Glides Fintellect Private Limited

Subjects	Teachers
Accounts	CA Gayatri Sethy
Business Studies	CMA Ajay Deep Wadhwa
Economics	CMA Gour Bandhu Gupta
English	Anjana Gupta (M.A English) (B.ED)
Mathematics	CMA Gour Bandhu Gupta
Commerce	CMA Tapan Banerjee
Co-ordinator	CMA Gour Bandhu Gupta

Syllabus

1.Drama

The Tempest: William Shakespeare (Class XI: Act 1, Act 2, Act 3)

II.Echoes

A Collection of ISC Short Stories (Evergreen Publications (India) Ltd, New Delhi).

1.Salvatore - W. Somerset Maugham

2.Fritz - Satyajit Ray

3. Quality - John Galsworthy

4.he Chinese Statue - Jeffrey Archer

5.A Gorilla in the Guest Room - Gerald Durrell

III.Reverie

A Collection of ISC Poems (Evergreen Publications (India) Ltd, New Delhi)

1.The Dolphins - Carol Ann Duffy

2.The Gift of India - Sarojini Naidu

3.John Brown - Bob Dylan

4.Desiderata - Max Ehrmann

5.The Spider and the Fly - Mary Botham Howitt

1.Introduction to Accounting

(i)Evolution of accounting:

The three phases

(ii) Basic Terms

Event, Transaction, Vouchers, Capital, Assets (intangible, tangible, fixed, current, liquid, wasting and fictitious), Liabilities (internal and external – current, long-term and contingent), Trade Debtors, Trade Creditors, Purchases, Sales, Goods traded in, Stock (raw material, work in progress and finished goods), Profit, Loss, Expense, Revenue, Income and Drawings

(iii)Accounting equation

Meaning and usefulness.

(iv) Meaning and definition of Book-keeping, Accounting and Accountancy; difference between book-keeping, accounting and accountancy; accounting cycle.

(v) Users of accounting information.

(vi) Subfields of accounting: Meaning of financial accounting, cost accounting, and management accounting.

2.Journal, Ledger and Trial Balance

(i)Journal: recording of entries in journal with narration.

(a)Classification of Accounts- traditional classification or modern approach.

(b) Double Entry System.

(c) Rules of journalizing – traditional classification or modern approach.

(d) Meaning of journal; Advantages of using a journal.

(e) Format of journal.

(f) Simple and compound journal entries.

(g) Opening Journal entry.

(h) Journal Entries- Input CGST and Input SGST / Input IGST; Output CGST and Output SGST/ Output IGST) / Setting off Input GST against Output GST.

(ii) Ledger: posting from journal to respective ledgers.

(a) Meaning of ledger

(b) Format of a ledger.

(c) Mechanics of posting.

(d) Closing / Balancing of ledger accountsexpenses and revenues to be closed by transferring to Trading / P/L Account depending upon their direct/ indirect nature and balances of Assets, Liabilities and Capital to be carried down.

(e) Adjusting and closing journal entries.

(iii)Sub-division of journal - cash book [including simple cash book and triple column cash book(cash, bank and discount) with - contra entry pertaining to receipt of cheque not deposited on the same day; adjustments pertaining to a definite cash balance to be maintained / overdraft facility to be availed at the end of the month. Petty cash book (including analytical and imprest system), sales day book, purchases day book, sales return day book, purchases return day book and Journal proper.

(a) Cash book [including simple cash book and triple column cash book (cash, bank and discount) with - contra entry pertaining to receipt of cheque not deposited on the same day; adjustments pertaining to a definite cash balance to be maintained / overdraft facility to be availed at the end of the period].

(b) Petty cash book (including analytical and imprest system).

(c) Sales day book, purchases day book Simple (Date, Particulars, I. No, L.F, Details, Amount); Columnar (Date, Particulars, I. No, L.F, Details, Net Invoice, Goods, Carriage, GST-Input CGST and Input SGST / Input IGST; Output CGST and Output SGST / Output IGST- Amount or percentage given).

(d) Sales return day book, purchases return day book- Simple (Date, Particulars, Credit/ Debit Note No., L.F, Details, Amount.)

(e) Journal proper.

(f) Mechanics of posting from special subsidiary books

(iv) Trial Balance.

(a) Meaning, objectives, advantages and limitations of a Trial Balance.

(b) Preparation of the Trial Balance by the balance method from the given ledger account balances.

3. Bank Reconciliation Statement

(i)Meaning and need for bank reconciliation statement.

(ii) Preparation of a bank reconciliation statement from the given cash book balance / overdraft or pass book balance / overdraft.

(iii)Preparation of a bank reconciliation statement from the extract of the cash book as well as the pass book relating to the same month. (Practical problem not required)

(iv) Preparation of an amended cash book and a bank reconciliation statement after adjusting the cash book balance from the given cash book balance.

4.Depreciation

(a)Depreciation, Methods of charging depreciation, Method of recording depreciation.

(i) Depreciation: meaning, need, causes, objectives and characteristics.

(ii) Methods of charging depreciation: Straight Line and Written Down Value method; advantages, limitations of both the methods and differences between the two.

(iii)Methods of recording depreciation: charging to asset account, creating provision for depreciation / accumulated depreciation.

(iv) Problems relating to purchase and sale of assets (with or without asset disposal account) incorporating the application of depreciation under the two stated methods

5.Bills of Exchange

(i) Introduction to Negotiable Instruments: explanation of basic terms. Meaning of negotiable instruments; Bills of exchange, promissory note (includingspecimen and distinction), cheque,advantages and disadvantages of Bills of Exchange, explanation of basic terms - drawer, drawee, payee, endorser, endorsee, bill on demand / bill on sight, bill after date, bill after sight, tenure of the bill, days of grace, due date, endorsement and discounting of bills, bill sent for collection, dishonour of a bill, holder of a bill, noting charges, notary public, renewal of a bill, retirement of a bill and insolvency of the drawee/acceptor.

6. Accounting Concepts

(a)GAAP (Generally Accepted Accounting Principles), Basis of Accounting; Accounting Standards; Knowledge and understanding of IFRS (International Financial Reporting Standards).

(i)GAAP: Going Concern, Accounting Entity, Money Measurement, Accounting Period, Complete Disclosure, Revenue Recognition, Verifiable Objective, Matching Principle, Historical Cost, Accrual Concept, Dual Aspect Concept, Materiality, Consistency, Prudence and Timeliness, Industry Practice, Substance over legal form.

(ii) Basis of accounting – cash basis and accrual basis (meaning; difference).

(iii)Accounting Standards: Meaning; Utility/ Advantages.

(iv) IFRS (International Financial Reporting Standards) - Meaning; Need for IFRS; Fundamental Assumptions in IFRS- Going Concern, Accrual, Measuring Unit, Purchasing Power; difference between IFRS and Indian GAAP; Procedure for implementation of IFRS; India and IFRS

7.Final Accounts and Concept of Trading, Profit and Loss account and Balance Sheet (with and without adjustments), Marshalling of Balance Sheet

(i) Capital and Revenue Expenditure/Income.

(a)Meaning and difference between capital expenditure and revenue expenditure with examples.

(b)Meaning and difference between capital income and revenue income with examples.

(c)Meaning and difference between capital profit and revenue profit with examples.

(d)Meaning and difference between capital loss and revenue loss with examples.

(e)Meaning of deferred revenue expenditure with examples.

(ii)Provisions and Reserves.Meaning, importance; difference between provisions and reserves; types of reserves - revenue reserve, capital reserve, general reserve, specific reserve and secret reserve.

