in 1951 with the inception of First
Five Year Plan , theoretical efforts had begun much earlier , even prior to the independence.
Setting up of National Planning Committee by Indian National Congress in 1938 , The Bombay
Plan & Gandhian Plan in 1944, Peoples Plan in 1945 (by post war reconstruction Committee
of Indian Trade Union), Sarvodaya Plan in 1950 by Jaiprakash Narayan were steps in this
direction.
Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin
implemented the first FYP in the Soviet Union in the late 1920s. Most communist states and
several capitalist countries subsequently have adopted them. China and India both continue to
use FYPs, although China renamed its Eleventh FYP, from 2006 to 2010, a guideline (guihua),

rather than a plan (jihua), to signify the central governments more hands-off approach to
development.
After independence, India launched its First FYP in 1951, under socialist influence of first Prime
Minister Jawaharlal Nehru. The process began with setting up of Planning Commission in March
1950 in pursuance of declared objectives of the Government to promote a rapid rise in the
standard of living of the people by efficient exploitation of the resources of the country,
increasing production and offering opportunities to all for employment in the service of the
community. The Planning Commission was charged with the responsibility of making
assessment of all resources of the country, augmenting deficient resources, formulating plans for
the most effective and balanced utilisation of resources and determining priorities.
The first Five-year Plan was launched in 1951 and two subsequent five-year plans were
formulated till 1965, when there was a break because of the Indo-Pakistan Conflict. Two
successive years of drought, devaluation of the currency, a general rise in prices and erosion of
resources disrupted the planning process and after three Annual Plans between 1966 and 1969,
the fourth Five-year plan was started in 1969.
The Eighth Plan could not take off in 1990 due to the fast changing political situation at the
Centre and the years 1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was
finally launched in 1992 after the initiation of structural adjustment policies.
For the first eight Plans the emphasis was on a growing public sector with massive investments
in basic and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the
public sector has become less pronounced and the current thinking on planning in the country, in
general, is that it should increasingly be of an indicative nature.
DETAILS OF THE FIVE YEAR PLANS
FIRST FIVE YEAR PLAN (1951-56)
In July 1951, the Planning Commission issued the draft outline of the First Five Year Plan for the
period April 1951 to March 1956. It was presented to the Parliament in December 1952. In the
First Plan, agriculture received the main thrust, for sustaining of growth and development of
industries which would not be possible without a significant rise in the yield of raw materials and
food.
Objectives:
i) To increase food production.
ii) To fully utilise available raw materials.
iii) To check inflationary pressure.
Outlay: The total proposed outlay was Rs. 3,870 crore.
SECOND FIVE YEAR PLAN (1956-61)
The main objective was to launch upon industrialization and strengthen the industrial base of the
economy. It was in this light that the 1948 Industrial Policy Resolution was revised and a new
resolution of 1956 was adopted. The Second Plan started with an emphasis on the expansion of
the public sector and aimed at the establishment of a socialistic pattern of society.

Objectives:
i) A sizeable increase in national income so as to raise the level of living.
ii) Rapid industrialisation of the country with particular emphasis on the development of basic
and key industries.
Outlay: The Second Plan proposed a total public sector outlay of Rs. 4,800 crores though actual
outlay was only Rs. 4,672 crore.
THIRD FIVE YEAR PLAN (1961-66)
In the third Plan, the emphasis was on long-term development. The Third Plan report stated that
during the five-year period concerned, the Indian economy "must not only expand rapidly but, at
the same time, become self-reliant and self-generating."
Objectives:
i) An increase in national income of more than 5 per cent annually. The investment pattern laid
down must be capable of sustaining this growth rate in the subsequent years.
ii) An increase in the agricultural produce and to achieve self sufficiency by increasing food
grain production.
iii) Greater equality of opportunities, more even distribution of economic power and reducing
wealth and income disparities.
FOURTH FIVE YEAR PLAN (1969-74)
After the Plan Holiday', the Fourth Plan was begun in 1969.
Objectives:
i) To achieve stability and progress towards self-reliance.
ii) To achieve an overall rate of growth of 5.7 per cent annually.
iii) To raise exports at the rate of 7 per cent annually.
Outlay: The total proposed outlay was Rs. 24,880 crore, which included Rs. 15,900 crores as
public sector outlay and Rs. 8,980 crore as private sector outlay.
FIFTH FIVE YEAR PLAN (1974-79)
The Plan was formulated against the background of sever inflationary pressure.
Objectives: In addition to removal of poverty and attainment of self-reliance, the Fifth Plan had
the following major objectives.
i) 5.5 per cent overall rate of growth in Gross Domestic objectives.
ii) Expansion of productive employment and fuller utilisation of existing skills and equipment.
iii) A national programme for minimum needs and extended programmes of social welfare.
Outlay: A total outlay of Rs. 53,410 crore was proposed for the Fifth Plan.
SIXTH FIVE YEAR PLAN (1980-85)
The draft of the Sixth Five Year Plan (1978-1983) was presented in 1978. However, the plan was
terminated with the change of Government in January 1980. The new Sixth Five Year Plan was
implemented in April 1980.
Objectives:
i) To eliminate unemployment and underemployment.
ii) To raise the standard of living of the poorest of masses.
iii) To reduce disparities in income and wealth.
Outlay: The proposed outlay for the Sixth Plan totalled Rs.1, 58, 710 crore.

 SEVENTH FIVE YEAR PLAN (1985-90)

The draft of the Seventh Plan was approved on November 9, 1985 by the National Development
Council. The plan was part of the long-term plan for the period of 15 years.
Objectives:
i) Decentralisation of planning and full public participation in development.
ii) The maximum possible generation of productive employment.
iii) Removal of poverty and reduction in income disparities.
EIGHTH FIVE YEAR PLAN (1992-97)
The Eighth Plan proposed a growth rate of 5.6 per cent per annum on an average during the plan
period. The Eighth Plan focused on (i) clear prioritisation of sectors/projects for investment in
order to facilitate implementation of the policy initiatives taken in the areas of fiscal, trade and
industrial sectors and human development.
Objectives:
i) Generation of adequate employment of achieve near full employment level by the turn of the
century.
ii) Containment of population growth through people's active co-operation and an effective
scheme of incentives and disincentives.
iii) Universalisation of elementary education and complete eradication of illiteracy among the
people in the age group of 15 to 35 years.
THE NINTH FIVE-YEAR PLAN (1997-2002)
It began on April 1, 1997. The Ninth Plan was the first concrete attempt to translate the
programme of economic reforms and the New Economic Policy within the framework of an
indicative Plan. The Approach Paper to the Ninth Plan (1997-2002) was approved by the N.D.C.
on 16th January, 1997.
Objectives:
i.) Priority to agriculture and rural development
ii.) Accelerating growth rate of economy
iii.) Food and nutritional security for all
iv.) Containing growth rate of population
v.) Empowerment of women and socially disadvantaged groups such as SC/ST, backward classes
and minorities.
vi.) Promoting and developing participatory institutions like "Panchayati Raj" institutions, cooperatives and self-help groups.

TENTH FIVE YEAR PLAN (2002-07)

On December 21, 2002, the Tenth Five Year Plan was approved by the National Development
Council (NDC). The Plan has further developed the NDC mandated objectives, of doubling per
capita income in 10 years, and achieving a growth rate of 8% of GDP per annum. An 8% growth
rate is considered necessary for achieving the social and economic targets of Tenth Plan Keeping
in mind decadal growth performance and the steady acceleration that the country has recorded in
growth over the past two decades, it is a realisable target. The plan has a number of new features,
such as, for the first time
(a) It recognises the rapid growth of labour force over the next decade

(b) Addresses the issue of poverty and the unacceptably low levels of social indicators
(c) Adopted a "differential development strategy" to equate national targets into balanced
regional development as there is vast difference in the potentials and constraints of each state
(d) Recognises that the governance is perhaps one of the most important factors for ensuring
realisation of the Plan
(e) Identifies measures to improve efficiency, unleash entrepreneurial energy, and promote rapid
and sustainable growth
(f) Proposes major reforms for agricultural sector making 'agriculture' the core element of the
Plan.
Since economic growth is not the only objective, the Plan aims at harnessing the benefits of
growth to improve the quality of life of the people by setting the following key targets:
1. All children to be in school by 2003 and all children to complete five years of schooling by
2007
2. Reduction in poverty ratio from 26% to 21%
3. Growth in gainful employment to, at least, keep pace with addition to the labour force
4. Decadal population growth to reduce from 21.3% in 1991-2001 to 16.2% by 2001-11
5. Reducing gender gaps in literacy and wage rates by 50%
6. Literacy rate to increase from 65% in 1999-2000 to 75% in 2001
7. Infant Mortality Rate (IMR) to be reduced from 72 in 1999-2000, to 45 in 2007
8. .Maternal Mortality Rate (MMR) to be reduced from 4 per 1000 in 1999-2000 to 2 per 1000 in
2007
9. Providing portable drinking water in all villages
10. Cleaning of major polluted river stretches
11. Increase in forest/tree cover from 19% in 1999-2000 to 25% in 2007.
ELEVENTH PLAN (2007-2012)
The United Progressive Alliance government issued a paper in the eleventh plan titled "Towards
faster and more inclusive growth." According to the approach paper, the monitorable targets of
five-year plan are:
1. GDP growth rate to be increased to 10% by the end of the plan;
2. Farm sector growth to be increased to 4%;
3. Creation of seven crore job opportunities;
4. Reduce educated unemployed youth to below 5 percent
5. Infant mortality rates to be reduced to 28 per 1000 births;
6. Maternal death rates to be reduced to 1 per 1000 births;
7. Clean drinking water to all by 2009;
8. Improve sex ratio to 935 by 2011-12 and to 950 by 2016-17;
9. Ensure electricity connection to all villages and broadband over power lines (BPL) households
by 2009
10. Roads to all villages that have a population of 1000 and above by 2009;
11. Increase forest and tree cover by 5%;
12. Achieve the World Health Organization standard air quality in major cities by 2011-12;
13. Treat all urban wastewater by 2011-12 to clean river waters;
14. Increase energy efficiency by 20 percent by 2016-17.

