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J"#$U% N"&#'N"( UN#)E%*#&+, J"#$U% 

*hool o. istane Eduation (earnin

#nternal "ssinment No 1

3aster o. 4usiness "dministration / $3

$aper 6ode: 34"7 101

$aper &itle: 4usiness Environment

81 *hort "nswer &9pe 8uestions:

Q. 1. Answer all the questions:

(i) Name two elements of internal environment affecting business.

Ans: :- #nternal Environment :-

  Internal environment refers to the factors

internal to the firm i.e., factors eisting within a business firm. !hese factors are

generall" controllable because the com#an" has control over them an$ $etermine

the #otential of a com#an" to meet the environment challenges.

!wo elements of internal environment affecting business are:-1) %ulture: - It is wi$el" ac&nowle$ge$ fact that an" business organisation is

normall" un$erta&en for #rofit maimisation. Nonetheless, #ersons hol$ing

to# #ositions in certain mo$ern cor#orate enter#rises have some values which

influence their #olicies, norms, wor&ing language, s"stems, s"mbols #ractices

an$ overall internal environment. !his ma" be refer as culture of the

organisation which is the collective behavior of humans that are #art of an

organisation. !he etent to which the culture of the organisation is share$ b"

all, lea$s to an im#ortant factor contributing to success.

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') &op 3anaement *truture: - !he com#osition of the boar$ of $irectors is

ver" critical factor for the $evelo#ment an$ #erformance of com#an" as the"

are highest $ecision-ma&er authorities, eten$ of #rofessionalism of 

management as it ma" be #rofessionall" manage$ or famil" controlle$,

nominee of financial institutions having large hol$ings in com#anies, the

sharehol$ing #attern coul$ have im#ortant managerial im#lications. All these

factors are of great im#ortance from the #oint of view of the com#an"s

internal environment.

(ii) hat is multi national enter#rise*

Ans: 3ultinational enterprises (3NE) are organi+ations that are owne$ or 

control #ro$uctions of goo$s or services in one or more countries other than the

home countr".

or e;ample, when a cor#oration is registere$ in more than one countr" or has

o#erations in more than one countr", it ma" be attribute$ as N%. suall", an

N% is a large cor#oration which #ro$uces or sells goo$s or services in various

countries. It can also be referre$ as an international orporation, or a

transnational cor#oration, or #erha#s best of all, as a stateless orporation.

(iii) /ive two suggestions to the #roblems of small scale in$ustries.

"ns: <1= E>uitable "lloation o. %aw 3aterials, #mported 6omponents

and E>uipment:

!he small scale in$ustrial units shoul$ be given a$equate $egree of #riorit" in the

allocation #attern of essential, but scarce, raw materials, im#orte$ com#onents an$

equi#ment.

<2= #mprovement in the 3ethods and &ehni>ues o. $rodution:

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!he small scale in$ustrial units shoul$ be encourage$ to re#lace their outmo$e$

equi#ment with that incor#orating an u#-to-$ate technolog", an$ facilities an$

incentives shoul$ be #rovi$e$ wherever require$. #-$ating the metho$s an$

techniques of #ro$uction of qualit" goo$s conforming to stan$ar$s. !he role of the

/overnment in this res#ect is quite significant. 0tan$ar$isation of certain #ro$ucts

shoul$ be ensure$, the qualit" of #ro$ucts shoul$ be guarantee$, an$ mal#ractices

li&e a$ulteration, misre#resentation, etc., nee$ to be curbe$ $rasticall".

(iv) efine #rivati+ation.

Ans: $rivati?ation, also s#elle$ privatisation, ma" have several meanings.

2rimaril", it is the #rocess of transferring ownership of a  business, enter#rise,

agenc", #ublic service, or #ublic #ro#ert" from the #ublic sector  (a government) to

the #rivate sector , either to a business that o#erates for a #rofit or to a non#rofit

organi+ation. It ma" also mean government outsourcing of services or functions to

 #rivate firms, e.g. revenue collection, law enforcement, an$ #rison management. 

$rivati?ation has also been use$ to $escribe two unrelate$ transactions. !he first isthe bu"ing of all outstan$ing shares of a #ublicl" tra$e$ com#an" b" a single entit",

ma&ing the com#an" #rivatel" owne$. !his is often $escribe$ as #rivate equit". !he

secon$ is a $emutuali+ation of a mutual organi+ation or coo#erative to form a 3oint-

stoc& com#an".