(iii) Trading, Profit and Loss Account and Balance Sheet of a sole trader, (Horizontal Format) without adjustments.
Meaning, objectives, importance and preparation of Trading, Profit and Loss Account and Balance Sheet of a sole trader.
(iv) Preparation of Trading Account, Profit and Loss Account and Balance Sheet with necessary adjustments.

Adjustments relating to closing stock, outstanding expenses, prepaid expenses,accrued income, income received in advance,depreciation, bad debts, provision for doubtful debts, provision for discount on debtors, manager’s commission (on the net profit before and after charging such commission), goods distributed as free samples, goods taken by the owner for personal use and abnormal loss; Treatment of Adjusted Purchases and calculation of cost of goods sold.; Input CGST and Input SGST/ Input IGST and Output CGST and Output SGST/ Output IGST given in the Trial Balance to offset against each other in the Balance Sheet

(v) Marshalling of a Balance Sheet

Order of permanence and order of liquidity

(vi) Adjusting, closing and transfer entries.

GST is excluded in Adjustments

8.Rectification of Errors

(a)Errors and types of errors: Rectification of errors after the preparation of trial balance and rectification of errors after the preparation of Final Accounts.

(i) Types of Errors: errors of omission, errors of commission, errors of principle, compensating errors.

(i) Types of Errors: errors of omission, errors of commission, errors of principle, compensating errors.

(iii) Rectification of errors after the preparation of Final Accounts through P/L Adjustment A/c if required.

9.Accounts from incomplete records

(i) Single entry and difference with double entry.
(a) Meaning, characteristics and limitations.

(b) Difference between Statement of Affairs and Balance Sheet.

(ii) Ascertainment of profit/loss by statement of affairs method including application. Self-explanatory.

10. Non -Trading Organisation

(i) Non-Trading Organization: meaning, objectives, necessity and treatment of specific items. Self-explanatory.

(ii) Different books maintained and differences between them.

(a) Receipts and Payments Accounts: meaning, features, differences between Receipts and Payments Account and Cash Book.

(b) Income and Expenditure Accounts: meaning, features, difference between Income and Expenditure account and Profit and Loss account.

(c) Balance Sheet and its role

(iii) Preparation of Income and Expenditure Account and Closing Balance Sheet. Preparation of Income and Expenditure Account and Balance Sheet when Receipts and Payments Account and other information is given.

(a)Entrance, admission fees, life membership fees, legacies, special grants and special donations are to be capitalised.

(b)General donations, general grants and all receipts of a recurring nature such as membership fees/ subscriptions are to be taken as revenue receipts

(c) Preparation of accounts of incidental activities such as restaurant accounts are not required.

11. Introduction to the use of Computers in Accounting

(a) Introduction to Computerised Accounting System: Components of CAS, Features, Advantages and Limitations of CAS, Accounting Information System and Management Information System

(i)Components of Computerised Accounting System (CAS)-hardware and software; operation of the computer system- input, processing, auxillary storage, output, application of computer in accounting.

(ii) Comparison of accounting processes inmanual and computerized accounting.

(iii) Advantages and limitations of CAS.

(iv)Types of Accounting Packages or software- ready to use, customized, tailormade with their advantages and limitations.

(v) Accounting Information System and Management Information System Meaning

1.Business Environment

(i) Introduction to the concept of business environment.

- Meaning and definition of business environment

Distinction between business, profession and employment.

(ii) Features and importance of business environment.

Features: dynamic, relative, inter related, complex, uncertain, totality of internal andexternal forces, general and specific forces,universality, various stakeholders

Need to understand business environment: first mover advantage, early warning signals, business strategies, competitive advantage, customer confidence and public image, coping with change, customer needs, keeping pace with consumerism.

(iii)SWOT Analysis

Meaning and importance of SWOT analysis. Components of SWOT

2.Entrepreneurship

(i) Introduction to Entrepreneur.

Meaning and definition of entrepreneur; Classification of entrepreneurs: independent and spin-off; types of entrepreneurs as given by Clarence Danhof: Innovative, Imitating, Fabian and Drone.

(ii) Introduction to Entrepreneurship.

eaning, definition and characteristics ofentrepreneurship. Characteristics of successful entrepreneur: forward looking, hardworking, passionate, opinionated, confident, resourceful, positive; Factors affecting entrepreneurship: political, statutory (legal and taxation), capital availability, availability of required labour, availability of required raw material; Types of entrepreneurship: small business, scalable startup, large company, social.

(iii)Intrapreneurship

Meaning, definition and characteristics of intrapreneurship; Differences between entrepreneurship and intrapreneurship; Classification of intrapreneurs: venture and project; factors affecting entrepreneurship; management support, resource availability, organization structure, risk taking capacity, reward.

(iv)Enterprise

Meaning and definition; steps in setting up an enterprise: selecting the line of business, choosing the form of ownership, locating the appropriate site to set up the business, financing the proposition (identifyingcapital requirements and its sources), setting up the physical layout and the facilities, acquiring required human resource. Compliance with statutory requirements, launching the business). Five phases of a business: expansion, peak, recession, trough, recovery.

(v) Business risks and causes of failure.

-Meaning of business risks. Types of business risks: strategic risks, financial risks, operational risks, compliance risks, competition and market risks, environmentalrisks, reputational risks, credit risks,innovation risks: a brief explanation of each.

-Causes of business failure: internal causes (poor management, premature scaling, funding shortfall, inadequate profits, labour problems, small customer base) and external forces (economy fluctuations, market fluctuations, non-availability of credit, change in technology, change in government policies and laws, natural disasters, lack of availability of raw material).

-Methods of managing business risk: accept and absorb, avoid, transfer, mitigate, exploit (clear understanding of the methods).

3.Managers and Managerial Roles

(i) Introduction

-Meaning and definition of a Manager

(ii) Managerial roles

Managerial roles as given by Mintzberg: informational (monitor, disseminator, spokesperson), interpersonal (figurehead, leader, and liaison), and decisional (entrepreneur, disturbance handler, resource allocator, negotiator): brief explanation of these roles.

(iii) Authority, responsibility, and accountability.

Meaning and definition of authority, responsibility, and accountability; their interrelationship; authority distinguished from power; sources of authority: formal, acceptance, competence; delegation of authority; Principles of delegation of authority; Centralization and decentralization of authority; Distinction between delegation and decentralization of authority

(iv) Change management.

Meaning and definition of change management; Types of change: developmental, transitional, transformational.

-Need for change: Internal forces (need for improving productivity, need to reduce costs, need for improving quality of work life, Domino effect, deficiency in the existing system, to enhance innovation); External forces (change in market situations - national and international, changes in technology, changes in population dynamics, changes in the political scenario, changes in the legal system)

-Resistance to change: reasons for resistance to change - Individual reasons (habits and conventions, fear of unknown, zero tolerance to change (status quo), fear of economic loss, redundancy of skills, egoistic attitude, peer pressure, emotional resistance to change in social groups); Organizational reasons (fear of the unknown, costs involved, management’s lack of faith in change, constraints of organizational structure).

-Overcoming resistance to change: Brief explanation of Kurt Lewin’s model of change and ADKAR model of change

4.Automation at Workplaces

(i)Introduction

Meaning and definition of mechanization and automation; distinction between the two; evolution from mechanization to automation; merits and demerits of mechanization; merits and demerits of automation.

(ii) Productivity enhancement tools and facilities at different workplaces

• Banks: ATM, passbook printing kiosk, cheque/ cash depositing machine, SMS alerts

• Retail Industry: barcode scanner andPOS machine (Point of Sale), card swipe machine

• Corporate Office: Biometric system, photocopy machine, LED Projector, scanners, laptops, smartphones. Video conferencing, intercom, internet and wi-fi, VoIP (voice-over internet protocol).