MONETARY POLICY OF RESERVE BANK OF INDIA

A) MONETARY POLICY: -

Meaning of Monetary Policy

The term monetary policy is also known as the 'credit policy' or called 'RBI's money management policy'
in India. How much should be the supply of money in the economy? How much should be the ratio of
interest? How much should be the viability of money? etc. Such questions are considered in the monetary
policy. From the name itself it is understood that it is related to the demand and the supply of money.
Definition of Monetary Policy
Many economists have given various definitions of monetary policy. Some prominent definitions are as
follows.
According to Prof. Harry Johnson,
"A policy employing the central banks control of the supply of money as an instrument for achieving the
objectives
of
general
economic
policy
is
a
monetary
policy

According to A.G. Hart,

"A policy which influences the public stock of money substitute of public demand for such assets of both
that is policy which influences public liquidity position is known as a monetary policy."
From both these definitions, it is clear that a monetary policy is related to the availability and cost of
money supply in the economy in order to attain certain broad objectives. The Central Bank of a nation
keeps control on the supply of money to attain the objectives of its monetary policy.
Objectives of Monetary Policy
The objectives of a monetary policy in India are similar to the objectives of its five year plans. In a
nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution in
economics, many people accepted significance of monetary policy in attaining following objectives.
1.
2.
3.
4.
5.

Rapid Economic Growth

Price Stability
Exchange Rate Stability
Balance of Payments (BOP) Equilibrium
Full Employment

6.
7.

Neutrality of Money
Equal Income Distribution

These are the general objectives which every central bank of a nation tries to attain by employing certain
tools (Instruments) of a monetary policy. In India, the RBI has always aimed at the controlled expansion
of bank credit and money supply, with special attention to the seasonal needs of a credit.
Let us now see objectives of monetary policy in detail :1.

2.

3.

4.

5.

6.

Rapid Economic Growth : It is the most important objective of a monetary policy. The monetary
policy can influence economic growth by controlling real interest rate and its resultant impact on the
investment. If the RBI opts for a cheap or easy credit policy by reducing interest rates, the investment
level in the economy can be encouraged. This increased investment can speed up economic growth.
Faster economic growth is possible if the monetary policy succeeds in maintaining income and price
stability.
Price Stability : All the economics suffer from inflation and deflation. It can also be called as
Price Instability. Both inflation are harmful to the economy. Thus, the monetary policy having an
objective of price stability tries to keep the value of money stable. It helps in reducing the income and
wealth inequalities. When the economy suffers from recession the monetary policy should be an 'easy
money policy' but when there is inflationary situation there should be a 'dear money policy'.
Exchange Rate Stability : Exchange rate is the price of a home currency expressed in terms of
any foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the
exchange rate, the international community might lose confidence in our economy. The monetary
policy aims at maintaining the relative stability in the exchange rate. The RBI by altering the foreign
exchange reserves tries to influence the demand for foreign exchange and tries to maintain the
exchange rate stability.
Balance of Payments (BOP) Equilibrium : Many developing countries like India suffers from
the Disequilibrium in the BOP. The Reserve Bank of India through its monetary policy tries to maintain
equilibrium in the balance of payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP
Deficit'. The former reflects an excess money supply in the domestic economy, while the later stands
for stringency of money. If the monetary policy succeeds in maintaining monetary equilibrium, then the
BOP equilibrium can be achieved.
Full Employment : The concept of full employment was much discussed after Keynes's
publication of the "General Theory" in 1936. It refers to absence of involuntary unemployment. In
simple words 'Full Employment' stands for a situation in which everybody who wants jobs get jobs.
However it does not mean that there is a Zero unemployment. In that senses the full employment is
never full. Monetary policy can be used for achieving full employment. If the monetary policy is
expansionary then credit supply can be encouraged. It could help in creating more jobs in different
sector of the economy.
Neutrality of Money: Economist such as Wicksted, Robertson have always considered money
as a passive factor. According to them, money should play only a role of medium of exchange and not
more than that. Therefore, the monetary policy should regulate the supply of money. The change in
money supply creates monetary disequilibrium. Thus monetary policy has to regulate the supply of

money and neutralize the effect of money expansion. However this objective of a monetary policy is
always criticized on the ground that if money supply is kept constant then it would be difficult to attain
price stability.
7.
Equal Income Distribution : Many economists used to justify the role of the fiscal policy is
maintaining economic equality. However in resent years economists have given the opinion that the
monetary policy can help and play a supplementary role in attainting an economic equality. monetary
policy can make special provisions for the neglect supply such as agriculture, small-scale industries,
village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for
these sectors to come up. Thus in recent period, monetary policy can help in reducing economic
inequalities among different sections of society.
Monetary policy is a regulatory policy by which the central bank or monetary authority of a
country controls the supply of money, availability of bank credit and cost of money, that is, the
rate of Interest.
Monetary policy / monetary management is regarded as an important tool of economic
management in India. RBI controls the supply of money and bank credit. The Central bank has
the duty to see that legitimate credit requirements are met and at the same credit is not used for
unproductive and speculative purposes. RBI rightly calls its credit policy as one of controlled
expansion.
B) OBJECTIVES OF MONETARY POLICY OF INDIA: The main objective of monetary policy in India is growth with stability. Monetary
Management regulates availability, cost and use of money and credit. It also brings institutional
changes in the financial sector of the economy. Following are the main objectives of monetary
policy in India: 1. Growth With Stability: Traditionally, RBIs monetary policy was focused on controlling inflation through contraction
of money supply and credit. This resulted in poor growth performance. Thus, RBI has now
adopted the policy of Growth with Stability. This means sufficient credit will be available for
growing needs of different sectors of economy and at the same time, inflation will be controlled
with in a certain limit.
2. Regulation, Supervision And Development Of Financial Stability: Financial stability means the ability of the economy to absorb shocks and maintain
confidence in financial system. Threats to financial stability can come from internal and external
shocks. Such shocks can destabilize the countrys financial system. Thus, greater importance is
being given to RBIs role in maintaining confidence in financial system through proper regulation
and controls, without sacrificing the objective of growth. Therefore, RBI is focusing on
regulation, supervision and development of financial system.
3. Promoting Priority Sector: -

Priority sector includes agriculture, export and small-scale enterprises and weaker section of
population. RBI with the help of bank provides timely and adequately credit at affordable cost of
weaker sections and low-income groups. RBI, along with NABARD, is focusing on microfinance
through the promotion of Self Help groups and other institutions.
4. Generation Of Employment: Monetary policy helps in employment generation by influencing the rate of investment and
allocation of investment among various economic activities of different labor Intensities.
5. External Stability: With the growth of imports and exports Indias linkages with global economy are getting
stronger. Earlier, RBI controlled foreign exchange market by determining exchange rate. Now,
RBI has only indirect control over external stability through the mechanism of managed
Flexibility, where it influences exchange rate by buying and selling foreign currencies in open
market.
6. Encouraging Savings And Investments: RBI by offering attractive interest rates encourages savings in the economy. A high rate of
saving promotes investment. Thus the monetary management by influencing rates of interest
can influence saving mobilization in the country.
7. Redistribution Of income And Wealth: By control of inflation and deployment of credit to weaker sectors of society the monetary
policy may redistribute income and wealth favoring to weaker sections.
8. Regulation Of NBFIs: Non Banking Financial Institutions (NBFIs), like UTI, IDBI, and IFCI plays an important role
in deployment of credit and mobilization of savings. RBI does not have any direct control on the
functioning of such institutions. However it can indirectly affects the policies and functions of
NBFIs through its monetary policy.

The term monetary policy is also known as the 'credit policy. How much should be the supply of money
in the economy? How much should be the ratio of interest? How much should be the viability of money?
etc. Such questions are considered in the monetary policy. From the name itself, it is understood that it is
related to the demand and the supply of money.
Monetary Policy is the control of total credit and money supply in the economy. Credit has great
importance in the modern economic system. For the stability of a country, proper control and regulation
of credit is essential. If bank issues too much credit money, it leads to inflation. On other hand, tight
control over this money may cause depression and unemployment. Monetary Policy is the deliberate use
of monetary instruments (direct and indirect) at the disposal of monetary authorities such as central bank
in order to achieve macroeconomic stability.

