Business Environment Solved Papers: November' 2015 | Dibrugarh University

byKumar Nirmal Prasad -

BUSINESS ENVIRONMENT SOLVED PAPERS
2015 (November)
Commerce (General/Speciality)

The figures in the margin indicate full marks for the questions
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
1. Answer as directed:                                                                     1x8=8
a)      Mention any one of the internal components of business environment.                               Ans: Mission and objectives
b)      Mention one hindrance of economic growth of India.     Ans: Population growth
c)       Mention one objective of New Industrial Policy.                               Ans: Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;
d)      The Dunkle Draft of the GATT was proposed in the year 1991. (Fill in the blank)
e)      Mention one objective of IMF.                 To promote international cooperation
f)       Write the full form of MFN.                         Most Favoured Nation
g)      In which year was the IMF set up?                           1945
h)      World Bank was established in the year 1945.                     (Fill in the blank)
2. Write short notes on the following:                                   4x4=16

a)      External factors of business environment.
Ans: External Environment: The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.
Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. External environment is divided into two parts: Micro and Macro.
Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:
a) Customers
b) Competitors
c) Suppliers
d) Channel Intermediaries
e) Society
Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological.
b)      Features of Competition Act, 2002.
Ans: Salient features of the Competition Act, 2002
1. Competition Act is a very compact and smaller legislation which includes only 66 sections.
2. Competition commission of India (CCI) is constituted under the Act.
3. This Act restricts agreements having adverse effect on competition in India.
4. This Act suitably regulates acquisitions, mergers and amalgamation of enterprises.
5. Under the purview of this Act, the central Government appointed director General for conducting detail investigation of anti-competition agreements for arresting CCI.
6. This Act is flexible enough to change its provisions as per needs.
7. Civil courts do not have any jurisdiction to entertain any suit which is within the purview of this Act.
8. This Act possesses penalty provision.
9. Competition Act has replaced MRTP Act.
10. Under this Act, “Competition Fund” has been created.
c)       Differences between economic development and economic growth.
Ans: Difference between Economic Growth and Economic Development
Basis
Economic Development
Economic Growth
Scope
Concerned with structural changes in the economy.
Growth is concerned with increases in the economy’s output.
Growth
Development relates to growth of human capital indexes, a decrease in inequality figures, and structural changes that improve the general population’s quality of life.
Growth relates to a gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports.
Implication
It implies changes in income, saving and investment along with progressive changes in socioeconomic structure of a country (institutional and technological changes).
It refers to an increase in the real output of goods and services in the country like increase the income in savings, in investment etc.
Measurement
Qualitative, HDI (Human Development Index), gender-Related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc.
Quantitative Increase in real GDP.
Effect
Brings qualitative and quantitative changes in the economy.
Brings quantitative changes in the economy.
Concept
Normative concept.
Narrower concept than economic development.
Relevance
Economic development is more relevant to measure progress and quality of life in developing nations.
Economic growth is a more relevant metric for progress in developed countries. But it’s widely used in all countries because growth is a necessary condition for development.
d)      Objectives of WTO.
Ans: Objectives Of WTO: WTO lays down the following objectives:
a)      Relation in the field of trade shall be conducted with a view to raising standards of living, ensuring full employment and large and steadily growing volume of real income and effective demand, and expanding the production and trade in goods and services.
b)      To allow for the optimal use of the world’s resources in accordance with the objective of sustainable development.
c)       To make positive efforts designed to ensure that developing countries especially the least developed among them, secure a share in the growth in international trade.
d)      To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade relations.
e)      To develop an integrated, more viable and durable multilateral trading system.
f)       To ensure linkages between trade policies, environment policies and sustainable development.
3. (a) Discuss about the concept and significance of business environment.                                        14
Ans: Concept: Business Environment
Business is any activity undertaken for the purpose of producing or selling a particular commodity r service and earns a profit. The business has several dimensions such as purchasing the inputs, converting the inputs into the output, selling that output at a profitable price. Every dimension of a business depends upon several factors. Hence a business is influenced by several factors, all them put together are described as Business Environment. A business can grow and prosper in a particular environment just as a plant can grow in a particular soil, climate, water supply etc.  Hence the entrepreneur has to pay attention to the environment in which he has to conduct his business activities. If he is able to adapt his business to the environment effectively and efficiently the business can make higher profits. This makes the study of business environment important.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and influences that surrounds and affects the business.”
According to wheeler, “Business environment is the total of all things external to business firms and industries which affect their organisation and operations.”
Importance of Business Environment
There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:
1)      Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises to exploit business opportunities and face the threat associated with such opportunities. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars in India.
2)      Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
3)      Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.
4)      Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures optimum use of resources available. For this, the study of economic and technological environment is useful. Such study enables organization to take full benefit of government policies, concessions provided, and technological developments and so on.
5)      Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.
6)      Coping with rapid changes: All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.
7)      Improving performance and meeting competition: the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.
8)      Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.
9)      Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in its approach and activities. In the absence of environmental changes, the business activities will be dull and lifeless. The problems & prospects of business can be understood properly through the study of business environment. This enables an enterprise to face the problems with confidence and secure the maximum benefits of business opportunities available.
10)   Understanding Future Problems and Prospects: The study of business environment enables to understand future problems and prospects of business in advance. This enables business organizations to face the problems boldly and also take the benefit of favorable situation.
Or
(b) Explain the various components of business environment.                                                                  14
Ans: Factors (Components) of business environment
On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it.
The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment.
The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.
Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels:
1.       Internal environment
2.       Micro environment/ task environment/ operating environment
3.       Macro environment/ general environment/ remote environment
Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.