(v) hat $o "ou un$erstan$ b" fiscal #olic"*Ans: isal poli9:- !he wor$ fiscal is $erive$ from the ol$ 4rench or$ 4isc,

which means the mone" bas&et or the treasur". !hus fiscal means #ertaining to

treasur" or government finance. 4iscal #olic" means the government #olic" of 

taation, e#en$iture an$ #ublic $ebt etc. 4iscal #olic" ma" be $efine$ as 5a #olic"

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un$er which the government uses its e#en$iture an$ revenue #rogrammes to

 #ro$uce $esirable effect 6 avoi$ un$esirable effect on national income, #ro$uction

an$ unem#lo"ment. It em#hasi+es the effect of government e#en$iture an$

revenue u#on total econom" an$ argues that the" shoul$ be use$ $eliberatel" an$

consciousl" as a balancing factor to secure economic stabili+ation. 7/erhar$ %olm

$efines fiscal #olic" as 7the con$uct of government e#en$iture, revenues an$ $ebt

management in such a wa" as to ta&e full" into account the effect of these

o#erations in the allocation of resources an$ the flow of fun$s an$ thereb" their 

influence on the level of income #rices em#lo"ment an$ #ro$uction.8

Note: "nswer an9 two >uestions Eah >uestion arries 5 mar@s <Aord limits

500=

Q. '. hat is technolog"* 9#lain the im#act of technolog" on business.

Ans:

Q. . 9#lain onetar" #olic" 6 its effect on business.

Ans: 3onetar9 $oli9:-

  onetar" #olic" is the term use$ b" economists to

$escribe wa"s of managing the su##l" of mone" in an econom". onetar" #olic" is

the #rocess b" which the monetar" authorit" of a countr" controls the su##l" of 

mone", often targeting a rate of interest for the #ur#ose of  

 #romoting economic growth an$ stabilit". !he official goals usuall" inclu$e

relativel" stable #rices an$ low unem#lo"ment. onetar" economics #rovi$es

insight into how to craft o#timal monetar" #olic".

onetar" #olic" is referre$ to as either being e#ansionar" or contractionar", where

an e#ansionar" #olic" increases the total su##l" of mone" in the econom" more

ra#i$l" than usual, an$ contractionar" #olic" e#an$s the mone" su##l" more

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slowl" than usual or even shrin&s it. 9#ansionar" #olic" is tra$itionall" use$ to tr"

to combat unem#lo"ment in a recession b" lowering interest rates in the ho#e that

eas" cre$it will entice businesses into e#an$ing. %ontractionar" #olic" is inten$e$

to slow inflation in or$er to avoi$ the resulting $istortions an$ $eterioration of asset

values.

E..et on business:-

!he effect of an e#ansionar" monetar" #olic" is to lower the echange rate,

wea&en the financial account an$ strengthen the current account. A restrictivemonetar" #olic" woul$ be e#ecte$ to result in the o##osite: a higher echange rate,

a stronger financial account an$ a wea&er current account (a more negative, or a

less #ositive balance of tra$e).

ith a #rogram of e#ansionar" (eas") monetar" #olic", the following sequence of 

events woul$ be e#ecte$ to occur with regar$ to the income effect:

B !he $omestic /2 will rise.

B !he rise in $omestic /2 will ten$ to increase the $eman$ for im#orts.

!he increase in im#orts will cause the current account to $eteriorate.

B !he increase in im#orts #urchase$ will increase the nee$ to convert $omestic to

foreign currenc". As a result, the echange rate of the $omestic currenc" will

$ecrease.

Bith no government intervention, the financial account must now move towar$ a

sur#lus as the financial an$ current account must sum to +ero. ue to the increase in

im#orts, foreigners will now have a sur#lus of the nation;s currenc". If foreigners $o

not use that currenc" to #urchase the countr";s e#orts (which woul$ im#rove the

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current account balance), the" will ultimatel" nee$ to invest that currenc" in the

assets of the $omestic countr". !his e#lains wh" countries such

as %hina an$ <a#an invest large sums in assets such as .0. !reasuries. !he hol$ers

of the .0. currenc" must #ut it to wor& somewhere= Note that foreign investors are

often getting better rates of return than what might be rea$il" a##arent because the

value of the $omestic currenc" is falling relative to their own currenc".