• Airports: self check-in kiosk, CUTE workstations, automated backdrop, AODB solutions, Airport hub wireless, Advanced ATS.

1.Nature and Purpose of Business

(i) Classification of human activities - economic and non-economic.

Classification of human activities - economic and non-economic. Types of economic activities.

Distinction between business, profession and employment.

(ii) Definition and concept of business; classification of business activities

Definition of business. Characteristics of business. Classification of business activities:

(a) Industry: types of industries on the basis of activity (primary and secondary) and on the basis of size (micro, small, medium and large). Role of small businesses in India.

(b) Commerce: branches of Commerce. Commerce - its nature and functions; importance of Commerce.

Branches of Commerce - trade and aids to trade. Relationship between commerce, trade and industry

(iii) Business objectives

Business objectives: economic; social; human and national. Role of Profit in business

2.Forms of Business Organisations

(i) Introduction to business organizations. Meaning, characteristics, types (private sector, public sector, Public Private Partnership (PPPs) /Joint Sector). Comparison between different types of organizations.

(ii) Sole trader - objectives; formation; merits and demerits. Meaning and definition of sole trader; characteristics and objectives of sole trader; merits and demerits.

(iii) Partnership

(a) Meaning, features; types of partners and partnership firms. Meaning and definition of partnership; features of partnership firms; types of partners and partnerships.

(b) Registration of Partnership firms. Formation, meaning and contents of partnership deed; registration and consequences of non-registration.

(c) Evaluation of partnership; merits and demerits. Self-explanatory.

(d) Comparison of sole proprietorship and partnership. Self-explanatory.

(iv) Corporate Organisations.

(a)Joint Stock Company: meaning, features, merits, demerits and objectives.

(b) Stages of Formation of a Company.

(c) Promotion, meaning, role and types of promoters.

(d) Incorporation of a company –Meaning and steps of incorporation (includingfiling of documents), certificate ofincorporation.

(e) Memorandum of Association and Articles of Association (excluding alterations) and distinction between the two documents.

Meaning and contents of MOA and AOA. Distinction between the MOA and AOA.

(f) Commencement of business. Steps, Certificate of Commencement.

(g) Prospectus and statement in lieu of prospectus – meaning and contents only.

(h) Types of companies- Classification of companies on the basis of mode of incorporation, liability of members, public interest, ownership, control and nationality. Public and private companies and their comparative studies, privileges of private companies.

(v) Public Sector Undertakings.

(a) Meaning; characteristics, objectives, role and forms of Public Sector Undertakings (Departmental Undertakings, Public Corporations and Government Companies). Public Sector Undertakings – meaning; characteristics, objectives, role and criticisms. Forms of Public Sector Undertakings (Departmental undertakings; Public Corporations and Government companies – definitions, features, merits and demerits).

(b) Public Private Partnerships. Meaning and features of PPPs

(vi) Co-operativeorganisations - meaning; characteristics and types

Co-operative organizations - meaning; characteristics, advantages and disadvantages; Types of cooperative organizations, distinction between joint stock companies and cooperativeorganizations

3. Social Responsibility of Business and Business Ethics

Concept and need for social responsibility. Responsibility towards owners, investors, consumers, employees, government and community; Responsibility of business towards protection of environment; Meaning and importance of Business ethics.

4.Emerging Modes of Business

(i) E-business.

Scope and benefits, Resources required for successful e-business implementation, online transactions, payment mechanisms, security and safety of business transactions.

(ii) Outsourcing.

Concept, need and scope of BPO and KPO.

(iii) Smart Cards.

Meaning and utility

5.Stock Exchange

(i) Meaning and importance.

(ii) Functions and services.

(iii)Major Stock Exchanges in India (BSE, NSE, DSE, ASE) – types and locations.

(iv) Types of operators – Brokers, Jobbers,Bulls and Bears.

(v) Terms used in Stock Exchange - exdividend, cum dividend, spot delivery,forward delivery.

(vi) SEBI – functions and objectives.

Self-explanatory

6.Trade

(i) Wholesalers.

Meaning and services of wholesaler to retailer, customer and producer.

(ii) Retail trade – Meaning and characteristics.

(a) Retail trade - meaning, characteristics of retail trade. Distinction between wholesale and retail trade.

(b)Types of retail trade - Departmental store, chain store, automatic vending machines. Meaning, features, merits and demerits to be covered.

(c) Documents used in home trade. Documents used in home trade – inquiry; quotation; catalogues; order; invoice; debit note; credit note. Price quotations - cash discount and trade discount.

7.Foreign Trade

(i) Meaning, difference between internal trade and external trade.

Meaning and characteristics of international trade; problems of international trade; advantages and disadvantages of international trade.

(ii) Export trade – Meaning, objectives and procedure of export trade.

Self-explanatory.

(iii)Import trade – Meaning objectives purpose and procedure.

Meaning and functions of import trade; objectives, purpose and procedure.

(iv) Documents involved in international trade.

Documents involved in export trade, such as: indent, letter of credit, shipping order, shipping bill, mate’s receipt, bill of lading, certificate of origin, consular invoice, documentary bill of exchange (DA/DP), all need to be explained. Documents involved in import trade, such as: import license, indent, letter of credit, documentary bill of exchange, bill of entry, bill of sight, port trust dues receipt, application to import, advice note, bill of lading, all need to be explained.

(v) World Trade Organisation.

WTO-meaning and objectives.

8.Insurance

(i) Insurance – Meaning, objectives and purpose.

Meaning, objectives and purpose of insurance; Concept of re insurance and double insurance.

(ii) Risks in business - insurable and noninsurable

Risks in business - insurable and noninsurable - meaning and examples of both. Characteristics of insurable risks.

(iii)Principles of insurance.

Fundamental principles to be explained: utmost good faith; insurable interest; indemnity; contribution; doctrine of subrogation; causaproxima. mitigation ofloss.

(iv) Types of insurance: life and non-life.

Types of insurance – life, health, fire, marine, motor, social and fidelity insurance (Meaning and importance only).

1. Understanding Economics

(i) Definition of Economics: Adam Smith, Alfred Marshall, Lionel Robbins, Samuelson. Basic understanding of economics and economic phenomena to be explained especially in the context of the concept of scarcity and allocation of resources. Students may be introduced to the main points on which the various definitions of economics could be analyzed. Features of definitions and two- three criticisms

(ii) Micro and Macro Economics – Meaning and Difference. Basic concepts: utility, price, value, wealth, welfare, market, capital, investment, income, production, consumption, saving, Business cycle, Aggregate demand and Aggregate supply. Meaning and difference between Micro and Macro Economics. A conceptual understanding of the terms: Human wants classification; factors of production; utility – types and features; price – definition and general rise and fall in price; value – real vs nominal value; wealth – explanation of the term, classification (personal and social); welfare – economic welfare, social welfare and relation between wealth and welfare; market – meaning and size; capital – meaning; investment – meaning, investment as a process of capital formation; income – meaning, factor incomes; production – meaning; consumption – meaning; saving – meaning; individual saving and aggregate savings. The above terms to be explained with the help of relevant examples.

(iii)Basic problems of an economy: what to produce; how to produce; for whom to produce; efficient use of resources. The basic problem of scarcity and choice must be emphasized. As this problem is universal in character, i.e. faced by all economies, irrespective of the economic system they follow, it must be explained using the concept of Production Possibility Curve. The three problems - what to produce, how to produce and for whom to produce - must be highlighted. The role of technology and a shift in the Production Possibility Curve (assumptions and features) must be explained.

