Economic Environment - POLICIES

Economic Policies
A definite course of action adopted with the objective of achieving certain desired results concerned with economic matters, like : Production, distribution and use of income, wealth and commodities, welfare of the community and optimization on the use of its natural resources

A Historical Review:

1950s and 1960s era the GOI adopted a socialist philosophy to formulate the economic policy of the country The Industrial Policy Resolution of 1956 significantly limited the scope of the pvt. Sector India faced severe foreign exchange crisis during 1956 1958

Restrictive use of foreign exchange due to thrust on import substitution by developing core industries but only through the agency of public sector inhibited pvt./ individual growth.

War with Pakistan and China led to worsening of the economic environment with rising inflation and poverty levels and subsequent loss of great leaders like Pt. Nehru and Shri Lal Bahadur Shastri. Intensified inflationary pressure due to global rise in crude prices Increased magnitude of unemployment and poverty ultimately led to the declaration of internal emergency during 1975 1977 leading to the enacting of FERA and MRTP Acts and discouragement of MNCs.

Objectives

Economic Progress Economic Stability Economic Justice Economic Freedom Economic Improvement Economic Efficiency Economic Welfare Economic Modernization Economic Self-Reliance

Dimensions
Wages Policy
Agricultural Policy
Dimension of Economic Policy

Price Policy

Industrial Policy

Commercial Policy

Monetary Policy

Fiscal Policy

Characteristics of Economic Environment

Related with economic activities Influenced by other environment Leadership and direction by the government Infrastructure Ideology of public Distribution of wealth Availability of capital Economic system Economic planning Morale of people

Objectives

Successful conduct of economy and economic development Innovation of new resources and opportunities Provide knowledge of alterable Study of economic obstacles Leading role in economic development Optimum use of environment

Factors affecting Economic Environment

1.

2.
3. 4. 5. 6. 7. 8. 9. 10.

Natural Resources Human Resources Social and Cultural Institutions Scientific and technological advancement Form of Economic system System of government Conditions of market Capital and money market Economic policies of the government Monetary and fiscal policies

Factors affecting Economic Environment

11. 12.

13.
14. 15. 16. 17. 18.

Labour conditions and Labour Laws Economic Laws International condition, foreign aid and foreign policy Transport and communication system Awareness for environment protection Entrepreneur and innovation Education system Population

Cont

Economic System

Elements of system:

People Resources Rewards Regulation

Types of economic system

1.

2.
3.

Capitalism Socialism Mixed Economy

Capitalism

An economic system which is inspired by the spirit of enterprises and is guided by calculation of profit It is a economic system under which all farms, factories and other means of production are under the property of private individuals and firms.

Characteristics of capitalism

Private Property Free Enterprises Price Mechanism The Market system Economic Freedom Consumers sovereignty Unplanned economy

Freedom to save and invest Economic inequalities Motive of profit Competition Limited role of Government

Merits and Demerits of capitalism

Merits

Demerits

Automatic Working Capital Formation Maximum Satisfaction Reward According to Capacity Efficiency

Economic Inequality Inefficiency in working Neglect of National Interest Lack of co-ordination Unemployment

Socialism

It is an economic system where the means of production are either owned or controlled by the state. And, where the resource allocation, investment pattern, consumption, income distribution etc are directed and regulated by the state.

Characteristics of Socialism

Government Ownership Central Planning Social Welfare Lack of Competition Restriction on Consumption Restriction on Occupation Fixation of wages and prices by the government Equitable distribution of income

Merits and Demerits of Socialism

Merits

Demerits

Economic Equality Production Planning Economic Stability Proper use of National Resources

Difficulties of Management Lack of Freedom Lack of Consumers Sovereignty Lack of Rational Calculation Cost

Mixed Economy

Compromise between capitalism and socialism Joint responsibility of individual enterprise and the state. Government may function as a mediator between economic group as well as consumer.