Q. >. hat is International !ra$e* 9#lain various !ra$e ?eforms relate$ to

foreign tra$e announce$ in In$ia in recent times.Ans: International tra$e is the echange of   ca#ital, goo$s,

an$ services across international bor$ers or territories.C1D In most countries, such

tra$e re#resents a significant share of  gross $omestic #ro$uct (/2). hile

international tra$e has been #resent throughout much of histor" (see 0il& 

?oa$, Amber ?oa$), its economic, social, an$ #olitical im#ortance has been on the

rise in recent centuries. It is the #resu##osition of international tra$e that a

sufficient level of  geo#olitical  #eace an$ stabilit" are #revailing in or$er to allow

for the #eaceful echange of tra$e an$ commerce to ta&e #lace between nations.

In most countries, such tra$e re#resents a significant share of gross $omestic

 #ro$uct (/2). hile international tra$e has been #resent throughout much of 

histor" (see 0il& ?oa$, Amber ?oa$), its economic, social, an$ #olitical im#ortance

has been on the rise in recent centuries. It is the #resu##osition of international tra$e

that a sufficient level of  geo#olitical  #eace an$ stabilit" are #revailing in or$er to

allow for the #eaceful echange of tra$e an$ commerce to ta&e #lace between

nations.

International tra$e is also a branch of  economics, which, together with international

finance, forms the larger branch calle$ international economics. !ra$ing is a value-

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a$$e$ function: it is the economic #rocess b" which a #ro$uct fin$s its mar&et, in

which s#ecific ris&s are to be borne b" the tra$er.

%e.orms related to .orein trade:-

#n recent "ears, the governments stan$ on tra$e an$ investment #olic" has

$is#la"e$ a mar&e$ shift from #rotecting 5#ro$ucers to benefiting 5consumers.

!his is reflecte$ in its orein &rade $oli9 .or 200!/0 which states that, 4or 

In$ia to become a ma3or #la"er in worl$ tra$e ...we have also to facilitate those

im#orts which are require$ to stimulate our econom".

In$ia is now aggressivel" #ushing for a more liberal global tra$e regime, es#eciall"in services. It has assume$ a lea$ershi# role among $evelo#ing nations in global

tra$e negotiations, an$ #la"e$ a critical #art in the oha negotiations.

In$ia has recentl" signe$ tra$e agreements with its neighbors an$ is see&ing new

ones with the 9ast Asian countries an$ the nite$ 0tates. Its regional an$ bilateral

tra$e agreements - or variants of them - are at $ifferent stages of $evelo#ment:

In$ia-0ri @an&a 4ree !ra$e Agreement,

!ra$e Agreements with angla$esh, hutan, 0ri @an&a, al$ives, %hina, an$ 0outh

Borea.

In$ia-Ne#al !ra$e !reat",

%om#rehensive 9conomic %oo#eration Agreement (%9%A) with 0inga#ore.

4ramewor& Agreements with the Association of 0outheast Asian Nations (A09AN),

!hailan$ an$ %hile.

2referential !ra$e Agreements with Afghanista, %hile, an$ ercosur (the latter is a

tra$ing +one between ra+il, Argentina, rugua", an$ 2aragua").

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J"#$U% N"&#'N"( UN#)E%*#&+, J"#$U% 

*hool o. istane Eduation (earnin

#nternal "ssinment No 2

3aster o. 4usiness "dministration / $3

$aper 6ode: 34"7 101

$aper &itle: 4usiness Environment

81 *hort "nswer &9pe 8uestions:

Q. 1. Answer all the questions:

(i) Name two elements of eternal environment affecting business.

Ans: 9ternal 9nvironment 9ternal environment refers to eternal as#ects of the

surroun$ings of business enter#rise, which have influence on the functioning of 

 business.

Elelments:-

*uppliers:- usiness enter#rises requires a number of su##liers, who su##l" raw

materials an$ com#onents to the com#an". It is an im#ortant force of the micro

environment of a com#an".

6ompetitor :-Activites of a business a$3ust accor$ing to the actions an$ reactions

of a com#etitors. !his factor shoul$ be &nown to a com#an" as the u#coming #rofitor revenue will onl" be $riven when this factor is in control.