1. Internal Environment: The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, the firm may not be able to change all the factors. The various internal factors are:
a)      Value system : The value system of an organisation means the ethical beliefs that guide the organisation in achieving its mission and objectives.  It is a widely acknowledged fact that the extent to which the value system is shared by all in the organisation is an important factor contributing to its success.
b)      Mission and objectives : The business domain of the company, direction of development, business philosophy, business policy etc are guided by the mission and objectives of the company.  The objective of all firms is assumed to be maximisation of profit.  Mission is defined as the overall purpose or reason for its existence which guides and influences its business decision and economic activities.
c)       Organisation structure : The organisational structure, the composition of the board of directors, the professionalism of management etc are important factors influencing business decisions. The nature of the organisational structure has a significant influence over the decision making process in an organisation.  An efficient working of a business organisation requires that the organisation structure should be conducive for quick decision-making. 
d)      Corporate culture : Corporate culture is an important factor for determining the internal environment of any company.  In a closed and threatening type of corporate culture the business decisions are taken by top level managers while the middle level and lower level managers have no say in business decision-making.  This leads to lack of trust and confidence among subordinate officials of the company and secrecy pervades throughout the organisation.  This results in a sense of alienation among the lower level managers and workers of the company. In an open and participating culture, business decisions are taken by the lower level managers and top management has a high degree of confidence in the subordinates. 
e)      Quality of human resources  :  Quality of employees that is of human resources of a firm is an important factor of internal environment of a firm.  The characteristics of the human resources like skill, quality, capabilities, attitude and commitment of its employees etc could contribute to the strength and weaknesses of an organisation.  Some organisations find it difficult to carry out restructuring or modernisation plans because of resistance by its employees. 
f)       Labour unions : Labour unions collectively bargains with the managers for better wages and better working conditions of the different categories of workers. For the smooth working of a business firm, good relations between management and labour unions are required.
g)      Physical resources and technological capabilities : Physical resources such as, plant and equipment and technological capabilities of a firm determine its competitive strength which is an important factor for determining its efficiency and unit cost of production.  Research and development capabilities of a company determine its ability to introduce innovations which enhances productivity of workers. It is, however, important to note that the rapid technological growth and the growth of information technology in recent years have increased the relative importance of intellectual capital and human resources as compared to physical resources of a company. 
2. External Environment: The external environment is made up of micro and macro environment.
Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:
a) Customers: The type and the nature of the customers influence the rate of growth of any firm. The firm has to be very particular about choosing the inputs and transforming them in to the output. The cost factor is subsidiary if the firm is dealing with such customers. If the customers are more commoners the quality of the commodity if less important than the cost of production. The customers want the commodity at a lower price so the firm will have to conscious about the cost in purchasing the inputs, in employment of labour, in packing and such other factors influencing the cost.
b) Competitors:  In modern age an absolute monopoly is a very rare thing. Most of the FIRMS have to work in some type of competition such as Monopolistic Competition or Oligopoly. A Firm has to be particular about the intensity of the competition. If the competition is severe the firm will have to be very particular about keeping the costs at the lowest level so that it can sell the commodity at a competitive price.
c) Suppliers:  The quality of the commodity and the cost of production are considerably influenced by the supplies of the inputs. If the inputs are supplied at economical prices, are of standard quality and if the supply is uninterrupted and timely the firm can produce a standard quality of a commodity and sell it at reasonable prices. Often the firms employ more than one supplier so as to ensure an uninterrupted supply of inputs. If the supplies of inputs are regular, consistent and reliable there is no need to keep a larger quantity in stock.
d) Channel Intermediaries: They refer to the different levels in the chain from the production unit to the final customer. The chain incorporates the stockists, the wholesalers, the distributors, the retailer etc. If there is a high level of efficiency maintained at every part of the chain the commodity can reach the final consumer in good condition and at a reasonable price. So the Firm has to select and maintain efficient intermediaries. The firm has to offer them proper terms
e) Society: The prospects of a firm depend upon the society in which it has to work and sell its products. In a homogenous society the job of the firm is easy. The people have almost the same habits likes and dislikes, values and ethical norms. In a heterogeneous society the job of the firm is difficult. A particular product may be acceptable to a particular section of the society but not acceptable to some other sections. In a country like India a firm has to into consideration all types of sections of the community such as the religious sections, the caste, the sect, language, region etc.
Conclusion: All these forces influence the chances available to a firm to survive and develop.
Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological. The components of these environments are discussed as below:
a) Economic Environment:  The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:
(i) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(ii) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, monetary policy, foreign investment policy and Export –Import policy. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario.
(ii) Economic System: The world economy is primarily governed by three types of economic systems, viz. Capitalist economy; Socialist economy; and Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.
c) Legal Environment:  This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: Companies Act, 1956, Foreign Exchange Management Act, 1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc. Besides, the above legislations, the following are also form part of the legal environment of business:
(i) Provisions of the Constitution
(ii) Judicial Decisions.
d)  Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.
e) Technological Environment:  Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
f) Demographic Environment:  This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.
g) Natural Environment:  The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.
4. (a) Discuss the various components of economic environment.                                                14
Ans: Economic Environment and Its Elements
Introduction: Various environmental factors such as economic environment, socio-cultural environment, political, technological, demographic and international, affect the business and its working. Out of these factors economic environment is the most important factor.
Meaning of Economic Environment: Those Economic factors which have their affect on the working of the business are known as economic environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Economic environment is very dynamic and complex in nature. It does not remain the same. It keeps on changing from time to time with the changes in an economy like change in Govt. policies, political situations.
Elements of Economic Environment: - It has mainly three main components:-
(a) Economic Conditions
(b) Economic System
(c)Economic Policies
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are:
(i) Licensing  policy
(ii) Fiscal policy
(iii) Monetary policy
(iv) Foreign Trade policy
(v) Price Policy
(vi) Technology Policy
Since the days of independence, India adopted licensing policy, which in effect made the government control the growth of independence in accordance with the national priorities. Till 1985, liberalization was never accepted as a part of growth strategy. But after 1985, the situation slowly changed that by 1991 India adopted a policy of liberalization.  Consequently, the business scope and prospects of the Indian business organization changed since 1991.
By fiscal policy we mean, the government's tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them.
Monetary policy refers to the set of policies determined and implemented by the central bank of a country to control the economic condition. The central bank of a country has the basic responsibility to maintain the price level and money supply in a country. This is possible only when the central bank has certain instruments. These instruments available with the central bank to control the money supply and price level are called monetary policy instruments. They are called Credit control policy.
The foreign trade policy determines the scope for trade between countries. It would directly affect the business prospects of the business organizations. A liberal policy would extend the scope for exports and imports, while a restrictive policy would narrow the scope. Similarly, if protectionism is favored, then the business organizations will have lesser market threats from multinational corporations.
This refers to the controls that government has on the price in a country. This is necessary, because, unless price is controlled, there is bound to be inflation and then economic instability. Further in Indian context, nearly 35% of the population is living below the poverty line. They do not have any permanent employment. Especially the rural poverty is very serious. To overcome this situation, the government resorts to price control policy.