GOVERNMENT

CENTRAL GOVERNMENT

STATE GOVERNMENT

Maintenance of Law & Order Provides public Services (e.g Education, Health, Water, Electricity, Telephone, Public transport etc.) Several government/ public enterprises: e.g: Indian Oil Corporation, State Bank of India, Steel Authority of India (SAIL)

Characteristics of Mixed Economy

Division of public and private sector Government control Protection of labor Reduction of Economic Inequalities

Merits and Demerits of Mixed Economy

Merits

Demerits

Economic Freedom Control on Monopolistic Activities Social Welfare Planning and proper use of Resources

Temporary Economic System Danger to Democracy Imbalance in the economy

Agricultural Policy

Agricultural activities belongs to cultivation of the land including horticulture, fruit, growing crop and seed growing, dairy farming and livestock breeding. Provision:

Privatization in agriculture Private sector participation Private sector investment Protection to farmers Avoid price fluctuations National livestock breeding strategy Protection to plant varieties Priority to new location Restriction of movement of agricultural commodities Reviewed Excise duty Review

Scheme

Agricultural Policy

National Agricultural Scheme Pilot Scheme on seed Crop Insurance Livestock Insurance

CSR & BUSINESS ETHICS

MEANING OF SOCIAL RESPONSIBILITY Social responsibility of business refers to the obligation of business enterprises to adopt policies and plans of actions that are desirable in terms of the expectation, values and interest of the society. It ensures that the interests of different groups of the public are not adversely affected by the decisions and policies of the business. SOCIAL RESPONSIBILITIES TOWARDS DIFFERENT GROUPS It needs to be noted that the responsibilities of those who manage the business cannot be limited to the owners. They have to take into account the expectations of other stakeholders like the workers, the consumers, the government and the community and public at large. Let us now look at the responsibilities of the business towards all these groups. (a) Responsibility towards the shareholders or owners: The shareholders or owners are those who invest their money in the business. They should be provided with a fair return on their investment. You know that in case of companies it takes the form dividends. It has to be ensured that the rate of dividend is commensurable with the risk involved and the earnings made. Besides dividends, the shareholders also expect an appreciation in the value of shares. This is governed primarily by companys performance. (b) Responsibility towards the Employees: A business enterprise must ensure a fair wage or salary to the workers based on the nature of work involved and the prevailing rates in the market. The working conditions must be good in respect of safety, medical facilities, canteen, housing, leave and retirement benefits etc. They should also be paid reasonable amount of bonus based on the business earnings. Preferably, there should also be a provision for their participation in management

(c) Responsibility towards the Consumers: A business enterprise must supply quality goods and services to the consumers at reasonable prices. It should avoid adulteration, poor packaging, misleading and dishonest advertising, and ensure proper arrangement for attending to customer complaints and grievances. (d) Responsibility towards the Government: A business enterprise must follow the guidelines of the government while setting up the business. It should conduct the business in lawful manner, pay the taxes honestly and on time. It should not indulge in any corrupt practices or unlawful activities. (e) Responsibility towards the Community: Every business is a part and parcel of our community. So it should contribute towards the general welfare of the community. It should preserve and promote social and cultural values, generate employment opportunity and contribute towards the upliftment of weaker sections of the society. It must take every step to protect the physical and ecological environment of the society. It should contribute to the community development programmes like public health care, sports, cultural programmes. Looking at the importance of the social responsibilities of business towards various groups, it would have been better if the companies act provided for the reporting of the social activity in the annual report of the companies. However, a few large companies have been voluntarily reporting their social performances in their Annual Reports regularly. The prominent among them are:

Cement Corporation of India, Indian Oil Corporation, Tata Iron and Steel Company, Asian paints and ITC. Reports reveal that companies are becoming eco-friendly and conscious of their role in community development.