(iv) Types of economies: developed and developing; Economic systems: capitalism, socialism and mixed economy; mechanism used to solve the basic problems faced by each economy. Developed and developing economies (meaning only); different types of economic systems; definition, features, merits and demerits of capitalism, socialism and mixed economic system; mechanisms used to solve the basic problems under each economic system to be explained with the help of examples. The role of government along with the price mechanism to be emphasized. Price mechanism as a tool to solve economic problem.

2. Indian Economic Development

(i) Parameters of Development. Meaning and construction of Human Development Index (HDI). India and HDI as per the UNDP report.

(ii)Planning and Economic Development in India. NITI Aayog: objectives and role.

(iii)Structural Changes in the Indian Economy after liberalization. Need, meaning, significance and features of liberalization, globalization and privatization of the Indian Economy; disinvestment: meaning.

(iv) Current challenges facing the Indian Economy. Poverty – absolute and relative, vicious circle of poverty, main programmes for poverty alleviation: A critical assessment of PAPs (Poverty Alleviation Programmes); Rural development- Rural Credit (need, purpose and sources); Agricultural marketing: defects and government measures to improve agricultural marketing; agricultural diversification; alternate farming/organic farming: meaning and importance. Human Capital formation: How people become resource; role of human capital in economic development; Growth of education sector in India; Education – formal and informal (Meaning only); Unemployment types of unemployment, causes for unemployment, Policy measures (after 2000).

(v) Sustainable Development. Effect of Economic Development on Resources and Environment. Understanding the concept of Sustainable development; Need for sustainable development for improving the quality of life - looking at the deteriorating quality of air, water, food over time, developing an appreciation to sustain at least what exists for the generations to come. Global warming – meaning and effects.

3.Statistics

(i) Statistic definition, scope and limitations of statistics. Statistics: definition, scope and limitations of statistics. Special emphasis to be laid on importance of statistics in economics.

ii) Measures of Central Value: average defined; type of averages: arithmetic mean; simple and weighted; median and mode; ungrouped and grouped data; numericals, relationship between mean, median and mode. Numericals only on mean, median and mode for both ungrouped and grouped data. – the nature of the frequency distribution – symmetrical, positively skewed and negatively skewed.

(iii) Measures of dispersion: definition, methods of studying variation - range; standard deviation; quartile deviation; the mean or average deviation; coefficient of variation.

(iv)Correlation: introduction, scatter diagram; Karl Pearson’s coefficient of correlation; Spearman’s coefficient of correlation. Meaning and significance of correlation to be explained along with types and degrees. Scatter diagram, Karl Pearson’s method (two variables, ungrouped data); Spearman’s Rank Correlation to be explained with the help of numericals.

(v) Index numbers: simple and weighted - meaning, types and purpose. What does an Index number show, measure or indicate (like a Price Index Number). Difference between simple and weighted – Price weighted or quantity weighted. Laspayre’s, Paasche and Fisher’s methods of index numbers (to be explained with the help of numericals). Uses of Index Numbers.

(vi) Some Mathematical Tools used in Economics. Equation of a straight line and slope of a Straight line.

Section A:

1.Sets and Functions

Sets

Relations and Functions

Trigonometry

2.Algebra

Principle of Mathematical Induction

Complex Numbers

Quadratic Equations

Permutations and Combinations

3.Coordinate Geometry

Straight Lines

Circles

4.Calculus

Limits and Derivatives

5.Statistics and Probability

Statistics

Probability

Section B:

6.Conic Section

Parabola

Ellipse

Hyperbola

7.Introduction to three-dimensional Geometry

8.Mathematical Reasoning

Section C:

9.Statistics

10.Correlation Analysis

11.Index Numbers and Moving Averages

Study Material

LESSON PLAN:-01

Business Environment

The term “Business environment” represents the sum of all the individuals, institutions, competing organisations, government, courts, media, investors, and other factors outside the power of the business organisations but affects the business performance. Hence, changes in government economic policies, rapid changes in technology, changes in consumer tastes and preferences, increasing market competition, etc. are outside the business organisations' power but affect the business performance immensely.For example, an increase in taxes by the government makes everything expensive in the market; technology changes may make the existing product obsolete, political uncertainty creates fear in the mind of investors, increase in competition in the market due to competitors may affect business profit, and changing in demand and preferences may increase the need for a new product and decrease the demand for old product.

Feature of Business Environment

The features of Business Environment are as follows:

1. The totality of external forces:-The business environment is the total of all the external forces that directly or indirectly influences the working of a business system. The external forces refer to those individuals and groups, also known as stakeholders, with which a particular organization comes into direct and frequent contact in the course of its functioning.

2. Specific and general forces:-The business environment is made up of both specific and general forces. Specific forces such as investors, customers, competitors, and suppliers affect individual enterprises directly and immediately in their everyday work. General forces such as social, political, legal, and technological conditions indirectly affect the business environment.

3. Inter relatedness:-The various elements of the business environment are closely interrelated, which means a change in one element affects the other elements of the business environment. In the present social environment, there has been a health-conscious and fitness trend amongst people, and demand for some product and services have increased, like low-fat cooking oil, low-fat milk, sugarfree products, yoga centers, health restoration, etc., at the same time demand for spicy and oily foods, etc., has decreased to an extent.

4. Dynamic nature:-The business environment is dynamic in nature, i.e. it keeps on changing whether in terms of technological improvement, a shift in consumer preferences or entry of new competition in the market. For example, changes like invention of new techniques of production, changes in industrial policies, or a new minister in the government, etc. Business is required to remain highly alert and adaptable so that they can survive for long period.

5. Uncertainty:-It is very difficult to predict the happenings in the future, especially when frequent changes are taking place in the environment. As in the case of IT or fashion designing due to technological advancements, smartphones have mostly replaced ordinary cell phones, or earlier women in India used traditional attire only, but in recent times most of them prefer western outfits.

6. Complexity:-Business environment consists of numerous interrelated and dynamic forces which arise from different sources. So, it becomes difficult to understand what exactly constitutes a given environment. The environment is a complex phenomenon that is relatively easier to understand in parts, but difficult to know the relative influence on the functioning of the business enterprise.

7. Relativity:-Business environment is a relative concept because it differs from country to country or from one organization to other. For example, demand for traditional wear may be high in India, but it is not static in Japan, or a shift of a preference from soft drinks to juice will be welcomed as an opportunity by the juice company, while the soft drinks company takes it as a threat.

Importance of Business Environment

A business environment can not exist in isolation rather each business enterprise exists, survive, and grows within various forces of the business environment. The enterprises have insignificant or no control over the environment and are left with no other alternative, but to adapt themselves according to these forcesThis helps them to take suitable actions at the right time by formulating the right strategies, which help in improving business performance, looping with the changes to increase profits, combat competitors, and maintain the existing market share. The importance of the business environment has arisen due to the following benefits:

1. It enables the firm to identify opportunities and get the first-mover advantage:-A business environment provides numerous opportunities for the success of the business. Here, opportunities refer to the positive external changes or trends that will help in improving the performance of the business enterprise, and early identification of environmental opportunities will help the enterprise to capitalize or exploit the opportunities by being the first to exploit instead of losing the opportunities to the competitors. For example, Maruti Suzuki India Ltd. became the leader of the small car segment in India because it was the first to recognize the need for low maintenance, low mileage, and small family cars in an environment with rising petroleum prices and an increasing middle-class population, likewise Tata Motor made the low priced car. Later other automobile manufacturers came up with similar products, but they were unable to exploit the market to the extent Tata Motors did.