Definition of Monetary Policy

Many economists have given various definitions of monetary policy. Some prominent definitions are as
follows.
According to Prof. Harry Johnson, monetary policy is "A policy employing the central banks control of
the supply of money as an instrument for achieving the objectives of general economic policy is a
monetary policy." A.G. Hart defines it as "A policy which influences the public stock of money substitute
of public demand for such assets of both that is policy which influences public liquidity position is known
as a monetary policy."
From both these definitions, it is clear that a monetary policy is related to the availability and cost of
money supply in the economy in order to attain certain broad objectives. The Central Bank of a nation
keeps control on the supply of money to attain the objectives of its monetary policy.
Goals of Monetary Policy

The objectives of a monetary policy in India are similar to the objectives of its five year plans. In a
nutshell planning in India aims at growth, stability and social justice. After the Keynesian revolution in
economics, many people accepted significance of monetary policy in attaining following objectives.
Rapid Economic Growth
Price Stability
Exchange Rate Stability
Balance of Payments (BOP) Equilibrium
Full Employment
Neutrality of Money
Equal Income Distribution
These are the general objectives that every central bank of a nation tries to attain by employing certain
tools (Instruments) of a monetary policy.
Let us now see objectives of monetary policy in detail: Rapid Economic Growth: It is the most important objective of a monetary policy. The monetary
policy can influence economic growth by controlling real interest rate and its resultant impact on the
investment. If the Monetary authority opts for a cheap or easy credit policy by reducing interest rates, the
investment level in the economy can be encouraged. This increased investment can speed up economic
growth. Faster economic growth is possible if the monetary policy succeeds in maintaining income and
price stability.
Price Stability: All the economies suffer from inflation and deflation. It can also be called as
Price Instability. Both inflation are harmful to the economy. Thus, the monetary policy having an
objective of price stability tries to keep the value of money stable. It helps in reducing the income and
wealth inequalities. When the economy suffers from recession, the monetary policy should be and easy
money policy' but when there is inflationary situation there should be a 'dear money policy'.
Exchange Rate Stability: Exchange rate is the price of a home currency expressed in terms of
any foreign currency. If this exchange rate is very volatile leading to frequent ups and downs in the
exchange rate, the international community might lose confidence in our economy. The monetary policy
aims at maintaining the relative stability in the exchange rate. The apex bank by altering the foreign

exchange reserves tries to influence the demand for foreign exchange and tries to maintain the exchange
rate stability.
Balance of Payments (BOP) Equilibrium: Many developing countries suffer from the
Disequilibrium in the BOP. The central bank through its monetary policy tries to maintain equilibrium in
the balance of payments. The BOP has two aspects i.e. the 'BOP Surplus' and the 'BOP Deficit'. The
former reflects an excess money supply in the domestic economy, while the later stands for stringency of
money. If the monetary policy succeeds in maintaining monetary equilibrium, then the BOP equilibrium
can be achieved.
Full Employment: The concept of full employment was much discussed after Keynes's
publication of the "General Theory" in 1936. It refers to absence of involuntary unemployment. In simple
words 'Full Employment' stands for a situation in which everybody who wants jobs get jobs. However it
does not mean that there is a Zero unemployment. In that senses the full employment is never full.
Monetary policy can be used for achieving full employment. If the monetary policy is expansionary then
credit supply can be encouraged. It could help in creating more jobs in different sector of the economy.
Neutrality of Money: Economist such as Wicksted, Robertson has always considered money as
a passive factor. According to them, money should play only a role of medium of exchange and not more
than that. Therefore, the monetary policy should regulate the supply of money. The change in money
supply creates monetary disequilibrium. Thus, monetary policy has to regulate the supply of money and
neutralize the effect of money expansion. However, this objective of a monetary policy is always
criticized on the ground that if money supply is kept constant then it would be difficult to attain price
stability.
Equal Income Distribution: Many economists used to justify the role of the fiscal policy is
maintaining economic equality. However, in recent years economists have given the opinion that the
monetary policy can help and play a supplementary role in attainting an economic equality. Monetary
policy can make special provisions for the neglect supply such as agriculture, small-scale industries,
village industries, etc. and provide them with cheaper credit for longer term. This can prove fruitful for
these sectors to come up. Thus in recent period, monetary policy can help in reducing economic
inequalities among different sections of society.

EncouragingSavingsAndInvestments:
RBIbyofferingattractiveinterestratesencouragessavingsintheeconomy.Ahighrateof
savingpromotesinvestment.Thusthemonetarymanagementbyinfluencingratesofinterest
caninfluencesavingmobilizationinthecountry.

.RegulationOfNBFIs:
NonBankingFinancialInstitutions(NBFIs),likeUTI,IDBI,andIFCIplaysanimportant
roleindeploymentofcreditandmobilizationofsavings.RBIdoesnothaveanydirectcontrolon
thefunctioningofsuchinstitutions.Howeveritcanindirectlyaffectsthepoliciesandfunctions
ofNBFIsthroughitsmonetarypolicy.

Instruments of Monetary Policy used by the RBI

Direct regulation:
Cash Reserve Ratio (CRR): Commercial Banks are required to hold a certain proportion of their
deposits in the form of cash with RBI. CRR is the minimum amount of cash that commercial banks
have to keep with the RBI at any given point in time. RBI uses CRR either to drain excess liquidity
from the economy or to release additional funds needed for the growth of the economy.
For example, if the RBI reduces the CRR from 5% to 4%, it means that commercial banks will now
have to keep a lesser proportion of their total deposits with the RBI making more money available for
business. Similarly, if RBI decides to increase the CRR, the amount available with the banks goes
down.
Statutory Liquidity Ratio (SLR): SLR is the amount that commercial banks are required to
maintain in the form of gold or government approved securities before providing credit to the
customers. SLR is stated in terms of a percentage of total deposits available with a commercial bank
and is determined and maintained by the RBI in order to control the expansion of bank credit. For
example, currently, commercial banks have to keep gold or government approved securities of a
value equal to 23% of their total deposits.

Indirect regulation:
Repo Rate: The rate at which the RBI is willing to lend to commercial banks is called Repo Rate.
Whenever commercial banks have any shortage of funds they can borrow from the RBI, against
securities. If the RBI increases the Repo Rate, it makes borrowing expensive for commercial banks
and vice versa. As a tool to control inflation, RBI increases the Repo Rate, making it more expensive
for the banks to borrow from the RBI with a view to restrict the availability of money. The RBI will
do the exact opposite in a deflationary environment when it wants to encourage growth.

Reverse Repo Rate: The rate at which the RBI is willing to borrow from the commercial banks is
called reverse repo rate. If the RBI increases the reverse repo rate, it means that the RBI is willing to
offer lucrative interest rate to commercial banks to park their money with the RBI. This results in a

reduction in the amount of money available for the banks customers, as banks prefer to park their
money with the RBI as it involves higher safety. This naturally leads to a higher rate of interest,
which the banks will demand, from their customers for lending money to them.
The RBI issues annual and quarterly policy review statements to control the availability and the
supply of money in the economy. The Repo Rate has traditionally been the key instrument of
monetary policy used by the RBI to fight inflation and to stimulate growth.

Other Instruments of Monetary Policy

The instruments of monetary policy are tools or devise that the monetary authority uses in order to attain
some predetermined objectives. There are two types of instruments of the monetary policy as shown
below. The control of credit is responsibility of the central bank. For this purpose, Central banks use
various methods. These are classified into two types: Quantitative control Qualitative control

Quantitative Instruments
The Quantitative Instruments are also known as the General Tools of monetary policy. These tools are
related to the Quantity or Volume of the money. The Quantitative Tools of credit control are also called as
General Tools for credit control. They are designed to regulate or control the total volume of bank credit
in the economy. These tools are indirect in nature and are employed for influencing the quantity of credit
in the country. The general tool of credit control comprises of following instruments.
Quantitative control includes Bank Rate Policy, Open Market Operations (OMO), Variations in Reserves
Requirement, and Credit Rationing.

Bank Rate Policy (BRP) The Bank Rate Policy (BRP) is a very important technique used in the
monetary policy for influencing the volume or the quantity of the credit in a country. The bank rate refers
to rate at which the central bank rediscounts bills and prepares of commercial banks or provides advance
to commercial banks against approved securities. The Bank Rate affects the actual availability and the
cost of the credit. Any change in the bank rate necessarily brings out a resultant change in the cost of
credit available to commercial banks. If the central bank increases the bank rate than it reduce the volume
of commercial banks borrowing from the central bank. It deters banks from further credit expansion as it
becomes a more costly affair. On the other hand, if it reduces the bank rate, borrowing for commercial
banks will be easy and cheaper. This will boost the credit creation. Thus any change in the bank rate is
normally associated with the resulting changes in the lending rate and in the market rate of interest.
However, the efficiency of the bank rate as a tool of monetary policy depends on existing banking
network, interest elasticity of investment demand, size and strength of the money market, international
flow of funds, etc.
Open Market Operation (OMO) The open market operation refers to the purchase and/or sale of
short term and long-term securities by the central bank in the open market. This is very effective and

popular instrument of the monetary policy. The OMO is used to wipe out shortage of money in the money
market, to influence the term and structure of the interest rate and to stabilize the market for government
securities, etc. It is important to understand the working of the OMO. If the central bank sells securities in
an open market, commercial banks and private individuals buy it. This reduces the existing money supply
as money gets transferred from commercial banks to the central bank. Contrary to this when the central
bank buys the securities from commercial banks in the open market, commercial banks sell it and get
back the money they had invested in them. Obviously the stock of money in the economy increases. This
way when the central bank enters in the OMO transactions, the actual stock of money gets changed.
Normally during the inflation period in order to reduce the purchasing power, the central bank sells
securities and during the recession or depression phase she buys securities and makes more money
available in the economy through the banking system. Thus under OMO there is continuous buying and
selling of securities taking place leading to changes in the availability of credit in an economy.
Variation in the Reserve Ratios (VRR) The Commercial Banks have to keep a certain proportion
of their total assets in the form of Cash Reserves. Some part of the cash reserves is their total assets in the
form of cash. Apart of these cash, reserves are also to be kept with the apex bank for the purpose of
maintaining liquidity and controlling credit in an economy. These reserve ratios are named as Cash
Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR). The CRR refers to some percentage of
commercial bank's net demand and time liabilities which commercial banks have to maintain with the
central bank and SLR refers to some percent of reserves to be maintained in the form of gold or foreign
securities.