Social Responsibility undertaken as reported by some companies

Larsen and Toubro Ltd. (L&T) L & T addresses social issues of health and environment with the same professional vigour that it adopts for business issues. L & T believes in the merits of detailed analysis, planning, implementation and evaluation of results. Broadly, its corporate social responsibility covers health, safety, environment and education, surrounding its establishments.
Oil and Natural Gas Corporation Ltd. (ONGC) ONGC as a responsible corporate citizen is focused on promotion of vocational education, health care and entrepreneurship in the community coupled with initiatives in water management and disaster relief in the country. In recognition of these initiatives, the world council of corporate governance conferred the Golden Peacock Award to ONGC for Corporate Social Responsibility in Emerging Economies-2006 at the 7th International Conference on Corporate Governance held in May 2006 in London. Reliance Industries Ltd. (RIL) Towards community assistance and social development, RIL provides financial as well as administrative support for supplying drinking water to villages in the vicinity of its manufacturing site and also established primary health centers. RIL also helps local school children through distribution of books annually and offers financial assistance to the cultural functions of the villagers, and organises medical camps and sports events.

Grasim Industries Ltd. (GIL) Grasims social projects in Indias hinterland are carried out under the aegis of the Aditya Birla Centre for community initiatives and Rural Development. Its work is based on the felt needs of the communities. Its social vision is to make a qualitative difference to the lives of the weaker sections of the society in proximity to its plants and improve the human development index of the nation. During the year 2005-06 it reached out to nearly 6 lakh persons and provided services like health care, child care, education, mass marriage programme, infrastructure development, etc. In these humanitarian endeavors, the company partners with the government, district authorities, village panchayats and other like minded NGOs.

Social Responsibility

It calls responsibility not the accountability . It is obligatory in nature to maximize its positive impact & Minimizing negative impact on society. SR refers to the responsibility of decision maker to take actions which help society serve own interest. SR refers to management consideration of social & economic effects of its decisions.

Difference between Economic & Social Objectives

Economic Objective They are basic and primary in nature Enterprise focus Short/long-term both Considers stock holders interest Its for survival and growth Perquisites to social objectives.

Social Objective Secondary & essential, obligatory Social Welfare Mostly long term Considers larger interest For goodwill creation& justifying survival & growth Social objective justify economic objective.

Scope of Social Responsibilities

Towards Customers Towards Self Towards Owners

Towards Suppliers

Social Responsibility

Towards Creditors

Towards Professional Institutions Towards Local Community

Towards Employees Towards Depositors

Towards World Society

Types of Social Responsibility

Economic the duty of managers, as agents of the company owners, to maximize stockholder wealth Legal the firms obligations to comply with the laws that regulate business activities Ethical the companys notion of right and proper business behavior. Discretionary voluntarily assumed by a business organization.

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BUSINESS ETHICS
The word Ethics originated from the Greek word ethos meaning character, conduct and activities of the people based on moral principles. It is concerned with what is right and what is wrong in human behaviour on the basis of standard behaviour or conduct accepted by the society. Honesty, truthfulness, compassion, sympathy, feeling of brotherhood etc. are considered ethical.
Similarly, ethics from business point of view or business ethics are the moral principles, which guide the behaviour of businessmen or business activities in relation to the society. It provides certain code of conduct to carry on the business in a morally justified manner. Running the business without adopting unfair practices, being honest and truthful about quality of goods, charging fair prices, abiding to laws, paying taxes, duties and fees to the government honestly are some of the ethical behaviour of business. Business Ethics originated in USA in 1970s. It highlighted the social values concerning business and forced the companies from practices against consumer interest and environment protection.

Business Ethics And Social Responsibility

Business ethics demand that a company examines its behavior towards the outside world. It takes into consideration morality, ethical reasoning and ethics application

Social Responsibility as making socially responsible products, engaging in socially responsible employee relations and making a commitment to the community around it.

Business Ethics

What should we do? What should we not do ? Ethics is a system of moral principles, rules and conduct. It is nothing but the application of ethics in business. It proves that business can be and have been ethical and still make profits.

Developing Business Ethical Habits

Corporate Culture Strategy and Performance Individual Characteristics Leadership Industry Environment Other Business Ethical Habits
Code of Ethics Commitment From Top Management Communication of Ethical Values Response and Enforcement