One of the most important economic policies is the technology policy.  Improvement in technology is a condition for growth and survival in any organization.
The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, political expediency and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein.
(c) Economic System: The world economy is primarily governed by three types of economic systems, viz.
i)        Capitalism economy;
ii)       Socialist economy; and
iii)     Mixed economy.
Capitalism is an economic system based on the principle of free enterprise. Individual ownership of resources is an important feature.   With control and command over resources, individuals can conduct any type of business. The object in such a system is to maximize private gains. Any type of enterprise or production of any commodity or service is permitted, so long it is wanted by the society.   In such a system the market forces determine the resource allocation and price.
In a socialist country, government can adopt licensing system and other types of regulations to prevent the emergence of monopolist and exploitative tendencies. Maximization of Community welfare is the objective than profit maximization. The resources are owned by the State or state owned institutions. Government decides the type of productive efforts to be permitted.
In a mixed economy, one will find the existence of both the private and public sectors. In such a system, the government will undertake the responsibility to build and develop certain sector activities and leave the other activities for the private initiative.
Or
(b) What is business cycle? Explain the different phases of business cycle.                                         14
Ans: Business Cycle – Meaning, Phases and characteristics
The business cycle is an alternate expansion and contraction in overall business activity, as evidenced by fluctuations in aggregate economic activity such as GNP, industrial production, employment and income.
According to J.M.Keynes “A Business cycle is composed of periods of good trade characterized by rising prices and low unemployment percentages, alternating with periods of bad trade characterized by fall in prices and high unemployment percentages.”
Phases of a Business Cycle: A business cycle will have 5 different phases or stages. They are
1)      Depression
2)      Recovery
3)      Prosperity or full employment
4)      Boom or overfull employment
5)      Recession
(1) Depression: During this period business activity in the country will be much below normal level. It is characterized by a short fall in production, mass unemployment, and fall in prices, low wages, and contraction of credit, a high rate of business failures and an atmosphere of all round pessimism.
(2) Recovery: During this period business activity increases. The industrial production and volume of employment steadily increases. The prices and wages increases. The recovery may take place due to the following reasons:
•New government expenditure
•Exploitation of new sources of energy
•Innovations
•Investment in new areas
•Changes in the techniques of production
(3) Prosperity: This stage is characterized by high capital investment in basic industries, expansion of bank credit, high prices, high profits, high rate of formation of new business enterprises and the full employment.
 (4) Boom: It is the stage of rapid expansion in business activity resulting in high stocks and commodity prices, high profits and over-full employment. A situation develops in which the no. of jobs exceeds the no. of workers in the market. Such a situation is known as over-full employment. Profits will further increase. This will lead to more investment and in turn further rise in price level and inflation.
(5) Recession: In this stage more business enterprises fail, prices collapse and confidence is shaken. Building construction slows down and unemployment increases. There is fall in income during recession.
5. (a) What is privatization? Discuss the advantages and disadvantages of privatization.                               4+10=14
Ans: Privatisation: The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization. It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.
Benefits of Privatisation:
1. Improved Efficiency: The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient. If we work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making profit and so it is more likely to cut costs and be efficient.
2. Lack of Political Interference: It is argued that governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense.
3. Short Term view: A government many think only in terms of next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election.
4. Shareholders: It is argued that a private firm has pressure from shareholders to perform efficiently. If the firm is inefficient then the firm could be subject to a takeover. A government owned firm doesn’t have this pressure and so it is easier for them to be inefficient.
5. Increased Competition: Often privatisation of state owned monopolies occurs alongside deregulation – i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is this increase in competition that can be the greatest motivation for improvements in efficiency. However, privatisation doesn’t necessarily increase competition, it depends on the nature of the market.
6. Government will raise revenue from the sale: Selling government owned assets to the private sector raised significant sums for government.
Disadvantages of Privatisation
1. Natural Monopoly: A natural monopoly occurs when the most efficient number of firms in an industry is one. Privatisation would create a private monopoly which might seek to set higher prices which exploit consumers. Therefore it is better to have a public monopoly rather than a private monopoly which can exploit the consumer.
2. Public Interest: There are many industries which perform an important public service, e.g. health care, education and public transport. In these industries, the profit motive shouldn’t be the primary objective of firms and the industry.
3. Government loses out on potential dividends: Many of the privatised companies in the India are quite profitable. This means the government misses out on their dividends, instead going to wealthy shareholders.
4. Problem of regulating private monopolies: Privatisation creates private monopolies, such as the water companies and rail companies. These need regulating to prevent abuse of monopoly power. Therefore, there is still need for government regulation.
5. Fragmentation of industries: In India, rail privatization would lead to breaking up the rail network into infrastructure and train operating companies. This led to areas where it was unclear who had responsibility.
6. Short-Term view of Firms: As well as the government being motivated by short term pressures, this is something private firms may do as well. To please shareholders they may seek to increase short term profits and avoid investing in long term projects.
Or
(b) Discuss about the Government of India’s Industrial Policy, 2007 for the North-East India. How far has North-East India been benefited from this policy?                                                                                            7+7=14
Ans: North East Industrial and Investment Promotion Policy (NEIIP, 2007)
Important Provisions of NEIIPP, 2007
(i)         Sikkim will be included under NEIIPP, 2007 and the ‘New Industrial Policy and other concessions for the State of Sikkim’ announced earlier in December, 2002 will be discontinued from the date of notification of NEIIPP, 2007.
(ii)       Under NEIIPP, 2007, all new units as well as existing units which go in for substantial expansion, unless otherwise specified and which commence commercial production within the 10 year period from the date of notification of NEIIPP, 2007 will be eligible for incentives for a period of 10 years from the date of commencement of production.
(iii)      The incentives under the NEIIPP, 2007 will be available to all industrial units, new as well as existing units on their substantial expansion, located anywhere in the North Eastern Region.  Consequently, the distinction between ‘thrust’ and ‘non thrust’ industries made in NEIP, 97 will be discontinued from the date of notification of NEIIPP, 2007.
(iv)     Under NEIIPP, 2007 incentives on substantial expansion will be given to units effecting ‘an increase by not less than 25% in the value of fixed capital investment in plant and machinery for the purpose of expansion of capacity/modernization and diversification’ as against an increase by 33 ½  % prescribed at present.