2. Helps the firm to identify threats and early warning signals:-Besides opportunities, a business environment is also a source of varied threats of crisis. Threats refer to that trend or changes in the external environment, which hinders the performance of the business enterprise. A proper environmental understanding and awareness can help business managers to recognize various threats on time, which also serves as a warning signal. For example, especially in India, they come up with many innovative products and substitutes, so the existing business enterprise must consider this as a warning signal and must handle the threat proactively well ahead of the launch of the MNCs products. They must adopt various methods, like improving the quality of the product identifying areas where the cost of production can be due, and engaging in aggressive advertising, publicity and sales promotion. When other car manufacturing companies entered the small and mid-segment cars, Maruti Suzuki increased the production of its cars to make faster delivery. This way company could become a market leader.

3. Helps in tapping useful resources:-Business enterprises depend upon the environment as a source of input or resources (such as raw materials, water, labour, machines, finance, etc.) and as outlets for their output (goods and services). The business managers must design the policies that allow the enterprise to get the resources so that they can convert them into outputs that the consumers desire. Business arranges for payments of taxes to the government, providing reasonable and fair returns to their investors, fulfilling corporate social responsibilities, and so on. All these can be done very effectively by understanding what the environment has to offer and what it needs. For example, with the rise in demand for LED, the company started arranging raw materials for LED instead of a CRT monitor.

4. Helps in coping with rapid changes:-The business environment should be monitored regularly by the organizations in order to remain updated. The business Environment enables the business to cope with the changes in the external environment and make relevant changes in their external environment. Besides, decision-making should be faster and procedural delays should be eliminated. For example, the management of Google is continuously busy adding new features to its search engine to remain ahead of changes made by other competitive search engines.

5. Helps in better reputation or building corporate image:-An understanding of the business environment helps business managers to make realistic plans and policies, and also ensure their effective implementation. Consequently, the business environment will surely achieve its goals smoothly and consistently, and this fact also generates a feeling amongst the people that the business environment is sensitive to its environment, and as a result, the reputation gets enhanced.
For example, earlier General Electric Company had various products, including air condensers, computers, etc., but they discontinued making A.C and computers, as they could not achieve reasonable market share. General Electric had the policy that either captures major market share for their products supplying best to its customers or else moves out from the concerned business.

6. Help in continuous learning and improving performance:-All types of business environments are facing an increasingly dynamic business environment where changes are taking place at a fast pace. Rapid changes in technology, instant global competitors, more demanding customers, low brand loyalty, division and subdivision of markets are just a few of the images that describe the present business environment, and the future of the business environment is closely associated with what is happening in the environment, so the business environment that continuously monitors the environment, and adopts suitable ways of action based on their environment learning experience will be the one to succeed in the market for a longer period. For example, Indigo is a low-cost airway affordable to the masses. They fly their plains on time, and that becomes their strength. The company used to collect feedback from the customers about their preferred timings and set their flight timings accordingly to get seats filled up. People choose Indigo over full-price airlines for their reliability. This is how they improved their performance.

SWOT Analysis:-

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a framework used to evaluate a company's competitive position and to develop strategic planning. SWOT analysis assesses internal and external factors, as well as current and future potential. A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the strengths and weaknesses of an organization, initiatives, or within its industry. The organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray areas and instead focusing on real-life contexts. Companies should use it as a guide and not necessarily as a prescription.

The Importance of SWOT Analysis

A SWOT analysis helps evaluate where a company stands in a competitive market and what steps need to be taken for further strategic planning, helping decision-makers draw a future roadmap for the company.
Here are some key points that make it especially useful for companies:

a)A SWOT analysis helps organizations get visibility on their current status, letting them understand and measure overall business performance.

b) It lets a business analyze its strength, which in turn can help them better penetrate the market to meet business targets.

c) It lets organizations get visibility on their weaknesses and potential areas of improvement. This information helps them plan for and mitigate future roadblocks, ensuring the long-term growth of the business.

d) By leveraging its SWOT analysis, a business can create a strategic plan to meet desired objectives and adapt to changing market conditions.

e) It lets businesses understand and better identify internal and external factors and their positive and negative impacts on the business. This information can help businesses be more proactive by helping them take appropriate actions in a dynamic market to maintain momentum.

Four Element of SWOT analysis:-

The SWOT analysis is a valuable tool for evaluating your strategic position and market environment. The purpose of this tool is to help you better understand the internal and external factors that will impact your business, which allows you to formulate a strategy that will set you up for success. The four elements of the SWOT analysis are Strengths, Weaknesses, Opportunities and Threats.

1)Strengths:-Strengths are sustainable internal factors (features) that give your business a competitive advantage over its competitors. These features would be heavily promoted to differentiate your service or product in the marketplace.

2)Weaknesses:-Weaknesses are internal factors that put your business at a competitive disadvantage. In order to be successful, action must be taken to minimze the effect of these weaknesses.

3)Opportunities:-Opportunities are external conditions in your business environment that you can capitalize on to increase your sales revenue and become more profitable. Leveraging these conditions can further strengthen your competitive advantage and lead to an even greater success.

4)Threats:-Threats are external conditions in your business environment that can have a significant negative impact on your competitive advantage and profitability. Anticipating these threats allows your business to prepare for them and limit the damage they can do to your revenue and profitability.

LESSON PLAN:-02

Introduction to Entrepreneur

Entrepreneurs are business people who can detect and sense the availability of business opportunities in any given scenario. They will utilize these opportunities to create new products by employing new production. They will also function in different ways by using various resources who will give them profit. It is important to note that although most entrepreneurial businesses start small, the owners of such businesses need not be small scale owners. They could in fact be big business owners, who first try and test the waters before investing big time in the business. Small business owners dread risk, but successful entrepreneurs are very innovative and know how to operate profitably in a business environment, even if the risk is very high.

DEFINITION OF AN ENTREPRENEUR

Adam Smith’s definition –The entrepreneur is an individual, who forms an organization for commercial purpose. She/he is proprietary capitalist, a supplier of capital and at the same time a manager who intervenes between the labour and the consumer. Entrepreneur is an employer, master, merchant but explicitly considered as a capitalist.

CHARACTERISTICS OF ENTREPRENEURS

Entrepreneurs are vision-oriented people

Entrepreneurs have a high need of achievement

Entrepreneurs do not rely on fate or luck, however they try to control their own lives

Entrepreneurs undertake moderate risks, which is why they look for high earning on their investments

Entrepreneurs have the abilities to deal with several ambiguous situations in their ventures. They face these ambiguous situations and circumstances regularly because they do certain jobs and tasks which are entirely new by nature.

Entrepreneurs have the tendency to be productive and efficient with in a given period of time.

Introduction To Entrepreneurship

Entrepreneurship is the practice of forming a new business or commercial enterprise, usually in an industry or sector of the economy with a large capacity for growth. Entrepreneurship is generally synonymous with resourcefulness, ingenuity, and the ability to take calculated risks in order to introduce a new, untested product or service into the marketplace. These traits are often referred to collectively as the “entrepreneurial spirit.”

Characteristics of Successful Entrepreneur:-

1)Forward looking: Entreprenuer must thinking about or planning for the future with having modern ideas

2)Hardworking:Being a hardworking person means that you are committed to the task at hand and never let anything get in your way.

3)Passionate: Entrepreneurs must have a desire to succeed in a business venture under their own initiative.

4)Opinionated: It means the future. To be an entrepreneur, you have control over your own life, as well as everything in and around you.

5)Confident: Entrepreneurs who have confidence attract what they desire. They present their best selves to their potential clients and those clients feel their energy and confidence.

6)Resourceful:-Resourceful entrepreneurs look for the common thread in every situation. They're good at recognizing patterns and discovering the common good. They see problems as opportunities.

7)Positive:To become an entrepreneur, you have to be capable of mental positivity. It took bravery and positive thoughts to decide to start your business. You had to shield yourself against a lot of negativity.