(ii) hat $o "ou un$erstan$ b" globali+ation*

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Ans: lobali?ation:- lobali?ation (or lobalisation) is the #rocess of  

international integration arising from the interchange of worl$ views, #ro$ucts,

i$eas an$ other as#ects of culture.

A$vance in trans#ortation an$ telecommunications infrastructure, inclu$ing the rise

of the telegra#h an$ its #osterit" the Internet, are ma3or factors in globali+ation,

generating further inter$e#en$ence of economic an$ cultural activities.

!he term globali+ation has been increasingl" use$ since the mi$-1CDEs an$

es#eciall" since the mi$-1CCEs. In 'EEE, the International onetar" 4un$ (I4)

i$entifie$ four basic as#ects of globali+ation

tra$e an$ transactions, ca#ital an$ investment movements, migration an$ movement

of #eo#le, an$ the $issemination of &nowle$ge. 4urther, environmental challenges

such as climate change, cross-oun$ar" water  an$ air #ollution, an$ over-fishing of 

the ocean are lin&e$ with globali+ation. /lobali+ing #rocesses affect an$ are

affecte$ b"  business an$ wor&  organi+ation, economics, socio-cultural resources,

an$ the natural environment.

(iii) hat is monetar" #olic"*

Ans: 3onetar9 $oli9:-  onetar" #olic" is the term use$ b" economists to

$escribe wa"s of managing the su##l" of mone" in an econom". onetar" #olic" is

the #rocess b" which the monetar" authorit" of a countr" controls the su##l" of 

mone", often targeting a rate of interest for the #ur#ose of  

 #romoting economic growth an$ stabilit". !he official goals usuall" inclu$e

relativel" stable #rices an$ low unem#lo"ment. onetar" economics #rovi$es

insight into how to craft o#timal monetar" #olic".

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(iv) hat is isinvestment*

Ans:   isinvesment:- isinvestment refers to the use of a concerte$

economic bo"cott to #ressure a government, in$ustr", or com#an" towar$s a change

in #olic", or in the case of governments, even regime change. !he term was first

use$ in the 1CDEs, most commonl" in the nite$ 0tates, to refer to the use of a

concerte$ economic bo"cott $esigne$ to #ressure the government of 0outh

Africa into abolishing its #olic" of a#arthei$. !he term has also been a##lie$ to

actions targeting Iran, 0u$an, Northern Irelan$, "anmar , an$ Israel.

(v) hat is International !ra$e*

#nternational trade:  International tra$e is the echange of  ca#ital, goo$s,

an$ services across international bor$ers or territories. In most countries, such

tra$e re#resents a significant share of  gross $omestic #ro$uct (/2). hile

international tra$e has been #resent throughout much of histor" (see 0il& 

?oa$, Amber ?oa$), its economic, social, an$ #olitical im#ortance has been on

the rise in recent centuries. It is the #resu##osition of international tra$e that asufficient level of  geo#olitical  #eace an$ stabilit" are #revailing in or$er to allow

for the #eaceful echange of tra$e an$ commerce to ta&e #lace between nations

Note: "nswer an9 two >uestions Eah >uestion arries 5 mar@s <Aord limits

500=

Q. '. 9#lain various challenges to $isinvestment #rogramme.

Ans: !he various challenges to $isinvestment #rogramme are as un$er :-

%evivin privatisation poli9

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ut #ro#onents of reform thin& that such criticism shoul$ not $eter the /overnment

from reviving its $isinvestment #olic", an$ the" thin& the time is ri#e to $o so.

4or, the forthcoming u$get will #erha#s be the last o##ortunit" for the 2A

/overnment to #rove its cre$ibilit" with some significant reforms. !he net two

"ears ma" well go in managing the #olitical econom" ahea$ of the net general

elections. 0econ$, for the #ast four "ears, the econom" has turne$ in a consistentl"

robust #erformance an$ this now nee$s to be leverage$ b" bol$ #olic" initiatives.

!hir$, the nagging worries over the #oor #h"sical an$ social infrastructure such as

 #ower, irrigation, rural connectivit", e$ucation, an$ health. A#art from #olic" an$

institutional su##ort, these functional areas call for massive financing su##ort from

the government. In$ee$, the sustainabilit" of high economic growth will be

circumscribe$ b" how effectivel" the government $eals with these challenges.