(v)       Under NEIIPP, 2007, 100% excise duty exemption will be continued as at present on finished products made in the North Eastern Region.  However, in cases, where the CENVAT paid on the raw materials and intermediate products going into the production of finished products (other than the products which are otherwise exempt or subject to nil rate of duty) is higher than the excise duties payable on the finished products, ways and means to refund such overflow of CENVAT credit will be separately notified by the M/O Finance.
(vi)     100% income tax exemption will continue under NEIIPP, 2007 as at present.
(vii)    Capital investment subsidy will be enhanced from 15% of the investment in plant and machinery to 30% and the limit for automatic approval of subsidy at this rate will be Rs. 1.5 crore per unit as against Rs. 30 lakhs at present.  Such subsidy will be applicable to units in the private sector, joint sector, cooperative sector as well as the units set up by the State Governments of the North Eastern Region.  For grant of capital investment subsidy higher than Rs. 1.5 crore but upto a maximum of Rs.30 crore, there will be an Empowered Committee.
(viii)  Interest subsidy will be made available @ 3% on working capital loan under NEIIPP, 2007 as at present.
(ix)     Under NEIIPP, 2007, new industrial units as well as the existing units on their substantial expansion will be eligible for reimbursement of 100% insurance premium under the Comprehensive Insurance Scheme.
(x)       To include tobacco and tobacco products, pan masala, plastics carry bags and goods produced by refineries, in a host of industries which would not be eligible for incentives under NEIIPP, 2007.
(xi)     To provide incentives to service sector, bio-technology and power generating industries.
(xii)    To continue North Eastern Development Finance Corporation Ltd. (NEDFi) as the nodal agency for disbursal of subsidies under NEIIPP, 2007.
 The provisions of the NEIIPP, 2007 would provide the requisite incentives as well as an enabling environment to speed up the industrialization of the North Eastern Region which is otherwise less than 4% p.a. against a national average of 8%.
6. (a) Write a note on ‘International Business Environment’.                                                      14
Ans: International Business Environment
The international business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision-making on resource use and capabilities.
International business environment refers to totality of all the factors viz. geographic, economic, financial, socio-cultural, political, legal, technological and ecological which are external to and beyond the control of individual business enterprises. International business environment is more complex than the business environment because international business environment consists of foreign and global factors, which are external to domestic environment. A firm is generally familiar with the factors operating at the national level but a firm has to be aware of various factors operating in a country of trading partner. Thus, international business environment is sum total of domestic, foreign and global environments.
International business environment consists of a number of micro-level and macro-level factors operating at domestic level, foreign level and global level. Accordingly various factors constituting business environment may be grouped as under:
(i) Domestic Environment
(ii) Foreign Environment
(iii) Global Environment
FOREIGN ENVIRONMENT
The home-based or the domestic export expansion measures are necessarily related to the conditions prevailing in possible markets. An Exporter has to overcome various constraints and adapt plans and operations to suit foreign environmental conditions. The main elements of foreign environment affecting marketing activities of a firm in a foreign country consist of the following.
A) POLITICAL DIMENSION: Nations greatly differ in their political environment. Govt. policies, regulations and control mechanisms regarding the countries, foreign trade and commercial relations with other countries or groups of countries. At least four factors should be considered in deciding whether to do business in a particular country. They are
1) Attitudes towards International Buying:  Some nations are very receptive, indeed encouraging, to foreign firms, and some others are hostile. For e.g.: Singapore, UAE and Mexico are attracting foreign investments by offering investment incentives, removal of trade barriers, infrastructure services, etc.
2) Political Stability:  A country's future and stability is another important issue. Government changes hands sometimes violently. Even without a change, a region may decide to respond to popular feeling. A foreign firm's property may be seized; or its currency holdings blocked; or import quotas or new duties may be imposed. When political stability is high one may go for direct investments. But when instability is high, firms may prefer to export rather than involve in direct investments. This will bring in foreign exchange fast and currency convertibility is also rapid.
3) Monetary Regulations: Sellers want to realise profits in a currency of value to them. In best situations, the Importer pays in the seller's currency or in hard world currencies. In the worst case they have to take the money out of the host country in the form of relatively unmarketable products that they can sell elsewhere only at a loss. Besides currency restrictions, a fluctuating exchange rate also creates high risks for the exporter.
4) Government Bureaucracy: It is the extent to which the Government in the host country runs an efficient system for assisting foreign companies: efficient customs handling, adequate market information, etc. The problem of foreign uncertainty is thus further complicated by a frequently imposed "alien status", this increases the difficulty of properly assessing and forecasting the dynamic international business. The political environment offers the best example of the alien status.
A foreign political environment can be extremely critical; shifts in Government often means sudden changes in attitudes that can result in expropriation, expulsion, or major restrictions in operations. The fact is that a foreign company is foreign and thus always subject to the political whim to a greater degree than a domestic firm.
B) CULTURAL ENVIRONMENT: The manner in which people consume their priority of needs and the wants they attempt to satisfy, and the manner in which they satisfy are functions of their culture which moulds and dictates their style of living. This culture is the sum total of knowledge, belief, art, morals, laws, customs and other capabilities acquired by humans as members of the society. Since culture decides the style of living, it is pertinent to study it especially in export marketing. e.g. when a promotional message is written, symbols recognizable and meaningful to the market (the culture) must be used. When designing a product, the style used and other related marketing activities must be culturally acceptable.
C) ECONOMIC ENVIRONMENT: In considering the international market, each Exporter must consider the importing country's economy. Two economic characteristics reflect the country's attractiveness as an export market. They are the country's industrial structure and the country's income distribution by employment industrialization and socio economic justices.
D) LEGAL ENVIRONMENT: The legal dimension of international Business environment includes all laws and regulations regarding product specification and standards, packaging and labeling, copyright, trademark, patents, health and safety regulations particularly in respect of foods and drugs. There are also controls in promotional methods, price control, trade margin, mark-up, etc., These legal aspects of marketing abroad have several implications which an exporting firm needs to study closely.
Or
(b) Explain the concept of globalization. Discuss about the impact of globalization in Indian industry and trade.5+9=14
Ans: Meaning of Globalisation
Globalizations are the outcome of the policies of liberalisation and privatisation. Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical boundaries.
Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy.  Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.
In simple words, The term globalization can be defined as the opening one's economy toward the world economy. It means to integrate the domestic economy with world economy. The govt. of India under the prime minister ship of P. V Narasimha introduced liberalisation, privatisation and globalization during 1991 .Due to globalization the multinational corporations have been very popular. These corporations transact their business activities more than one countries.
Globalisation and India
Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.
With the onset of reforms to liberalize the Indian economy in July of 1991, a new chapter has dawned for India and her billion plus population. This period of economic transition has had a tremendous impact on the overall economic development of almost all major sectors of the economy, and its effects over the last decade can hardly be overlooked. Besides, it also marks the advent of the real integration of the Indian economy into the global economy.
This era of reforms has also ushered in a remarkable change in the Indian mindset, as it deviates from the traditional values held since Independence in 1947, such as self reliance and socialistic policies of economic development, which mainly due to the inward looking restrictive form of governance, resulted in the isolation, overall backwardness and inefficiency of the economy, amongst a host of other problems. This, despite the fact that India has always had the potential to be on the fast track to prosperity.
Impact of Globalization on Indian trade and industry:
Globalization has its impact on India which is a developing country. The positive impact of globalization can be analysed as follows:
1. Access to Technology: Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.
2. Growth of international trade: Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.
3. Increase in production: Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.
4. Employment opportunities: Establishment of MNCs have resulted in the increase of employment opportunities.
5. Free flow of foreign capital: Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.
6. Products of superior quality: Products of superior quality are available in the market due to increased competition, efficiency and productivity of the businesses  and this leads to increased consumer satisfaction.
7. Free flow of finance enable the banking and financial institutions in a  country to fulfill financial requirements through internet and electronic  transfers easily and help businesses to flourish.
(OLD COURSE)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
1. Answer as directed:                                                   1x8=8
a)      Mention one of the components of business environment.        Internal Environment
b)      Write one internal factor of business environment.                         Quality of human resources
c)       There is no difference between business environment and economic environment.  (State True or False)
d)      Write the full form of MFN.                         Most favoured nation
e)      Mention one advantage of privatization.              Improved efficiency
f)       Write one function of money market.                    Raising short term finance
g)      Capital market deals with short-term/long-term loan able funds. (Write the correct answer)
h)      Write the full form of SAFTA.                      South Asian Free Trade Area
2. Write short notes on:                                                                                                                                4x4=16
a)      SWOT analysis.
b)      Causes of industrial sickness.
c)       Advantages of globalization.
d)      World Bank.
Ans:  a) SWOT analysis
SWOT analysis is a simple framework for generating strategic alternatives from a situation analysis. It is applicable to either the corporate level or the business unit level and frequently appears in marketing plans.
 SWOT (sometimes referred to as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis consists of the following two activities: 
a)      An assessment of the organization’s internal Strengths and Weaknesses and
b)      An assessment of the Opportunities and Threats posed by its external environment
a)      Assessing the Internal Environment
Internal scan or assessment of the internal environment of the organization involves identification of its strengths and weaknesses i.e., those aspects that help or hinder accomplishment of the organization’s mission and fulfillment of its mandate with respect to the following Four Ps:
1)      People (Human Resources)
2)      Properties (Buildings, Equipments and other facilities)
3)      Processes (Such as student placement services, M.I.S etc.)
4)      Products (Students, Publications etc.)
b)      Assessing the External Environment
External scan refers to exploring the environment outside the organisation in order to identify the opportunities and threats it faces. This involves considering the following:
1)      Events, trends and forces in the Social, Technological, Economical, Environmental and Political areas (STEEP).
2)      Identifying the shifts in the needs of customers and potential clients and
3)      Identification of competitors and collaborators.
b) CAUSES OF INDUSTRIAL SICKNESS
1) Internal Cause for sickness: Internal causes are those which are within the control of management.  This sickness arises due to internal disorder in the areas justified as following:
a) Lack of Finance:  This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies :  The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.
c) Marketing and Sickness: This is another part which always affects the health of any sector as well as SSI.  This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions. 
d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.
e) Ineffective Corporate Management:  Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.
2) External causes for sickness:
a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.
b) Marketing Constraints: The second cause for the sickness is related to marketing.  The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.
c) Production Constraints:  This is another reason for the sickness which comes under external cause of sickness.  This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.
d)  Finance Constraints:  The external cause for the sickness of SSIs is lack of finance.  This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.
c) Globalization has its impact on India which is a developing country. The positive impact of globalization can be analysed as follows:
1. Access to Technology: Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.
2. Growth of international trade: Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.
3. Increase in production: Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.
4. Employment opportunities: Establishment of MNCs have resulted in the increase of employment opportunities.
5. Free flow of foreign capital: Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.
6. Products of superior quality: Products of superior quality are available in the market due to increased competition, efficiency and productivity of the businesses  and this leads to increased consumer satisfaction.
d) World Bank: The World Bank or the International Bank for Reconstruction and Development (IBRD) was established in 1945 under the Bretton Woods Agreement of 1944. An International Monetary and Financial Conference was held at Bretton Woods, New Hampshire during July 1-22, 1944. The main purpose of the conference was finalisation of the Articles of Association of IMF and establishment of an institution for the reconstruction of the war shattered world economies. Thus, the conference has given birth to World Bank or International Bank for Reconstruction and Development (IBRD). World Bank was established to provide long-term assistance for the reconstruction and development of the economies of the member countries while IMF was established to provide short term assistance to correct the balance of payment disequilibrium.
There are the four basic objectives of the World Bank’s funding strategy:
a)      To make sure availability of funds in the market.
b)      To provide the funds at the lowest possible cost to the borrowers through appropriate currency mix of its borrowing and opting to borrow when interest rates are expected to rise.
c)       To control volatility in net income and overall loan changes.
d)      To provide an appropriate degree of maturity transformation between its lending and the borrowing. Maturity transformation depicts the Bank’s capacity to lend for longer period than it borrows.