Factors affecting entrepreneurship:-

Political Factors: Political factors play a huge role in the development of entrepreneurship in a given geographical area. This is because politicians decide the type of market that is in place. The market could be capitalistic, communist or some countries have adopted a mixed economy. Each of these three markets has very different implications for the way in which entrepreneurs are required to function. Capitalism requires breakthrough innovation whereas communism requires entrepreneurs to be well connected with the political class. Therefore, it has been observed that the more capitalistic any country is, the more entrepreneurship flourishes in the region.

Legal Factors: Entrepreneurs are dependent upon law for a wide variety of factors. The strength and fairness of the legal system of a nation affect the quality of entrepreneurship to a large extent. This is because entrepreneurs require a wide variety of legal services to function. For instance, entrepreneurs would require the courts to enforce the contracts that were entered to between parties. In many countries such contracts are not enforceable and therefore the resultant risk prohibits the development of entrepreneurship. Then again, the entrepreneurs are dependent on the courts for the protection of their property rights. Also, many advanced countries have noticed that the provision of declaring bankruptcy has been positively associated with the development of entrepreneurship. Entrepreneurs do fail a few times before they find the right innovation that leads to their success. The United States is amongst the countries with the highest rate of entrepreneurial development and it is also known tohave one of the most advanced bankruptcy laws! Even business legends like Henry Ford had declared bankruptcy in their early days.

Taxation: The government can also influence a high degree of control on the market through provisions of taxation. Some amount of taxation is necessary for the government to maintain the legal and administrative systems in place for the entire economy. However, a lot of times governments resort to excessive taxation. They usually adopt the policy of beggaring the rich and giving it off to the poor. This goes against the basic tenets of entrepreneurship which believes in survival of the fittest. Therefore, countries where tax regimes are restrictive find an outflow of entrepreneurs. In short, entrepreneurs want to set up shop in places where there is minimal interference from the government.

Availability of Capital: The degree to which the capital markets of a nation are developed also play a huge role in the development of entrepreneurship in a given region. Entrepreneurs require capital to start risky ventures and also require instant capital to scale up the business quickly if the idea is found to be successful. Therefore, countries which have a well developed system of providing capital at every stage i.e. seed capital, venture capital, private equity and well developed stock and bond markets experience a higher degree of economic growth led by entrepreneurship.

Labor Markets: Labor is an important factor of production for almost any kind of product or service. The fortunes of the entrepreneurs are therefore dependent on the availability of skilled labor at reasonable prices. However, in many countries labor has become unionized. They demand higher wages from the entrepreneurs and prohibit other workers from working at a lower price. This creates an upward surge in the costs required to produce and as such has a negative effect on entrepreneurship.
With the advent of globalization, entrepreneurs have witnessed the freedom to move their operations to countries where labor markets are more favorable to them. This is the reason why countries like China, India and Bangladesh have witnessed a huge rise in entrepreneurial activity in their countries.

Raw Materials :Just like labor, raw material consisting of natural resources is also an essential product required for any industry. In some countries this raw material is available through the market by paying a fair price. However, in some countries seller cartels gain complete control over these natural resources. They sell the raw materials at inflated prices and therefore usurp most of the profit that the entrepreneur can obtain. Therefore, countries where the supply of raw material faces such issues witness depletion in the number of entrepreneurial ventures over time.

Classification of Entrepreneurship:-

a)Small Business Entrepreneurship:These businesses are a hairdresser, grocery store, travel agent, consultant, carpenter, plumber, electrician, etc. These people run or own their own business and hire family members or local employee. For them, the profit would be able to feed their family and not making 100 million business or taking over an industry. They fund their business by taking small business loans or loans from friends and family.

b)Scalable Startup Entrepreneurship: This start-up entrepreneur starts a business knowing that their vision can change the world. They attract investors who think and encourage people who think out of the box. The research focuses on a scalable business and experimental models, so, they hire the best and the brightest employees. They require more venture capital to fuel and back their project or business.

c)Large Company Entrepreneurship: These huge companies have defined life-cycle. Most of these companies grow and sustain by offering new and innovative products that revolve around their main products. The change in technology, customer preferences, new competition, etc., build pressure for large companies to create an innovative product and sell it to the new set of customers in the new market. To cope with the rapid technological changes, the existing organisations either buy innovation enterprises or attempt to construct the product internally.

d)Social Entrepreneurship:This type of entrepreneurship focuses on producing product and services that resolve social needs and problems. Their only motto and goal is to work for society and not make any profits.

Intrapreneurship

Intrapreneurship encourages individuals to fully engage with the business' goals and take control of their work. This also makes their job more meaningful and provides greater autonomy, which research has found will further improve engagement, as well as improve productivity and wellbeing. Intrapreneurship is simply entrepreneurship in an existing organization. In many ways, intrapreneurship is easier for an individual than entrepreneurship because it has the support of an existing organization.

Characteristics of Intrapreneurship:

a)Diversification: Intrapreneurship promotes teams with people of different gender, age groups, culture and fields.

b)Innovative Approach: It is a creative initiative for the progress of both the employee and the company.

c)Restoration Concept: An intrapreneur adds value to an existing company by improving the products, services, methods or perceptions.

Mutual Benefit: Through intrapreneurship, an employee achieves empowerment and self-actualisation; and the company also grows remarkably.

Calculated Risk: The risk involved in an intrapreneur’s project is well analyzed and planned before it is onboard.

No Investment by Intrapreneur: The intrapreneur is the brain behind the idea but need not put even a penny into the project. The company funds it at every stage of business.

Profit-Sharing Agreement: In many organizations, a profit-sharingagreement is signed mutually between the company and the employee.

The intrapreneurs may be classified as follows:

(i) Employee Intrapreneur:Employee intrapreneur refers to employee initiatives in organizations to undertake something new, without being asked to do so. Hence, the intrapreneur focuses on innovation and creativity, and transforms an idea into a profitable venture, while operating within the organizational environment. Thus, intrapreneurs are inside entrepreneurs who follow the goal of the organization. Intrapreneurship is an example of motivation through job design, either formally or informally. Employees, such as marketing executives or perhaps those engaged in a special project within a larger firm, are encouraged to behave as entrepreneurs, even though they have the resources, capabilities and security of the larger firm to draw upon. Capturing a little of the dynamic nature of entrepreneurial management adds to the potential of an otherwise static organization, without exposing those employees to the risks or accountability normally associated with entrepreneurial failure.

(ii) The Creator Intrapreneur:He/she is the person with the innovative ideas. Creators may be easier to spot. They are the idea generation people, mostly in the discovery phase. They see possibilities. They are high on learning and love change. They are always looking for ways to do things better. They are big-picture thinkers and often are able to see the gestalt. They are independent and prefer to work in less structured environments. On the downside they can get bored easily and find it difficult to stay focused on the details because they are always thinking of the next idea. Creators develop the ideas that fuel innovation.

(iii) Doers Intrapreneurs:These persons are focused on achieving objectives. They are the task-oriented individuals mostly in the incubation phase. They understand the big picture and can get involved in the details when they need to. They are assertive and take responsibility for their actions. They have good communication skills and are effective in instructing others. They are not afraid to stand up to authority or challenge the status quo. They are less concerned about structure and organizational obstacles that get in the way. They know what needs to be get done. They just go it. Doers are task-oriented and dedicated to their work.

(iv) Implementers Intrapreneurs: They are the individuals who make things happen. They are focused on closer and are mostly involved in the execution phase. They know how to get things done or figure out how to get them done. They are goal-oriented, creative, and competitive. They have good planning and negotiating skills. They work well in high-pressure situations. They are good at taking the initiative, negotiating, and motivating others. They have the execution skills required to drive projects to completion.