Qualitative Instruments
The Qualitative Instruments are also known as the Selective Tools of monetary policy. These tools are not
directed towards the quality of credit or the use of the credit. They are used for discriminating between
different uses of credit. It can be discrimination favoring export over import or essential over nonessential credit supply. This method can have influence over the lender and borrower of the credit. The
Selective Tools of credit control comprises of following instruments. Qualitative control include Change
in Margin Requirement, Regulations of consumers credit , Moral persuasion, Publicity and Direct action.

Fixing Margin Requirements: The margin refers to the "proportion of the loan amount which is
not financed by the bank". In other words, it is that part of a loan that a borrower has to raise in order to
get finance for his purpose. A change in a margin implies a change in the loan size. This method is used to
encourage credit supply for the needy sector and discourage it for other non-necessary sectors. This can
be done by increasing margin for the non-necessary sectors and by reducing it for other needy sectors.
Example:- If the central bank feels that more credit supply should be allocated to agriculture sector, then
it will reduce the margin and even 85-90 percent loan can be given.
Consumer Credit Regulation: Under this method, consumer credit supply is regulated through
hire purchase and installment sale of consumer goods. Under this method the down payment, installment
amount, loan duration, etc is fixed in advance. This can help in checking the credit use and then inflation
in a country.
Publicity: This is yet another method of selective credit control. Through it Central Bank
publishes various reports stating what is good and what is bad in the system. This published information

can help commercial banks to direct credit supply in the desired sectors. Through its weekly and monthly
bulletins, the information is made public and banks can use it for attaining goals of monetary policy.
Credit Rationing: Central Bank fixes credit amount to be granted. Credit is rationed by limiting
the amount available for each commercial bank. This method controls even bill rediscounting. For certain
purpose, upper limit of credit can be fixed and banks are told to stick to this limit. This can help in
lowering banks credit exposure to unwanted sectors.
Moral Suasion: It implies to pressure exerted by the central bank on the banking system without
any strict action for compliance of the rules. It is a suggestion to banks. It helps in restraining credit
during inflationary periods. Commercial banks are informed about the expectations of the central bank
through a monetary policy. Under moral suasion central banks can issue directives, guidelines and
suggestions for commercial banks regarding reducing credit supply for speculative purposes.
Control Through Directives: Under this method the central bank issue frequent directives to
commercial banks. These directives guide commercial banks in framing their lending policy. Through a
directive the central bank can influence credit structures, supply of credit to certain limit for a specific
purpose.
Direct Action: Under this method, the apex bank or monetary authority can impose an action
against a bank. If certain banks are not adhering to the directives, the bank may refuse to rediscount their
bills and securities. Secondly, it may refuse credit supply to those banks whose borrowings are in excess
to their capital. Central bank can penalize a bank by changing some rates. At last, it can even put a ban on
a particular bank if it does not follow its directives and work against the objectives of the monetary
policy.
These are various selective instruments of the monetary policy. However the success of these tools is
limited by the availability of alternative sources of credit in economy, working of the Non-Banking
Financial Institutions (NBFIs), profit motive of commercial banks and undemocratic nature off these
tools. But a right mix of both the general and selective tools of monetary policy can give the desired
results.
Following are the highlights of RBIs first bi-monthly monetary policy statement, 201516:

1
2
3
4

Shorttermlendingrate(repo)unchangedat7.5%.Bankrate;8.25%,CRR4%,SLR21.5%,REPO
RATE:7.25%,REVERSEREPORATE:6.25%,MARGINALSTANDINGFACILITY(MSF)8.25%.
CashReserveRatiounchangedat4%.

RetainsStatutoryLiquidityRatioat21.5%.
EstimatesGDPgrowthat7.8%inFY16,upfrom7.5%inFY15.

5
6
7
8
9
1
0
1
1

ForecastsCPIinflationat5.8pcbyMarch2016.

100%CPIinflationtodipto4%inAugust2015.

HailstormsinMarchaffected17%oftherabicropsownarea.

Futureratecutswilldependoninterestratereductionbybanks.

IndiabetterpreparedtodealwithvolatilitypostUSFederalReserverateaction.

Statecooperativebankstobeallowedtosetupoffsite/mobileATMswithoutpriorapprovalfromRBI.

RBItoformulateschemeformarketmakingbyprimarydealersinsemiliquidandilliquidGSecs.

Q.2:Discuss / Explain the various functions of RBI.

Ans. A.RESERVE BANK OF INDIA (RBI) :The Reserve Bank of India is the central bank of India it was established as a shareholders
bank on 1st April 1935. Its share capital was Rs. 5 crore, divided in to 5 lakhs fully paid up
shares of Rs. 100 each. On 1st January 1949 it was nationalized. Its headquarters is at Mumbai.
RBI, like any other bank performs almost all traditional Central banking functions. Due to
countrys development it has also undertaken developmental and promotional functions.
A. FUNCTIONS OF RBI :RBI performs many functions, some of them are:1. Issue Of Currency Notes :-

Under section 22 of RBI Act, the bank has the sole right to issue currency notes of all
denominations except one rupee coins and notes. The one-rupee notes and coins and small
coins are issued by Central Government and their distribution is undertaken by RBI as the agent
of the government. The RBI has a separate issue department which is entrusted with the issue
of currency notes.

2. Banker To The Government :The RBI acts as a banker agent and adviser to the government. It has obligation to transact
the banking business of Central Government as well as State Governments. E.g.:- RBI receives
and makes all payments on behalf of government, remits its funds, buys and sells foreign
currencies for it and gives it advice on all banking matters. RBI helps the Government both
Central and state to float new loans and manage public debt. The bank makes ways and
meets advances of the government. On behalf of central government it sells treasury bills and
thereby provides short-term finance.

3. Bankers bank And Lender Off Last Resort :RBI acts as a banker to other banks. It provides financial assistance to scheduled banks and
state co-operative banks in form of rediscounting of eligible bills and loans and advances
against approved securities.
RBI acts as a lender of last resort. It provides funds to bank when they fail to get it from other
sources. It also acts as a clearing house. Through RBI, banks make interbanks payments.

4. Controller Of Credit :RBI has power to control the volume of credit created by banks. The RBI through its various
quantitative and qualitative techniques regulates total supply of money and bank credit in the
interest of economy. RBI pumps in money during busy season and withdraws money during
slack season.

5. Exchange control And Custodian Of Foreign Reserve :RBI has the responsibility of maintaining fixed exchange rates with all member countries of
IMF. For this, RBI has centralized all foreign exchange reserves (FOREX). RBI functions as
custodian of nations foreign exchange reserves. It has to maintain external valu of Rupee. RBI
achieves this aim through appropriate monetary fiscal and trade policies and exchange control.

6. Collection And Publication Of Data :The RBI collects and complies statistical information on banking and financial operations of
the economy. The Reserve Bank Of India Bulletian is a monthly publication. It not only provides
information, but also results of important studies and investigations conducted by reserve bank
are given. The Report on currency and finance is an annual publication. It provides review of
various developments of economic and financial importance.

7. Regulatory And Supervisory Functions :The RBI has wide powers of supervision and control over commercial and co-operative
banks, relating to licensing, establishment, branch expansion, liquidity of Assets, management
and methods of working, amalgamation, re-construction and liquidation. The supervisory
functions of RBI have helped a great in improving the standard of banking in India to develop on
sound lines and to improve the methods of their operation.

8. Clearing House Functions :The RBI acts as a clearing house for all member banks. This avoids unnecessary transfer of
funds between the various banks.

9. Development And Promotional Functions :The RBI has helped in setting up Industrial Finance Corporations of India (IFCI), State
Financial Corporations (SFCs), Deposit Insurance Corporation, Agricultural Refinance and
Development Corporation (ARDC), units Trust of India (UTI) etc. these institutions were set up
to mobilize savings, promote saving habits and to provide industrial and agricultural finance.
RBI has a special Agricultural Credit Department (ACD) which studies the problems of
agricultural credit. For this Regional Rural banks, Co-operative, NABARD etc. were established.
The RBI has also taken measures to promote organized bill market to create elasticity in Indian
Money Market in order to satisfy seasonal credit needs.
Thus RBI has contributed to economic growth by promoting rural credit, industrial financing,
export trade etc.

Explain Monetary Management of RBI.

Ans.