Functions and objectives of World Bank
a)      To assist in the reconstruction and development of the territories of its members by facilitating the investment of capital for productive purposes.
b)      To promote private foreign investment by means of guarantee of participation in loans and other investments made by private investors and, when private capital is not available on reasonable terms, to make loans for productive purposes out of its own resources or from funds borrowed by it.
c)       To promote the long term balanced growth of international trade and the maintenance of equilibrium in balance of payments by encouraging international investment for the development of the productive resources of members.
d)      To arrange loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent projects, large and small a like, will be dealt first.

3. (a) What do you mean by business environment? Discuss the nature of business environment.          4+8=12
Ans: Concept: Business Environment
Business is any activity undertaken for the purpose of producing or selling a particular commodity r service and earns a profit. The business has several dimensions such as purchasing the inputs, converting the inputs into the output, selling that output at a profitable price. Every dimension of a business depends upon several factors. Hence a business is influenced by several factors, all them put together are described as Business Environment. A business can grow and prosper in a particular environment just as a plant can grow in a particular soil, climate, water supply etc.  Hence the entrepreneur has to pay attention to the environment in which he has to conduct his business activities. If he is able to adapt his business to the environment effectively and efficiently the business can make higher profits. This makes the study of business environment important.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and influences that surrounds and affects the business.”
According to wheeler, “Business environment is the total of all things external to business firms and industries which affect their organisation and operations.”
Following are the features of Business environment:
Business Environment means a collection of all individuals, entities and other factors, which may or may not be under the control of the organisation, but can affect its performance, profitability, growth and even survival. Every business organisation operates in a distinctive environment, as it cannot exist in isolation. Such an environment influence business and also gets affected by its activities. Some of the important features of business environment are given below:
1.       Totality of internal and external forces: Business environment means the surrounding situation within which business organization has to operate. It is a sum total of cultural, political, economical, social, physical, technological, legal and global forces which move around the business organization. These forces collectively create a socio-economic-political situation called business environment. Environment is an inseparable part of business which can not operate in vacuum.
2.       Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.
3.       Dynamic nature: Business environment is dynamic and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological and demographic. Such dynamism in the environment brings continuous change in its character. Business enterprises have no alternative but to operate under such dynamic environment. The only remedy is adjusting business as per environmental changes.
4.       Complex: Business environment has now become extremely complex and the government intervention has become more frequent. Business environment is a complex phenomenon and also difficult to grasp and face in its totality. This is because it is governed by external factors. Environment develops by chance and not by choice. In addition, the environment factors vary from country to country. The business environment in India and in USA may not be identical.
5.       Multi Faceted: Environmental changes are frequent but their shape and character depends on the knowledge & experience of the observer. A particular change in the environment may be viewed differently by different businessmen. This change is welcomed as an opportunity by some organizations while some others take it as a threat for their survival. 
6.       Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.
7.       Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly, demand for sarees may be fairly high in India whereas it may be almost non-existent in France.
8.       Environment Influences Business Organization: Business organizations have limited capacity to influence business environment as it is the result of government policies and social and technological changes which are basically external variables.
Or
(b) Discuss the external factors of business environment.                                                           12
Ans: External Environment: The external environment is made up of micro and macro environment.
Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:
a) Customers: The type and the nature of the customers influence the rate of growth of any firm. The firm has to be very particular about choosing the inputs and transforming them in to the output. The cost factor is subsidiary if the firm is dealing with such customers. If the customers are more commoners the quality of the commodity if less important than the cost of production. The customers want the commodity at a lower price so the firm will have to conscious about the cost in purchasing the inputs, in employment of labour, in packing and such other factors influencing the cost.
b) Competitors:  In modern age an absolute monopoly is a very rare thing. Most of the FIRMS have to work in some type of competition such as Monopolistic Competition or Oligopoly. A Firm has to be particular about the intensity of the competition. If the competition is severe the firm will have to be very particular about keeping the costs at the lowest level so that it can sell the commodity at a competitive price.
c) Suppliers:  The quality of the commodity and the cost of production are considerably influenced by the supplies of the inputs. If the inputs are supplied at economical prices, are of standard quality and if the supply is uninterrupted and timely the firm can produce a standard quality of a commodity and sell it at reasonable prices. Often the firms employ more than one supplier so as to ensure an uninterrupted supply of inputs. If the supplies of inputs are regular, consistent and reliable there is no need to keep a larger quantity in stock.
d) Channel Intermediaries: They refer to the different levels in the chain from the production unit to the final customer. The chain incorporates the stockists, the wholesalers, the distributors, the retailer etc. If there is a high level of efficiency maintained at every part of the chain the commodity can reach the final consumer in good condition and at a reasonable price. So the Firm has to select and maintain efficient intermediaries. The firm has to offer them proper terms
e) Society: The prospects of a firm depend upon the society in which it has to work and sell its products. In a homogenous society the job of the firm is easy. The people have almost the same habits likes and dislikes, values and ethical norms. In a heterogeneous society the job of the firm is difficult. A particular product may be acceptable to a particular section of the society but not acceptable to some other sections. In a country like India a firm has to into consideration all types of sections of the community such as the religious sections, the caste, the sect, language, region etc.
Conclusion: All these forces influence the chances available to a firm to survive and develop.
Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological. The components of these environments are discussed as below:
a) Economic Environment:  The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:
(i) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(ii) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, monetary policy, foreign investment policy and Export –Import policy. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario.
(ii) Economic System: The world economy is primarily governed by three types of economic systems, viz. Capitalist economy; Socialist economy; and Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.
c) Legal Environment:  This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: Companies Act, 1956, Foreign Exchange Management Act, 1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc. Besides, the above legislations, the following are also form part of the legal environment of business:
(i) Provisions of the Constitution
(ii) Judicial Decisions.
d)  Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.
e) Technological Environment:  Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
f) Demographic Environment:  This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.
g) Natural Environment:  The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.
4. (a) What do you mean by economic environment of business? Explain the elements of economic environment of business.                                                                                             4+7=11
Ans: Economic Environment and Its Elements
Introduction: Various environmental factors such as economic environment, socio-cultural environment, political, technological, demographic and international, affect the business and its working. Out of these factors economic environment is the most important factor.
Meaning of Economic Environment: Those Economic factors which have their affect on the working of the business are known as economic environment. It includes system, policies and nature of an economy, trade cycles, economic resources, level of income, distribution of income and wealth etc. Economic environment is very dynamic and complex in nature. It does not remain the same. It keeps on changing from time to time with the changes in an economy like change in Govt. policies, political situations.