Enterprise

Meaning

Enterprise refers to a for-profit business started and run by an entrepreneur. And we will often say that people running such businesses are enterprising.

Steps in setting up an Enterprise

a)Decision to be an Entrepreneur The overriding reason for anyone to think of establishing a SSI unit can be summarised in one word - opportunity. An opportunity to be your own boss, to provide a product or service, to implement your ideas, which can generate sufficient surplus, is reason to think of starting up a SSI unit. Starting a small business takes a lot of courage. To be successful - to stay in business - you need a combination of hard work, skill and perseverance.

b)Choosing your form of Business Organisation Many first time entrepreneurs do not have a clear perspective of the issues, legal or otherwise, involved in choosing one or the other form of a business. This often results in avoidable mistakes, which later cost time and money to rectify. The options of the form of business with their pros and cons have been explained below. In India setting up a private limited company was the most popular choice among our sample of entrepreneurs. Franchising is also emerging as a major business format. An extensive overview of its features is provided since it is believed that it will grow the same way in India as it has abroad.

c)Making a Product Choice Make a careful analysis of the product or service you are choosing, sometimes in short run, there is a shortage of a particular commodity in the market, you may even come to know you will get almost two weeks in advance to supply fresh stock. Does that mean you can jump into that business. First thing in such a condition is to analyse the situation. Keep in mind that shortages may occur due to a number of reasons and a good entrepreneur always examine the pros and cons before setting up a business. It may tempt you to think that perhaps you have found a good businesses idea. But do not be easily influenced by these temporary shortages. Carefully analyse the future demand-supply position of the product, say for the next 3 to 5 years. Only when you are certain that the shortage will remain there for considerable period of time and you would be able to generate enough profits in the very first or second year of operation and that you can produce quality item within an acceptable pricing, then only you should venture into such a business.

d)Location of Industry After deciding the issues of product, the next important question is, where to set up the unit ? For many tiny units and service-based units, the home is perhaps the best starting point. But not all type of SSI can be set up in home either due to size or due to nature of the industry. Then the entrepreneurs may like to locate their business in industrial estates, areas, parks, complexes developed by concerned state government organisation or private bodies or in a privately leased land subject to approvals by various state and municipal bodies. State level Government agencies like DSIDC, HPSIDC, GIDC, TIDCO, UPSIDC assist entrepreneurs in identifying suitable locations/sites for the project, besides helping in the process of getting all the necessary clearances for the project.

e)Preparation of Business Plan A Business Plan is an document where you plan your Business to have an organized and effective response to a situation which may arise in future. Business plan is not just for a start up company but also for those, which are growing. It can be used it to establish realistic goals or targets to achieve and to determine the current position. Start a business plan with describing your business and product or services. Tell about the market you are targeting and the stage of development your company.

f)Sourcing Process, Raw Materials, Machineries and Equipments Choices of process technology emerge once the product is finalised. For some complex products, process know-how has to be imported. In such cases agreements for technology transfer should be made with due care to safeguard interest. A lot of appropriate technology is being developed at CSIR and Defence Research Labs and some of these technologies can now be bought. There are some intermediaries like APCTT, TBSE, which can help you to locate the relevant technologies. Besides there are some In-house R & D centres of companies, which develop technologies and sell them to interested parties. Indigenously developed process know-how has intrinsic benefits such as appropriateness, relative inexpensiveness and possibility to work with technology developer.

g)Infrastructure - Land & Building, Water and Power Supply Once an industrial plot for the unit is secured, then the next job is that of finding a suitable architect to design the outlay of area and factory. Design of factory building has to be in consonance with the type of industry. Have an appropriate plant layout. If you are setting business in home, plan the area, which is to be used as your production centre or office judiciously. You may like to take help of a professional to ensure that the area is utilised optimally. An architect's estimate of building construction is essential for loan applications. Further, architect's certificate for money spent on building is needed for disbursement of loan.

h)Legal Aspects Few simple steps to take care of legal aspects of setting business are to Register your unit with relevant organisation, check out the labour laws that would be applicable to you, pay your commercial taxes and taking care of environmental aspects. Each of these aspects is discussed in details.

i)Finance and Working Capital to Start Business To start and set up their business all SSI units need monetary support. Before seeking fund estimate the cost including that of working capital required for a minimum of 6-8 months and always keep a provision for buffer. you can take help of an CA or concerned officials in Entrepreneurship Development Institutes to work out the total financial cost of your project. Decide the form in which you are going to raise the capital i.e. should it be equity finance, debt finance, loans or a combination of these.

j)Human Resource Human Resource is an important element to be kept in consideration while setting up an business. Though, projections for manpower and staffing are made in the project report, however it is necessary to time the induction of manpower in a planned manner. For example: The engineers and operatives must be available before the installation of the machinery. While planning for manpower following points should be kept in consideration.

k))Production Today's competitive market, it is difficult to maintain stable relationships with suppliers, customers, brokers, distributors, and even your own company personnel. Competitors are stealing your best customers. To maintain the edge entrepreneurs need to synchronies their production process, capacity, and delivery schedule. Plan out your work area keeping in mind the requirement of your business. More often than not the area available to small businesses is limited and within that area all the work needs to be carried out, right from storing the raw materials to the final product. The space for each of these should be clearly chalked out.

l)Pricing In India, price is often affected by excise duty, sales tax and local taxes like octroi, thereby making it difficult to maintain a uniform price throughout the country. You may opt for any of the following policies or modify and combine them depending upon your objective or you can have your own pricing policy.

m)Marketing Marketing is an important tool to be used while setting up your business. Study, but don't necessarily copy your competitor's moves. Visit their businesses, watch their ads, figure out their strategies, and keep your eyes open. You may not be able to keep up with your competitor's strategy move by move. You should, however, be ready and able to blunt or block the impact of their moves through effective marketing. Then, later, you can make your own offensive move at your own pace.

n)Paying Back Loans and Profit Generation Manage your cash Flow to pay back your loans, debts or credits. A healthy cash flow is an essential part of any successful business. If you fail to have enough cash to pay your suppliers, creditors, or your employees, chances are you will be out of business very soon. You should pay back the loans so that when you need loans in future, you get one. You can pay the loans or debts as per terms and conditions initially agreed upon, if you can't pay in time inform the creditor, ask for an extension stating the reasons. Proper management of your cash flow will ensure the same and is a very important step in making business successful.

o)Modenisation and Protection from Sickness Once you have started the production most important aim for long run should be to remain at the forefront of business and avoid being obsolete in terms of products, services or management aspect. Listen and gauge the market, anticipate the future demands. There are many market survey document or market reports published by individual agencies and government departments on this aspect. An entrepreneur can use these as indicative guide to project the future conditions. In face of competitive environment entrepreneur should keep abreast of process and technological changes that are taking place and wherever possible incorporate the changes which could increase the productivity, efficiency and /or reduce the cost of production.

p)Feedback and Reporting Have a suitable feedback mechanism in place to learn from experiences, to gain an insight into what is actually happening in your business, if you don't have one develop a suitable mechanism, which suits your necessities. Think of your experiences, when you wanted to know from others how you were performing your jobs or chores or tried to find out how you performed in your a particular assignment.

Five phases of a business:

1.Expansion: The first stage in the business cycle is expansion. In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand, and supply of goods and services. Debtors are generally paying their debts on time, the velocity of the money supply is high, and investment is high. This process continues as long as economic conditions are favorable for expansion.

2. Peak: The economy then reaches a saturation point, or peak, which is the second stage of the business cycle. The maximum limit of growth is attained. The economic indicators do not grow further and are at their highest. Prices are at their peak. This stage marks the reversal point in the trend of economic growth. Consumers tend to restructure their budgets at this point.