A) MONETARY POLICY OF RBI: -

The Monetary Policy of RBI is not merely one of credit restriction, but it has also the duty to see
that legitimate credit requirements are met and at the same time credit is not used for
unproductive and speculative purposes RBI has various weapons of monetary control and by
using them, it hopes to achieve its monetary policy.
I)

General I Quantitative Credit Control Methods :-

In India, the legal framework of RBIs control over the credit structure has been provided
Under Reserve Bank of India Act, 1934 and the Banking RegulationAct, 1949. Quantitative
credit controls are used to maintain proper quantity of credit o money supply in market. Some of
the important general credit control methods are:1. Bank Rate Policy :Bank rate is the rate at which the Central bank lends money to the commercial banks for
their liquidity requirements. Bank rate is also called discount rate. In other words bank rate is the
rate at which the central bank rediscounts eligible papers (like approved securities, bills of
exchange, commercial papers etc) held by commercial banks.
Bank rate is important because its is the pace setter to other market rates of interest. Bank rates
have been changed several times by RBI to control inflation and recession. By 2003, the bank rate
has been reduced to 6% p.a.

2. Open market operations :It refers to buying and selling of government securities in open market in order to expand or
contract the amount of money in the banking system. This technique is superior to bank rate
policy. Purchases inject money into the banking system while sale of securities do the opposite.
During last two decades the RBI has been undertaking switch operations. These involve the
purchase of one loan against the sale of another or, vice-versa. This policy aims at preventing
unrestricted increase in liquidity.
3. Cash Reserve Ratio (CRR)
The Cash Reserve Ratio (CRR) is an effective instrument of credit control. Under the RBl Act
of, l934 every commercial bank has to keep certain minimum cash reserves with RBI. The RBI
is empowered to vary the CRR between 3% and 15%. A high CRR reduces the cash for lending
and a low CRR increases the cash for lending. The CRR has been brought down from 15% in
1991 to 7.5% in May 2001. It further reduced to 5.5% in December 2001. It stood at 5% on
January 2009. In January 2010, RBI increased the CRR from 5% to 5.75%. It further increased

in April 2010 to 6% as inflationary pressures had started building up in the economy. As of

March 2011, CRR is 6%.
4. Statutory Liquidity Ratio (SLR)
Under SLR, the government has imposed an obligation on the banks to, maintain a certain
ratio to its total deposits with RBI in the form of liquid assets like cash, gold and other securities.
The RBI has power to fix SLR in the range of 25% and 40% between 1990 and 1992 SLR was
as high as 38.5%. Narasimham Committee did not favor maintenance of high SLR. The SLR
was lowered down to 25% from 10thOctober 1997.It was further reduced to 24% on November
2008. At present it is 25%.
5. Repo And Reverse Repo Rates
In determining interest rate trends, the repo and reverse repo rates are becoming important.
Repo means Sale and Repurchase Agreement. Repo is a swap deal involving the immediate
Sale of Securities and simultaneous purchase of those securities at a future date, at a
predetermined price. Repo rate helps commercial banks to acquire funds from RBI by selling
securities and also agreeing to repurchase at a later date.
Reverse repo rate is the rate that banks get from RBI for parking their short-term excess
funds with RBI. Repo and reverse repo operations are used by RBI in its Liquidity Adjustment
Facility. RBI contracts credit by increasing the repo and reverse repo rates and by decreasing
them it expands credit. Repo rate was 6.75% in March 2011 and Reverse repo rate was 5.75%
for the same period. On May 2011 RBI announced Monetary Policy for 2011-12. To reduce
inflation it hiked repo rate to,7.25% and Reverse repo to 6.25%
II)

SELECTIVE / QUALITATIVE CREDIT CONTROL METHODS :-

Under Selective Credit Control, credit is provided to selected borrowers for selected
purpose, depending upon the use to which the control try to regulate the quality of credit - the
direction towards the credit flows. The Selective Controls are :1. Ceiling On Credit
The Ceiling on level of credit restricts the lending capacity of a bank to grant advances against
certain controlled securities.
2.

Margin Requirements :A loan is sanctioned against Collateral Security. Margin means that proportion of the value of
security against which loan is not given. Margin against a particular security is reduced or
increased in order to encourage or to discourage the flow of credit to a particular sector. It varies
from 20% to 80%. For agricultural commodities it is as high as 75%. Higher the margin lesser
will be the loan sanctioned.

3.

Discriminatory Interest Rate (DIR)

Through DIR, RBI makes credit flow to certain priority or weaker sectors by charging
concessional rates of interest. RBI issues supplementary instructions regarding granting of
additional credit against sensitive commodities, issue of guarantees, making advances etc. .
4.

Directives:The RBI issues directives to banks regarding advances. Directives are regarding the purpose
for which loans may or may not be given.

5.

Direct Action
It is too severe and is therefore rarely followed. It may involve refusal by RBI to rediscount bills
or cancellation of license, if the bank has failed to comply with the directives of RBI.

6.

Moral Suasion
Under Moral Suasion, RBI issues periodical letters to bank to exercise control over credit in
general or advances against particular commodities. Periodic discussions are held with
authorities of commercial banks in this respect.
CHANGES IN RBIs MONETARY POLICY :Since 1991 RBIs monetary management has undergone some major changes.
Let us explain
1)

Multiple Indicator Approach :-

Upto late 1990s, RBI used the Monetary targeting approach to its monetary policy.
Monetary targeting refers to a monetary policy strategy aimed at maintaining price stability by
focusing on changes in growth of money supply. After 1991 reforms this approach became
difficult to follow. So RBI adopted Multiple indicator Approach in which it looks at a variety of
economic indicators and monitor their impact on inflation and economic growth.
2)

Selective Methods Being Phased Out :-

With rapid progress in financial markets, the selective methods of credit control are being
slowly phased out. Quantitative methods are becoming more important.
3)

Reduction In Reserve Requirements :-

In post-reform period the CRR and SLR have been progressively lowered. This has been
done as a part of financial sector reforms. As a result, more bank funds have been released for
lending. This has led to the growth of economy.
4)

Deregulation Of Administered Interest Rate System :-

Earlier lending rate of banks was determined by RBI. Since 1990s this system has
changed and lending rates are determined by commercial banks on the basis of market forces.

5)

Delinking Of Monetary Policy From Budget Deficit :-

In1994 government phased out the use of adhoc treasury Bills.These bills were used by
government to borrow from RBI to finance fiscal deficit. With phasing out of Bills, RBI would no
longer lend to government to meet fiscal deficit.
6)

Liquidity Adjustment Facility (LAF):-

LAF allows banks to borrow money through repurchase agreement LAF was introduced
by RBI during June, 2000, in phases. The funds under LAF are used by banks to meet day-today mismatches in liquidity.
7)

Provision Of Micro Finance

By linking the banking system with Self Help Groups, RBI has introduced the scheme of
micro finance for rural poor. Along with NABARD, RBI is promoting various other microfinance
institutions.
8)

External Sector

With globalization large amount of foreign capital is attracted. To provide stability in

financial markets, RBI uses sterlization and LAF to absorb the excess liquidity that comes in
with huge inflow of foreign capital.
9)

Expectation As A Channel Of Monetary Transmission

Traditionally, there were four key channels of monetary policy transmission :-Interest rate,
credit availability, asset prices and exchange rate channels. Interest rate is the most dominant
transmission channel as any change in monetary policy has immediate effect on it. In recent
years fifth channel, Expectation has been added. Future expectations about asset prices,
general price and Income levels influence the four traditional channels.

I.

Achievements I Positive Aspects Of Monetary Policy :-

1.

Short Term Liquidity Management :RBI has developed various methods to maintain stability in interest rate and exchange rate like
LAF, OMO and MSS. RBI has also managed its sterlization operations very well.

2.

Financial Stability :With the help of controls, regulation and supervision mechanism, RBI has been successful in
maintaining financial stability. During the period of global crisis it has also been able to maintain
macro economic stability.

3.

Financial Inclusion :-

Along with NABARD, RBI has made a great impact in the growth of microfinance. RBI has
supported Self Help Group Model and promoted other microfinance institutions.

4.

Adaptability:In India monetary policy is flexible, as it changes with time. RBI has developed new methods of
credit control and shifted from monetary targeting to multiple indicator approach.

5.

Increase In Growth:To maintain the growth of economy RBI has used its instruments' effectively. At present India
has the second highest rate of GDP growth after China. Thus monetary policy has played an
important role.

6.

Increase In Bank Deposits:The increase in bank deposits over the years indicates trust and confidence of people in
banking sector. Effective supervision of RBI over banks and financial institutions is largely
responsible for trust and confidence of public in banking.

7.

Competition Among Banks :-

The monetary policy of RBI has resulted in healthy competition among banks in the country. The
competition is due to deregulation of interest rates and other measures taken by RBI. Now-adays due to professionalism banks provide better service to customers.
II.

FAILURES I LIMITATIONS OF MONETARY POLICY

1.

Huge Budgetary Deficits :RBI makes every possible attempt to control inflation and to balance money supply in the
market. However Central Government's huge budgetary deficits have made monetary policy
ineffective. Huge budgetary deficits have resulted in excessive monetary growth.

2.

Coverage Of Only Commercial Banks :Instruments of monetary policy cover only commercial banks so inflationary pressures caused
by banking finance can be controlled by RBI, but in India, inflation also results from deficit
financing and scarcity of goods on which RBI may not have any control.

3.

Problem Of Management Of Banks And Financial Institutions :The monetary policy can succeed to control inflation and to bring overall development only
when the management of banks and Financial institutions are efficient and dedicated. Many
officials of banks and financial institutions are corrupt and inefficient which leads to financial
scams in this way overall economy is affected.