Elements of Economic Environment: - It has mainly three main components:-
(a) Economic Conditions
(b) Economic System
(c)Economic Policies
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are:
(i) Licensing  policy
(ii) Fiscal policy
(iii) Monetary policy
(iv) Foreign Trade policy
(v) Price Policy
(vi) Technology Policy
Since the days of independence, India adopted licensing policy, which in effect made the government control the growth of independence in accordance with the national priorities. Till 1985, liberalization was never accepted as a part of growth strategy. But after 1985, the situation slowly changed that by 1991 India adopted a policy of liberalization.  Consequently, the business scope and prospects of the Indian business organization changed since 1991.
By fiscal policy we mean, the government's tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them.
Monetary policy refers to the set of policies determined and implemented by the central bank of a country to control the economic condition. The central bank of a country has the basic responsibility to maintain the price level and money supply in a country. This is possible only when the central bank has certain instruments. These instruments available with the central bank to control the money supply and price level are called monetary policy instruments. They are called Credit control policy.
The foreign trade policy determines the scope for trade between countries. It would directly affect the business prospects of the business organizations. A liberal policy would extend the scope for exports and imports, while a restrictive policy would narrow the scope. Similarly, if protectionism is favored, then the business organizations will have lesser market threats from multinational corporations.
This refers to the controls that government has on the price in a country. This is necessary, because, unless price is controlled, there is bound to be inflation and then economic instability. Further in Indian context, nearly 35% of the population is living below the poverty line. They do not have any permanent employment. Especially the rural poverty is very serious. To overcome this situation, the government resorts to price control policy.
One of the most important economic policies is the technology policy.  Improvement in technology is a condition for growth and survival in any organization.
The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, political expediency and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein.
(c) Economic System: The world economy is primarily governed by three types of economic systems, viz.
iv)     Capitalism economy;
v)      Socialist economy; and
vi)     Mixed economy.
Capitalism is an economic system based on the principle of free enterprise. Individual ownership of resources is an important feature.   With control and command over resources, individuals can conduct any type of business. The object in such a system is to maximize private gains. Any type of enterprise or production of any commodity or service is permitted, so long it is wanted by the society.   In such a system the market forces determine the resource allocation and price.
In a socialist country, government can adopt licensing system and other types of regulations to prevent the emergence of monopolist and exploitative tendencies. Maximization of Community welfare is the objective than profit maximization. The resources are owned by the State or state owned institutions. Government decides the type of productive efforts to be permitted.
In a mixed economy, one will find the existence of both the private and public sectors. In such a system, the government will undertake the responsibility to build and develop certain sector activities and leave the other activities for the private initiative.
Or
(b) What do you mean by business cycle? Discuss the different phases of business cycle.                           4+7=11
Ans: Business Cycle – Meaning, Phases and characteristics
The business cycle is an alternate expansion and contraction in overall business activity, as evidenced by fluctuations in aggregate economic activity such as GNP, industrial production, employment and income.
According to J.M.Keynes “A Business cycle is composed of periods of good trade characterized by rising prices and low unemployment percentages, alternating with periods of bad trade characterized by fall in prices and high unemployment percentages.”
Phases of a Business Cycle: A business cycle will have 5 different phases or stages. They are
6)      Depression
7)      Recovery
8)      Prosperity or full employment
9)      Boom or overfull employment
10)   Recession
(1) Depression: During this period business activity in the country will be much below normal level. It is characterized by a short fall in production, mass unemployment, and fall in prices, low wages, and contraction of credit, a high rate of business failures and an atmosphere of all round pessimism.
(2) Recovery: During this period business activity increases. The industrial production and volume of employment steadily increases. The prices and wages increases. The recovery may take place due to the following reasons:
•New government expenditure
•Exploitation of new sources of energy
•Innovations
•Investment in new areas
•Changes in the techniques of production
(3) Prosperity: This stage is characterized by high capital investment in basic industries, expansion of bank credit, high prices, high profits, high rate of formation of new business enterprises and the full employment.
 (4) Boom: It is the stage of rapid expansion in business activity resulting in high stocks and commodity prices, high profits and over-full employment. A situation develops in which the no. of jobs exceeds the no. of workers in the market. Such a situation is known as over-full employment. Profits will further increase. This will lead to more investment and in turn further rise in price level and inflation.
(5) Recession: In this stage more business enterprises fail, prices collapse and confidence is shaken. Building construction slows down and unemployment increases. There is fall in income during recession.
5. (a) What do you mean by EXIM policy? Explain the objectives of EXIM policy.                                                              4+7=11
Ans: Export – Import Policy or Foreign Trade Policy
No country is self-sufficient in the world today.  Therefore, every country has to import goods and to pay for imports it has to export goods to other countries.  The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage.  But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports. 
EXIM policy refers to the policy measures adopted by a country with reference to its exports and imports. Such a policy become particularly important in a country like India, where the import and export of items plays a crucial role not just in balancing budgetary targets, but also in the over all economic development of the country.
The principal objectives of the policy are:
Ø  To facilitate sustained growth in exports of the country so as to achieve larger percentage share in the global merchandise trade.
Ø  To provide domestic consumers with good quality goods and services at internationally competitive prices as well as creating a level playing field for the domestic producers.
Ø  To stimulate sustained economic growth by providing access to essential raw materials, intermediates, components, consumables and capital goods required for augmenting production and providing services.
Ø  To enhance the technological strength and efficiency of Indian agriculture, industry and services, thereby improving their competitiveness to meet the requirements of the global markets.
Ø  To generate new employment opportunities and to encourage the attainment of internationally accepted standards of quality.
Ø  To establish the framework for globalization.
Ø  To promote the productivity competitiveness of Indian Industry.
Ø  To augment export by facilitating access to raw material, intermediate, components, consumables and capital goods from the international market.
Ø  To promote internationally competitive import substitution and self-reliance.
Or
(b) Discuss the salient features of New Industrial Policy (1991) of India.                                    11
Ans: New Industrial Policy, 1991
In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:
a)   Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;
b)   Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries;
c)    Reduce inequalities of income and wealth;
d)   Adopt a socialist pattern of development based on equality and prevent exploitation of man by man.