Eonomi resurene

It is essential that the /overnment sen$s a #owerful message of its abilit" to #ush

through some challenging reforms such as $isinvestment an$For strategic sale of 

20s. At this stage, such efforts ma&e sense for a variet" of reasons: 4irst, the

%entre has the ma3or res#onsibilit" of im#roving the bu$getar" health on a

sustaine$ basis, not 3ust in res#onse to the 4iscal ?es#onsibilit" an$ u$get

anagement Act targets, but also to &ee# on a tight leash its internal in$ebte$ness.

In$ia;s $ebt-/2 ratio (eclu$ing contingent liabilities) continues to be ver" high at

about GD #er cent, an$ annual $ebt servicing at ?s.D1,C'C crore&noc&s off over D

 #er cent of total revenue recei#ts of the %entral u$get. ith$rawal of bu$getar"

su##ort to sic& 20s will re$uce the #ressure on bu$getar" resources imme$iatel",

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while the subsequent strategic sale will unloc& significant resources. A #art of this

can be use$ to re#a" the governments; high-cost $ebt. 0econ$, a number of 20s

that are #artl" $iveste$ have been seeing un#rece$ente$ valuations, than&s to their 

im#rove$ #erformance. !he o##ortunities affor$e$ b" the ecellent valuations,

 base$ on the #erformance of man" #rofit-ma&ing 20s, must be leverage$.

6apital raisin ativit9 on rise

%a#ital raising activities of the #rivate cor#orate sector are on the rise an$ in the

coming "earma3or com#anies together are e#ecte$ to raise a

who##ing ?s. 1EE,EEE crorefrom the ca#ital mar&et. h" shoul$ #rofit-ma&ing

20s sh" awa" or be $enie$ the o##ortunit" of raising new equit" an$ in the

 #rocess also $ivest a #art of the eisting equit" ca#ital is a moot question.

E;pandin e>uit9 base

!hir$, an$ relate$ to the #revious observation, is the issue of e#an$ing the equit" base of the econom" on a continuous basis, given that now there is a robust ca#ital

mar&et infrastructure an$ the nee$ to ma&e available an increase$ quantit" of 

qualit" equit" to investors. In fact, a reactivate$ $isinvestment #rogramme will

 #rovi$e a #owerful thrust to s#rea$ the equit" culture an$ strengthen the ca#ital

mar&et.

Q. . 9#lain 4iscal #olic" 6 its effect on business.

Ans: /overnment s#en$ing #olicies that influence macroeconomic con$itions.

!hrough fiscal #olic", regulators attem#t to im#rove unem#lo"ment rates, control

inflation, stabili+e business c"cles an$ influence interest rates in an effort to control

the econom". 4iscal #olic" is largel" base$ on the i$eas of ritish economist <ohn

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a"nar$ Be"nes (1DDH1C>G), who believe$ governments coul$ change economic

 #erformance b" a$3usting ta rates an$ government s#en$ing.

3iroeonomi e..ets o. ta; hanes

1. &a;ation and wor@ inentives:

• %hanges in income taes affect the incentive to wor&. %onsi$er the im#act of 

a rise in income ta.

•

!his has the effect of re$ucing the #ost-ta income of those in wor& becausefor each hour of wor& ta&en the total net income is now lower.

• !his might encourage the in$ivi$ual to wor& more hours to maintain hisFher 

target income.

• %onversel", the effect might be less wor& since the return from each hour 

wor&e$ is less.

• %hanges to the ta an$ benefit s"stem see& to re$uce the ris& of the Fpovert9

trap H where househol$s on low incomes see little financial benefit from

su##l"ing etra hours of their labour 

'. &a;ation and the $attern o. emand

• %hanges to in$irect taes can alter the pattern o. demand for goo$s an$

services

• 4or eam#le, the rising value of $ut" on cigarettes an$ alcohol is $esigne$ to

cause a substitution effect an$ re$uce the $eman$ for what are #erceive$

as Gde-merit oodsH.

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• !he use of in$irect taation an$ subsi$ies is often 3ustifie$ on the groun$s of 

instances of mar@et .ailure. ut there might also be a 3ustification base$ on

achieving a more e>uitable alloation o. resoures H e.g. #rovi$ing basic

state health care free at the #oint of use.