4.

Unorganised Money Market :-

Presence of unorganised sector of money market is one of the main obstacle in effective
working of the monetary policy. As RBI has no power over the unorganised sector of money
market, its monetary policy becomes less effective.

5.

Less Accountability:At present time, the goals of monetary policy in India, are not set out in specific terms and there
is insufficient freedom in the use of instruments. In such a setting, accountability tends to be
weak as there is lack of clarity in the responsibility of governments and RBI.

6.

Black Money :There is a growing presence of black money in the economy. Black money falls beyond the
purview of banking control of RBI. It means large proposition of total money Supply in a country
remains outside the purview of RBI's monetary management.

7.

Increase Volatility :The integration of domestic and foreign exchange markets could lead to increased volatility in
the domestic market as the impact of exogenous factors could be transmitted to domestic
market. The widening of foreign exchange market and development of rupee - foreign exchange
swap would reduce risks and volatility.

8.

Lack Of Transparency :According to S. S. Tarapore, the monetary policy formulation, in its present form in India, cannot
be continued indefinitely. For a more effective policy, it would be necessary to have greater
transparency in the policy formulation and transmission process and the RBI would need to be
clearly demarcated.
B. CONCLUSION :Thus, from above we can say that despite several problems RBI has made a good effort
for effective implementation of the monetary policy in India.

UNIOUN-BUDGET-2015-16 HIGHLIGHTS

Union Budget 2015-16 Highlights : Pdf

Download
Finance Minister Arun Jaitley today (28th February 2015) presented the Union
Budget for the year 2015-16 aimed at high growth, saying the pace of cutting
the fiscal deficit would slow as he seeks to boost investment and ensure that
ordinary people benefit. Being termed as 'make or break', this is Arun Jaitley
and

the

NDA

Government's

first

full-year

Budget.

Note : Before reading the following Points, read Important Details you
should know about Budget from here

Important Numbers to Note

o

Non-Plan expenditure : Rs 13,12,200 crore.

Plan expenditure : Rs Rs 4,65,277 crore.

Total expenditure : Rs 17,77,477 crore.

Gross Tax receipts : Rs 14,49,490 crore.

Devolution to the States : Rs 5,23,958 crore.

Share of Central Government : Rs 9,19,842 crore.

Non Tax Revenues : Rs 2,21,733 crore.

Fiscal deficit : 3.9% of GDP and Revenue Deficit: 2.8% of GDP

Key Highlights of Budget 2015

o

No change in individual IT slabs

Individual tax payer can now get benefit upto 4.4lac

Corporate tax reduced to 25pc

Wealth tax replaced with 2 pc surcharge on super rich with above 1 crore
Rs annual income.

Target of 8.5 lakh crores credit to be given to farmers in 2015-16

Corporate Tax reduced from 30% to 25% for next four years for
employment generation.

100pc exemption in CSR activities for Clean Ganga Fund and Swachh
Bharat Kosh

Increase in limit of deduction of health insurance premium

Benami transaction prohibition Bill to be introduced in this session

1,54,000 points identified for Postal Banking

Tax evasion may lead to imprisonment up-to ten years.

Custom duty on raw materials and intermediaries to be reduced

Increase in limit of deduction in health insurance premium from Rs

15,000 to Rs 25,000; Rs. 30,000 for senior citizens

Transport allowance exemption on Income Tax increased from Rs. 800 to

1600

Rs 50000 deduction in taxable income for contribution to NPS

Rs. 8.5 lakh crore for Farm Credit in 2015-16

At least one member of each family to get a job.

Government to utilize vast postal network for increasing access to

institutional banking.

To bring a bankruptcy code in the year 2015-16 that will meet global
standards and provide for judicial capacity.

Proposes to create a national agriculture market to increase income of

farmers.

Universal social security system through insurance for all.

PM Surakhsha Bima Yojana to increase the access to insurance ; it will be

linked with Jan Dhan Yojana.

Yojana to offer coverage of 2 lakh rupees for just premium of 12 rupees

Atal Pension Yojana to provide defined pension according to contribution ;

50 per cent contribution to be from Government

Comprehensive law on black money stashed abroad.

Imprisonment of 10 yrs under Black Money Law.

GAAR deferred by 2 yrs

Employees contribution to the EPF should be optional : FM

For women's security, additional 1,000 crore to Nirbhaya fund.

Govt. to introduce Gold Monetization Scheme, Sovereign Gold Bonds and

Gold coins with Ashok Chakra

FM announces : Will increase Visa On Arrival facilitiy from 43 to 150

Countries.

National Skill Mission to be launched for youth below 25 yrs of age

AIIMS in JK,Punjab,TN,HP,Assam.

ISM Dhanabad will be upgraded to full IIT.

IIT in Karnataka, IIM in J&K and Andhra Pradesh.

Sector wise
Budget 2015

Highlights

of

Union

Taxation
1.

Abolition of Wealth Tax.

2.

Additional 2% surcharge for the super rich with income of over Rs. 1
crore.

3.

Rate of corporate tax to be reduced to 25% over next four years.

4.

Total exemption of up to Rs. 4,44,200 can be achieved.

5.

100% exemption for contribution to Swachch Bharat, apart from CSR.

6.

Service tax increased to14 per cent.

Agriculture
1.

Rs. 25,000 crore for Rural Infrastructure Development Bank.

2.

Rs. 5,300 crore to support Micro Irrigation Programme.

3.

Farmers credit - target of 8.5 lakh crore.

Infrastructure
1.

Rs. 70,000 crores to Infrastructure sector.

2.

Tax-free bonds for projects in rail road and irrigation

3.

PPP model for infrastructure development to be revitalised and govt. to

bear majority of the risk.

4.

Rs. 150 crore allocated for Research & Development

5.

NITI to be established and involvement of entrepreneurs, researchers to

foster scientific innovations.

6.

Govt. proposes to set up 5 ultra mega power projects, each of 4000MW.

Education
1.

AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh,

Bihar and Assam.

2.

IIT in Karnataka; Indian Institute of Mines in Dhanbad to be upgraded to

IIT.

3.

PG institute of Horticulture in Armtisar.

4.

Kerala to have University of Disability Studies

5.

Centre of film production, animation and gaming to come up in Arunachal

Pradesh.

6.

IIM for Jammu and Kashmir and Andhra Pradesh.

Defence
1.

Rs. 2,46,726 crore for Defence.

2.

Focus on Make in India for quick manufacturing of Defence equipment.

Welfare Schemes
1.

50,000 toilets constructed under Swachh Bharath Abhiyan.

2.

Two other programmes to be introduced- GST & JAM Trinity. GST will be
implemented by April 2016.

3.

MUDRA bank will refinance micro finance orgs. to encourage first

generation SC/ST entrepreneurs.

4.

Housing for all by 2020.

5.

Upgradation 80,000 secondary schools.

6.

DBT will be further be expanded from 1 crore to 10.3 crore.

7.

For the Atal Pension Yojna, govt. will contribute 50% of the premium
limited to Rs. 1000 a year.

8.

New scheme for physical aids and assisted living devices for people aged
over 80 .

9.

Govt to use Rs. 9000 crore unclaimed funds in PPF/EPF for Senior Citizens
Fund.

10. Rs. 5,000 crore additional allocation for MGNREGA.

11. Govt. to create universal social security system for all Indians.
Renewable Energy
1.

Rs. 75 crore for electric cars production.

2.

Renewable energy target for 2022: 100K MW in solar; 60K MW in wind;

10K MW in biomass and 5K MW in small hydro

Tourism
Develpoment schemes for churches and convents in old Goa; Hampi,
Elephanta caves, Forests of Rajasthan, Leh palace, Varanasi , Jallianwala Bagh, Qutb Shahi
tombs at Hyderabad to be under the new toursim scheme Visa on Arrival for 150 countries.
Fiscal Policy :It is defined as the process of shaping government taxation and expenditure to achieve desired economic and
social objectives.
The objectives of fiscal policy are not specified these change with the level of economic development. The
objectives of fiscal policy may differ from country to country. Following are the main objectives of fiscal policy in
the development countries.
Objectives and Role of Fiscal Policy
1. Increase in Savings :This policy is also used to increase the rate of savings in the country. In the developing countries rich class
spends a lot of money on luxuries. The government can impose taxes on them and can provide the basic
necessities of life to the poor class on low rate. In this way by providing incentives, savings can be increased.
2. To Encourage Investment :The government can encourage the investment by providing various incentives like the tax holiday in the
various sectors of the economy. The capital can be shifted from less productrive sectors to more productive
sectors. So the resources of the country can be utilized maximum.
3. To Achieve Equal Distribution of Wealth :Fiscal policy is very useful for the achievement of equal distribution of wealth. When the wealth is equally
distributed among the various classes then their purchasing power increases which ensures the high level of
employment and production.
4. To Control Inflation :Fiscal policy is very useful weapon for controlling the rate of inflation. When the expenditure on non productive
projects is reduced or the rate of taxes are increased then the purchasing power of the people reduces.
5. To Reduce the Regional Disparity :In the less developing countries the regional disparity is found. Some areas are more developed while the
others are less developed. Government provides the infrastructure facilities in less developed areas. The tax
holiday incentive is also provided in these areas which is very useful in increasing the per capita income.
6. Stabilization of Price Level :-

Fiscal policy is also used to achieve desirable level of prices in the country. It means the cost and price should
be at such level that production and employment may increase.
7. Increase in Agriculture and Industrial output :Fiscal policy is also used that the output of various sectors of the economy must increase. The demand inside
and out side the country should be satisfied.
8. To Attain Maximum Welfare of the People :Fiscal policy main objective is to achieve maximum welfare of the people. The quality of life must improve in the
country.
9. To Check Rapid Increase in Consumption :Fiscal policy is also used to check the rapid increase in the consumption will be high then the rate of saving will
be low and consequently rate of investment will be low. So one country cannot improve its economic condition
without increasing the investment.
10. To Achieve Economic Stability :The aim of fiscal policy is to increase the rate of production and employment without inflation. So in all the
countries fiscal policy major objective is to ensure the economic stability in the country.