As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:
a)      The Government reduced the number of industries under compulsory licensing to six.
b)      Policy towards foreign capital was liberalized. The share of foreign equity participation was increased to 51% and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
c)       Government will encourage foreign trad­ing companies to assist Indian exporters in export activities.
d)      Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
e)      Automatic permission was now granted for technology agreements with foreign companies.
f)       Relaxation of MRTP Act (Monopolies and Restrictive Practices Act) which has almost been rendered non-functional.
g)      Dilution of foreign exchange regulation act (FERA) making rupee fully convertible on trade account.
h)      Disinvestment was carried out in case of many public sector industrial enterprises incurring heavy losses.
i)        Abolition of wealth tax on shares.
j)        General reduction in customs duties.
k)      Provide strength to those public sector enterprises which fall in reserved areas of operation or in high priority areas.
l)        Constitution of special boards to negoti­ate with foreign firms for large investments in the development of industries and import of technol­ogy.
6. (a) What are the differences between money market and capital market? Discuss the different functions of capital market.                                                                                                4+7=11
Or
(b) Explain the quantitative credit control measures of central bank.                                                                       11
7. (a) Explain the objectives and functions of World Trade Organization (WTO).                                                               5+6=11
Ans: World Trade Organisation and its Impact on Indian economy
Like on the lines of IMF and the World Bank, it was initially decided at the Bretton Woods conference to set up the International Trade Organisation (ITO) to promote and facilitate international trade among the member countries and to overcome various restrictions and discriminations as were being practiced at that time. But the idea could not materialise due to stiff opposition from the United States. Instead of altogether abandoning the idea, the countries that were participants to the Bretton Woods conference agreed upon having some arrangement among them so as to liberalise the world from high customs tariffs and various other types of restrictions that were in vogue at that time. This arrangement came to be known as the General Agreement for Tariffs and Trade (GATT).
GATT came into existence with effect from 1st January 1948 and remained in force till December 1994. Various rounds of negotiations have taken place under the auspices of GATT to reduce tariff and non-tariff barriers. The last one, known as the Uruguay Round, was the most comprehensive one in terms of coverage of issues, and also the lengthiest one from the point of view of duration of negotiations which lasted over a period of seven years from 1986 to 1994.
One of the key achievements of the Uruguay Round of GATT negotiations was the decision to set up a permanent institution for looking after the promotion of free and fair trade amongst nations. Consequent to this decision, the GATT was transformed into World Trade Organisation (WTO) with effect from 1st January 1995. The head quarters of WTO are situated at Geneva, Switzerland. Establishment of WTO, thus, represents the implementation of the original proposal of setting up of the ITO as evolved almost five decades back.
Though, WTO is a successor to GATT, it is a much more powerful body than GATT. It governs trade not only in goods, but also in services and intellectual property rights. Unlike GATT, the WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states. It is, moreover, a member driven rule-based organisation in the sense that all the decisions are taken by the member governments on the basis of a general consensus. As the principal international body concerned with solving trade problems between countries and providing a forum for multilateral trade negotiations, it has a global status similar to that of the IMF and the World Bank. India is a founding member of WTO. As on 11th December 2005, there were 149 members in WTO.
Objectives Of WTO: WTO lays down the following objectives:
g)      Relation in the field of trade shall be conducted with a view to raising standards of living, ensuring full employment and large and steadily growing volume of real income and effective demand, and expanding the production and trade in goods and services.
h)      To allow for the optimal use of the world’s resources in accordance with the objective of sustainable development.
i)        To make positive efforts designed to ensure that developing countries especially the least developed among them, secure a share in the growth in international trade.
j)        To achieve these objectives by entering into reciprocal and mutually advantageous arrangements directed towards substantial reduction of tariffs and other barriers to trade and the elimination of discriminatory treatment in international trade relations.
k)      To develop an integrated, more viable and durable multilateral trading system.
l)        To ensure linkages between trade policies, environment policies and sustainable development.
Functions of WTO: The following are the functions of the WTO:
a)      It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements.
b)      It provides the framework for the implementation, administration and operation of the multilateral Trade Agreements relating to trade in civil aircraft, government procurement, trade in diary products and bovine meat.
c)       It provides the forum for negotiations among its members.
d)      It administers the Understanding on Rules and Procedures governing the Settlement of Disputes of the Agreement.
e)      It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy-making.
Or
(b) Explain the objectives of SAFTA. Discuss about the importance of SAFTA in India.                                    5+6=11
Ans: SAFTA
SAFTA is an abbreviation for the South Asian Free Trade Area. It is a proposed free trade agreement between the seven members of the SAARC group. These include Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The ultimate aim of Safta will be to put in place a full-fledged South Asia Economic Union on the lines of the EU. Among its aims are promoting and enhancing mutual trade and economic cooperation by eliminating barriers in trade, promoting conditions of fair competition in the free trade area, ensuring equitable benefits to all and establishing a framework for further regional cooperation to expand the mutual benefits of the agreement.
It could lead to enhancement of foreign investment among Saarc nations. The visible spurt in foreign investment within Asean countries and the increase in investments by India in Sri Lanka and vice versa following the India-Sri Lanka FTA bear testimony to the potential of such agreements in boosting investments.
The agreement can be structured to ensure that such investments don’t harm the domestic industries of member-nations. RTAs, like the proposed Safta, can also catalyse beneficial industrial restructuring in member-countries through cross-border corporate marriages and acquisitions.
The Objectives of this Agreement are to promote and enhance mutual trade and economic cooperation among Contracting States by, inter-alia:
a) Eliminating barriers to trade in, and facilitating the cross-border movement of goods between the territories of the Contracting States;
b) promoting conditions of fair competition in the free trade area, and ensuring equitable benefits to all Contracting States, taking into account their respective levels and pattern of economic development;
c) Creating effective mechanism for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes; and
d) Establishing a framework for further regional cooperation to expand and enhance the mutual benefits of this Agreement.
The major functions of SAFTA are as follows:
a)      To establish a free trade area in South Asia through the elimination of tariffs
b)      To form and implement the rules of origin to ensure that the product is manufactured by the country which is desirous to export
c)       To allow member countries to prepare a list of products which are to be restricted to import for the protection of national interest
d)      To form compensation scheme for the losses of revenue to the least developed member countries due to the arrangement of free trade area
e)      To provide technical support to the least developed member countries to promote export competitiveness.
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Posted by Kumar Nirmal Prasad