. &a;ation and labour produtivit9

• 0ome economists argue that taes can have a significant effect on the

intensit" with which #eo#le wor& an$ #ro$uctivit". ut there is little strong

em#irical evi$ence to su##ort this view. an" factors contribute toim#roving #ro$uctivit" H ta changes can #la" a role - but isolating the

im#act of ta cuts on #ro$uctivit" is etremel" $ifficult.

&he (a..er urve

• %reate$ b" the 0 su##l"-si$e economist Arthur @affer, this curve e#lores a

relationshi# between ta rates an$ ta revenue collecte$ b" governments• It argues that as ta rates rise, total ta revenues grow at first but at a

$iminishing rate.

• !here ma" be a ta bur$en which "iel$s the highest ta revenues. e"on$

this, further hi&es in taation serve onl" to lower revenues

• !he @affer curve has been use$ as a 3ustification for cutting taes on income

an$ wealth - the argument being that im#rove$ incentives to wor& an$ create

wealth will broa$en the base of ta-#a"ing businesses an$ in$ivi$uals an$

also re$uce the incentive to avoi$ an$ eva$e #a"ing ta.

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Name: Nivedita Kushwah   Enrollment Number:  JNU-jpr/de/15/02/01/02!

• A Be"nesian view is that lower $irect taes stimulate higher s#en$ing within

the circular flow which itself boosts $eman$, out#ut, #rofits an$ em#lo"ment,

all of which can $rive ta revenues higher.

• !he @affer curve came bac& into the news in s#ring 'EEC when the @abour 

government announce$ a rise in the to# rate of income ta $esigne$ to raise

more than Jbn #er "ear. @affer curve su##orters argue that it might fail to $o

this, #erha#s even cause revenues to fall.

isal $oli9 and the Eonomi 69le

an" countries intro$uce$ a .isal stimulus $uring the "ears 'EED-'E1E to boost

confi$ence an$ $eman$ an$ #revent a $eflationar" slum#. ut how effective is

fiscal #olic" in the aftermath of a huge global $eman$ shoc&* hat are some of the

consequences of a big rise in government borrowing*

• 4iscal #olic" is the /overnments main demand-manaement tool.

• /overnment s#en$ing, $irect an$ in$irect taation an$ the bu$get balance

can be use$ Gounter-9liall9H  to hel# smooth out some of the volatilit" of 

real national out#ut #articularl" when the econom" has e#erience$

an e;ternal sho@ .

• isretionar9 .isal hanes are deliberate hanes  in taation an$ govt

s#en$ing H for eam#le a $ecision b" the government to increase total ca#ital

s#en$ing on roa$ buil$ing.

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Name: Nivedita Kushwah   Enrollment Number:  JNU-jpr/de/15/02/01/02!

• "utomati .isal hanes (also &nown as 5automati stabilisers) are

changes in ta revenues an$ state s#en$ing arising automaticall" as the

econom" moves through the tra$e c"cle.

"utomati stabili?ers refer to how fiscal #olic" instruments will influence the rate

of /2 growth an$ hel# counter swings in the business c"cle.

• uring #hases of high /2 growth, automatic stabili+ers re$uce the growth

rate an$ avoi$ the ris&s of an unsustainable boom an$ accelerating inflation.

ith higher growth, the government will receive more ta revenues an$ there

will be a fall in unem#lo"ment so the government will s#en$ less on

unem#lo"ment an$ other welfare benefits.

• In a recession, because of lower incomes, #eo#le #a" less ta, an$

government s#en$ing on unem#lo"ment benefits will increase. !he result is

an automatic increase in government borrowing with the state sector in3ecting

etra $eman$ into the circular flow.

?ecent evi$ence from the K9% suggests that a government allowing the fiscal

automatic stabili+ers to wor& might hel# to re$uce the volatilit" of the c"cle b" u#

to 'E #er cent. !he strength of the automatic stabili+ers is lin&e$ to the si+e of the

government sector (e.g. government s#en$ing as a L of /2), the #rogressivit" of 

the ta s"stem an$ how man" welfare benefits are income-relate$. In short

automatic stabili+ers hel# to #rovi$e a cushion of $eman$ in an econom" an$

su##ort out#ut $uring a recession.