BUSINESS ENVIRONMENT IN INDIA AN OVERVIEW

The economy of India is as diverse as it is large, with a number of major sectors including manufacturing industries,
agriculture, textiles and handicrafts, and services. Agriculture is a major component of the Indian economy, as over
66% of the Indian population earns its livelihood from this area.
However, the service sector is greatly expanding and has started to assume an increasingly important role. The fact
that the English speaking population in India is growing by the day means that India has become a hub of outsourcing
activities for some of the major economies of the world including the United Kingdom and the United States.
Outsourcing to India has been primarily in the areas of technical support and customer services.
In general, the Indian economy is controlled by the government, and there remains a great disparity between the rich
and the poor. Ranked by the exchange rate of the United States Dollar, the Indian economy is the twelfth largest in
the world.
In Purchasing Power Parity GDP, the figure for India was 1.5 trillion US Dollars in 2008. The per capita income of
India is 4,542 US Dollars in the context of Purchasing Power Parity. This is primarily due to the 1.1 billion population
of India, the second largest in the world after China. In nominal terms, the figure comes down to 1,089 US Dollars,
based on 2007 figures. According to the World Bank, India is classed as a low-income economy.
Recent trends have seen India exporting the services of a numerous information technology (IT) professionals. IT
professionals have been sought for their expertise in software, software engineering and other financial services. This
has been possible as a result of the high skill levels of Indian IT professionals.
Other areas where India is expected to make progress include manufacturing, construction of ships, pharmaceuticals,

aviation, biotechnology, tourism, nanotechnology, retailing and telecommunications. Growth rates in these sectors are
expected to increase dramatically.
Over the years the Indian government has taken an economic approach that has been influenced, in part, by the
Socialist movements. The Indian national government has maintained a high and authoritative level of control over
certain areas of the Indian economy like the participation of the private sector, foreign direct investment, and foreign
trade.
It may be observed that in spite of the tremendous debate about the justification of the privatization of industries
traditionally owned by the government, the process of privatization has still continued at a steady pace.
One of the major challenges before the Indian economy, or those who are responsible for operating it, is to remove
the economic inequalities that are still persistent in India after its independence in 1947. Poverty is still one of the
major issues although these levels have dropped significantly in recent years. As per official surveys, it has been
observed that in the 2004, almost 27% of the working Indian populace was living below the poverty line.
Poverty is a challenge thats becoming increasingly important in relationship to the alarming rate of new births. This
implies that ever more rapid change, or birth control policies like the One Child policy in China, are needed to reduce
the numbers affected by poverty in the vast Indian economy.

The following factors produces changes in Business Environment:

Changes in Govt. polices

Variations in Growth Performances(Example: forward and backward linkages)

Corrective policy action

Changes in market structure and competition

Future expectations and business speculation(Example: derivatives)

Changes in consumer attitudes, tastes and preferences

Imports and foreign investment changes

External economic shocks

Non economic factors

ANLAYSIS OF INDIAN-ECONOMY A SWOT ANLAYSIS:

Strengths
Huge pool of labour force
High percentage of cultivable land
Diversified nature of the economy

Huge English speaking population, availability of skilled manpower

Stable economy, does not get affected by external changes
Extensive higher education system, third largest reservoir of engineers
High growth rate of economy
Rapid growth of IT and BPO sector bringing valuable foreign exchange
Abundance of natural resources

Weakness
Very high percentage of workforce involved in agriculture which contributes only 23% of GDP
Arround a quarter of a population below the poverty line
High unemployment rate
Stark inequality in prevailing socio economic conditions
Poor infrastructural facilities
Low productivity
Huge population leading to scarcity of resources
Low level of mechanization
Red tapism, bureaucracy
Low literacy rates
Unequal distribution of wealth
Rural-urban divide, leading to inequality in living standards

Opportunities
Scope for entry of private firms in various sectors for business
Inflow of Foreign Direct Investment is likely to increase in many sectors
Huge foreign exchange earning prospect in IT and ITES sector
Investment in R&D, engineering design
Area of biotechnology
Huge population of Indian Diaspora in foreign countries (NRIs)
Area of Infrastructure
Huge domestic market: Opportunity for MNCs for sales
Huge matural gas deposits found in India, natural gas as a fuel has tremendous opportunities
Vast forest area and diverse wildlife
Huge agricultural resources, fishing, plantation crops, livestock

Threats
Global economy recession/slowdown
High fiscal deficit
Threat of government intervention in some states
Volatility in crude oil prices across the world
Growing Import bill
Population explosion, rate of growth of pobulation still high
Agriculture excessively dependent on monsoons

Globalisation
The IMF defines globalisation as the growing economic interdependence of countries worldwide through increasing
volume and variety of cross border transactions in goods and services and of international capital flows, and also
through
the
more
rapid
and
widespread
diffusion
of
technology.
Globalisation

of

World

Economy

The world economy has been emerging as global or transnational economy. A global or transnational
economy is one which transcends the national borders unhindered by artificial restrictions like Government
restrictions on trade and factor movements.

The Transnational economy is different from the international economy. The international economy is
characterised by the existence of different national economies the economic relations between them being
regulated by the national governments. The transnational economy is a border less world economy
characterised by free flow of trade and factors of production across national borders.

According to Drucker, the transnational economy is characterised by, inter alia the following features:

1.

The transnational economy is shaped mainly by money flows rather than by trade in goods and services.
These money flows have their own dynamics. The monetary and fiscal policies of sovereign governments
increasingly react to events in the international money and capital markets rather than actively shape them.

2.

In the transnational economy management has emerged as the decisive factor of production and the
traditional factors of production, land and labour, have increasingly become secondary. Money and capital
markets too have been increasingly becoming transnational and universally obtainable.

3.

In the transnational economy the goal is market maximisation and not profit maximisation.

4.

Trade, which increasingly follows investment, is becoming a function of investment.

5.

The decision making power is shifting from the national state to the region. (e.g., European Union, NAFTA,
etc.)

6.

There is a genuine and almost autonomous world economy of money, credit and investment flows. It is
organised by information which no longer knows national boundaries.

7.

Finally, there is a growing pervasiveness of the transnational corporations which see the entire world as a
single market for production and marketing of goods and services.

Drivers of Globalisation
In general, globalisation represents the increasing integration of the world economy, based on five interrelated drivers
of change:

International trade (lower trade barriers and more competition)

Financial flows (foreign direct investment, technology transfers/licensing, portfolio investment, and debt)

Communications (traditional media and the Internet)

Technological advances in transportation, electronics, bioengineering and related fields

Population mobility, especially of labor

Globalisation of Business
Globalisation is an attitude of mind it is a mind-set which views the entire world as a single market so that the
corporate strategy is based on the dynamics of the global business environment.
Globalisation encompasses the following:

Doing or planning to expand business globally.

Giving up the distinction between the domestic market and foreign market and developing a global outlook
of the business.

Locating the production and other physical facilities on a consideration of the global business dynamics,
irrespective of national considerations.

Basic product development and production planning on the global market considerations.

Global sourcing of factors of production, i.e., raw materials, components, machinery/technology, finance etc.,
are obtained from the best source anywhere in the world.

Global orientation of the organisational structure and management culture.

Features of current globalisation

The period 1870 to 1913 experienced a growing trend towards globalisation. The new phase of globalisation which
started around the mid 20th century became very widespread, more pronounced and overcharging since the late
1980s by gathering more momentum from the political and economic changes that swept across the communist
countries, the economic reforms in other countries, the latest multilateral trade agreement which seeks to
substantially liberalise international trend and investment and the technological and communication revolutions.
Essential conditions for globalisation

Business Freedom: There should not be unnecessary government restrictions which come in way of
globalisation, like import restriction, restrictions on sourcing finance or other factors from abroad, foreign
investments etc.

Facilities: The extent to which an enterprise can develop globally from home country base depends on the
facilities available like the infrastructural facilities.

Government Support: Although unnecessary government interference is a hindrance to globalisation,

government support can encourage Globalisation. Government support may take the form of policy and
procedural reforms, development of common facilities like infrastructural facilities, R&D support, financial
market reforms and so on.

Resources: Resources is one of the important factors which often decides the ability of a firm to globalise.
Resourceful companies may find it easier to thrust ahead in the global market. Resources include finance,
technology, R&D capabilities, managerial expertise, company and brand image, human resource etc.

Competitiveness: The competitive advantage of the company is very important determinant of success in
global business. A firm may derive competitive advantage from any one or more of the factors such as low
costs and price, product quality, product differentiation, technological superiority, after sales service,
marketing strength etc.

Orientation: A global orientation on the part of the business firms and suitable globalisation strategies are
essential for globalisation

Globalisation of Indian Business: GLOBALISATION TRENDS IN INDIA.

Indias economic integration with the rest of the world was very limited because of the restrictive economic policies
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, there has, however, been a change. Globalisation has in fact become
a buzz-word with Indian firms now, and many are expanding their overseas business by different strategies.
Obstacles to Globalisation

Government policy and procedures: Government policy and procedures in India are among the most
complex, confusing and cumbersome in the world. Even after the much publicised liberalisation, they do not
present a very conducive situation. One prerequisite for success in globalisation is swift and efficient action.
Government policy and the bureaucratic culture in India in this respect are not that encouraging.

High Cost: High cost of many vital inputs and other factors like raw materials and intermediates, power,
finance infrastructural facilities like port etc., tend to reduce the international competitiveness of the Indian
Business.

Poor Infrastructure: Infrastructure in India is generally inadequate and inefficient and therefore very costly.
This is a serious problem affecting the growth as well as competitiveness.

Obsolescence: The technology employed, mode and style of operations etc., are, in general, obsolete and
these seriously affect the competitiveness.

Resistance to Change: There are several socio-political factors which resist change and this comes in the
way of modernisation, rationalisation and efficiency improvement. Technological modernisation is resisted
due to fear of unemployment. The extent of excess labour employed by the Indian industry is alarming.
Because of this labour productivity is very low and this in some cases more than offsets the advantages of
cheap labour.

Poor Quality Image: Due to various reasons, the quality of many India products is poor. Even when the
quality is good, the poor quality image India has becomes a handicap.

Supply Problems: Due to various reasons like low production capacity, shortages of raw materials and
infrastructures like power and port facilities, Indian companies in many instances are not able to accept large
orders or to keep up delivery schedules.

Small Size: Because of the small size and the low level of resources, in many cases Indian firms are not
able to compete with the giants of other countries. Even the largest of the Indian companies are small
compared to the multinational giants.

Lack of Experience: The general lack of experience in managing international business is another
important problem.

Limited R&D and Marketing Research: Marketing Research and R&D in other areas are vital inputs of
development of international business. However, these are poor in Indian Business. Expenditure on R&D in
India is less than one per cent of GNP while it is two to three per cent in most of the developed countries.

Growing Competition: The competition is growing not only from the firs in the developed countries but also
from the developing country firms. Indeed, the growing competition from the developing country firms is a
serious challenge to Indias international business.

Trade Barriers: Although the tariff barriers to trade have been progressively reduced thanks to the
GATT/WTO, the non-tariff barriers have been increasing, particularly in the developed countries. Further, the
trading blocs like the NAFTA, EC etc., could also adversely affect Indias business.

Factors Favouring Globalisation

Human Resources: Apart from the low cost of labour, there are several other aspects of human resources
to Indias favour. India has one of the largest pool of scientific and technical manpower. The number of
management graduates is also surging. It is widely recognised that given the right environment, Indian
scientists and technical personnel can do excellently. Similarly, although the labour productivity in India is
generally low, given the right environment it will be good. While several countries are facing labour shortage
and may face diminishing labour supply, India presents the opposite picture. Cheap labour has particular
attraction for several industries.

Wide Base: India has a very broad resource and industrial base which can support a variety of business.

Growing Entrepreneurship: Many of the established industries are planning to go international in a big
way. Added to this is the considerable growth or new and dynamic entrepreneurs who could make a
significant contribution to the globalisation of Indian business.

Growing Domestic Market: The growing domestic market enables the Indian companies to consolidate
their position and to gain more strength to make foray into the foreign market or to expand their foreign
business.

Niche Markets: There are many marketing opportunities abroad present in the form of market niches.

Expanding Markets: The growing population and disposable income and the resultant expanding internal
market provides enormous business opportunities.

Transnationalisation of World Economy: Transnationalisation of the world economy. i.e., the integration of
the national economies into a single world economy as evinced by the growing interdependence and
globalisation of markets is an external factor encouraging globalisation of India Business.

NRIs: The large number of non-resident Indians who are resourceful in terms of capital, skill, experience,
exposure, ideas etc. is an assed which can contribute to the globalisation of Indian Business. The
contribution of the overseas Chinese to the recent impressive industrial development of China may be noted
here.

Economic Liberalisation: The economic liberalisation in India is an encouraging factor of globalisation. The
delicensing of industries, removal of restrictions on growth, opening up of industries earlier reserved for the
public sector, import liberalisations, liberalisation of policy towards foreign capital and technology etc., could
encourage globalisation of Indian Business.

Competition: The growing competition, both from within the country and abroad, provokes many Indian
companies to look to foreign markets seriously to improve their competitive position and to increase the
business.

MACRO FACTORS:
(i) Economical Environment:
Economic Environment consists of Gross Domestic Product, Income level at national level and
per capita level, Profit earning rate, Productivity and Employment rate, Industrial, monetary and
fiscal policy of the government etc.
The economic environment factors have immediate and direct impact on the businessman so
businessmen must scan the economic environment and take timely actions to deal with these
environments. Economic environment may put constraints and may offer opportunities to the
businessman. After the new economic policy of 1991, lots of opportunities are offered to
businessmen. The common factors which have influenced the Indian economic environment are
(a) Banking sector reform has led to many attractive schemes of deposits and lending money.
The Banks are offering loans at very nominal rate of interest and with minimum formalities to be
completed.
(b) Recent changes in economic and fiscal policy of country have encouraged NRIs and foreign
investors to invest in Indian companies.
(c) Lots of economic reforms are taking place in leasing and financing institutions. The private
sector is allowed to enter in financial institutions; as a result customers are gaining.
Some Aspects of Economic Environment:
1. Role of Private and Public sector
2. Rate of growth of GDP, GNP, and Per Capita Income

3. Rate of Saving and Investment

4. Balance of Trade
5. Balance of Payment
6. Transport and Communication System
7. Money Supply in the Economy
8. International Debt
(ii) Social Environment:
Social Environment consists of the customs and traditions of the society in which business is
existing. It includes the standard of living, taste, preferences and education level of the people
living in the society where business exists.
For example, when the Pepsi Cola Company used the slogan of Come Alive in their
advertisement then the people of a particular region misinterpreted the word Come Alive as
they assumed it means Coming out of Graves. So, they condemned the use of the product and
there was no demand of Pepsi Cola in that region. So, the company had to change its
advertisement slogan as it cannot survive in market by ignoring the sentiments of the people.
In India also, there are many Social reforms taking place and the common factors of Indian
Social Environment are:
(a) Demand for reservation in jobs for minority and women
(b) Demand for equal status of women by paying equal wages for male and female workers
(c) Demand for automatic machines and luxury items in middle class families

(d) The social movements to improve the education level of girl child.
(e) Health and Fitness trend has become popular.
Some Aspects of Social Environment:
1. Quality of life
2. Importance or place of women in workforce
3. Birth and Death rates
4. Attitude of customers towards innovation, life style etc.
5. Education and literacy rates
6. Consumption habits
7. Population
8. Tradition, customs and habits of people

(iii) Political Environment:

Political environment constitutes all the factors related to government affairs such as type of
government in power, attitude of government towards different groups of societies, policy
changes implemented by different governments etc. The political environment has immediate
and great impact on the business transactions so businessman must scan this environment very
carefully.

The businessman has to make changes in his organisation according to the changing factor of
political environment. For example, in 1977 when Janata Government came in power they made
the policy of sending back all the foreign companies. As a result the Coca Cola Company had to
close its business and leave the country.
The common factors and forces which have influenced the Indian political environment are:
(a) The government in Hyderabad is taking keen interest in boosting I.T. industry, as a result the
state is more commonly known as Cyber bad instead of Hyderabad.
(b) After the economic policy of liberalisation and globalisation, the foreign companies got easy
entry in India. As a result the Coca Cola which was sent back in 1977 came back to India. Along
with Coca Cola, Pepsi Cola and many other foreign companies are establishing their business
in India.
Some Aspects of Political Environment:
1. Present political system
2. Constitution of the country
3. Profile of political leaders
4. Government intervention in business
5. Foreign policy of government
6. Values and ideology of political parties
(iv) Legal Environment:

Legal environment constitutes the laws and various legislations passed in the parliament. The
businessman cannot overlook the legislations because he has to perform his business
transactions within the framework of legal environment.
(v) Technological Environment:
Technological environment refers to changes taking place in the method of production, use of
new equipment and machineries to improve, the quality of product. The businessman must
closely monitor the technological changes taking place in his industry because he will have to
implement these changes to remain in the competitive market.
Technological changes always bring quality improvement and more benefits for customers. The
recent technological changes of Indian market are:
1. Digital watches have killed the prospects and the business of traditional watches.
2. Color T.V. technology has closed the business of black and white T.V.
3. Artificial fabric has taken the market of traditional cotton and silk fabrics.
4. Photo copier and Xerox machines have led to the closure of carbon paper business.
5. Shift in Demand from vacuum tubes to transistors.
6. Shift from steam locomotives its diesel and electric engine.
7. From typewriter to World Processors.
Some Aspects of Technological Environment:
1. Various Innovations and Inventions.
2. Scientific Improvements.

3. Developments in IT sector
4. Import and Export of Technology.
5. Technological Advances in Computers.