3. Recession: The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

4. Depression: There is a commensurate rise in unemployment. The growth in the economy continues to decline, and as this falls below the steady growth line, the stage is called a depression.

5. Trough: In the depression stage, the economy’s growth rate becomes negative. There is further decline until the prices of factors, as well as the demand and supply of goods and services, contract to reach their lowest point. The economy eventually reaches the trough. It is the negative saturation point for an economy. There is extensive depletion of national income and expenditure.

6. Recovery: After the trough, the economy moves to the stage of recovery. In this phase, there is a turnaround in the economy, and it begins to recover from the negative growth rate. Demand starts to pick up due to low prices and, consequently, supply begins to increase. The population develops a positive attitude towards investment and employment and production starts increasing.

Employment begins to rise and, due to accumulated cash balances with the bankers, lending also shows positive signals. In this phase, depreciated capital is replaced, leading to new investments in the production process. Recovery continues until the economy returns to steady growth levels.

Business risks and causes of failure.

Meaning of business risk:-

Business risk is defined as the possibility of occurrence of any unfavourable event that has the potential to minimise gains and maximise loss of a business. In simple words, business risks are those factors that increase the chances of losses in a business and reduce opportunities of profit.

These factors are not under the control of the business and result in declining profits of the business.

Types of business risk:-

1. Compliance risk: A compliance risk is a risk to a company's reputation or finances that's due to a company's violation of external laws and regulations or internal standards. A compliance risk can result in a company paying punitive fines or losing customers.

2. Strategic risk: Astrategic risk occurs when a company's business strategy is faulty or its executives fail to follow a business strategy at all. A company may fail to reach its goals due to strategic risks.

3.Reputational Risk:A reputational risk threatens a company's standing or public opinion. Reputational risks can result in a profit decrease and lack of confidence among company shareholders.

4. Financial risk:Financial risk is the possibility of losing money in a business venture or investment. There are several types of financial risks, such as credit risk, liquidity risk, and operational risk. A financial risk is a potential loss of capital to an interested party.

5. Environmental risk:Environmental risk is the probability and consequence of an unwanted accident. Because of deficiencies in waste management, waste transport, and waste treatment and disposal, several pollutants are released into the environment, which cause serious threats to human health along their way.

6. Competition and market risks: Competitive risk is the potential for a business's competitors to prevent its growth and success. Market risk is the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets.

7. Credit risk:Credit risk is defined as the potential loss arising from a bank borrower or counterparty failing to meet its obligations in accordance with the agreed terms.

8. Innovation risk:Innovation risk deals with likeliness and repercussions. It refers to the probability of any untoward happening that may affect the innovation process at a given rate or time. It also involves any unfavorable circumstance that may affect the success of a specific innovation measure or project.

9. Operational risk:Operational risk is the risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations.

Causes of business failure:-

Internal causes:

1) Poor Management: One of the most common internal causes of business failure is poor management. This includes poor financial management as well as poor staff management. If the leaders of the company cannot plan, identify and solve problems efficiently, or make accurate financial forecasting decisions, this can soon cause issues to escalate.

2) Inaccurate Bookkeeping : Maintaining accurate financial records is not only a requirement for all businesses, it’s also essential for ensuring that the company stays on track. Crucially, maintaining accurate bookkeeping ensures businesses can monitor their cash flow, identifying any issues and addressing them accordingly. Failing to maintain accurate records is one of the biggest internal causes of business failure as it prevents companies from planning effectively, whilst increasing the risk of poor debt management.

3) Poor Cash Flow Management: Cash flow is the lifeblood of any business. This is how a company continues to pay its liabilities and maintain profitability. There are many different causes of cash flow problems, from poor financial planning and inventory management, to loss of a big client or customer. What’s important is staying on top of cash flow management by keeping accurate records, implementing an effective financial structure, and planning effectively. This is crucial for ensuring that the company always has the necessary working capital available to pay its liabilities.

4) Inefficient Market Research: Another one of the most significant internal causes of business failure is poor market research. Market research is essential for knowing what the customer’s needs and expectations are, and responding to them effectively. Not knowing the customer well enough, could mean the company is putting out a product or service that isn’t actually in demand. This will cause time, money, and resources to be wasted, with a lack of financial return. That’s why it’s crucial to thoroughly research any business prospect and know the market inside out before investing money.

5) Overtrading Or Growing Too Quickly: When it comes to growing a business effectively, there is such a thing as growing too quickly. Expanding a company without the resources to support that growth can quickly cause overhead costs to build up, and put the company’s finances in jeopardy. Overtrading is one of the most common internal causes of business failure that can easily be avoided with the right management. Maintaining accurate and realistic goals based on financial analysis is crucial for growing a company at a sustainable rate, ensuring the longevity of its success.

External Causes

1)Economy fluctuations: Economic fluctuations are simply fluctuations in the level of the national income of a country representing growth or contraction. A market economy is not static. It's dynamic. A rise in national income means an economy is growing, while a decline in national income means that an economy is contracting.

2) Market fluctuations: It a situation in which share prices go up and down: In a fluctuating market, the average cost per share of a stock or bond fund over a period of time will be lower than the average price per share of a portfolio for the same time period.

3) Non-availability of credit: Available credit refers to how much a borrower has left to spend; this amount can be calculated by subtracting the borrower's purchases (and the interest on those purchases) from the total credit limit on the account.

4) Change in technology:a technological change is an increase in the efficiency of a product or process that results in an increase in output, without an increase in input. In other words, someone invents or improves a product or process, which is then used to get a bigger reward for the same amount of work.

5) Change in government policies and laws: Policy change includes policies at the legislative or organizational level. For example, institutionalizing new rules or procedures as well as passing laws, ordinances, resolutions, mandates, regulations, are all examples of policy change efforts.

6) Natural disasters: A natural disaster is "the negative impact following an actual occurrence of natural hazard in the event that it significantly harms a community".

7) lack of availability of raw material: Raw material shortage is one of them. The consequences of such disturbances may be realized through high lead time, high production cost, low reliability of product, wastage of time, materials etc.

Methods of managing business risk:

1) Accept and absorb:It’s not always that businesses can avoid, reduce, or transfer risk. Sometimes, you must buckle down and accept it. If accepting the risk is more profitable than any other option, then it’s the optimal strategy. After all, every industry has unavoidable risks that come with the territory. What’s more, although a risk is a jagged pill to swallow, some risk is necessary to do business in the modern world.

2) Avoid:As mentioned, gone are the days of hightailing away from all perceived danger. However, some situations call for an avoidance approach to risk management. If the activity has a high likelihood of occurring, and it will also cause significant financial harm, it’s better to avoid it entirely.

3) Transfer:If a financially devastating activity could potentially occur, the best option is to share the risk. Handling it alone could result in significant setbacks, if not a shuttered business. Most of the time, risks in this category are highly unlikely to happen. However, the possibility is still there, and transferring the risk is the safest bet.

4) Mitigate or Reduce risk:Reducing risk means understanding the activities with a high likelihood of occurring but with a manageable financial impact. Some would argue that risks in these categories have a low impact — and yet, even a little financial impact hurts to some extent.

5) Exploit:It eliminate the uncertainty associated with the risk to ensure it occurs. An example of this is assigning the best workers to a project to reduce time to complete.

LESSON PLAN:-03

Managers and Managerial roles

Meaning and definition of a Manager:-

A manager is a person who is responsible for a part of a company, i.e., they ‘manage‘ the company. Managers may be in charge of a department and the people who work in it. In some cases, the manager is in charge of the whole business. For example, a ‘restaurant manager’ is in charge of the whole restaurant.

A manager is a person who exercises managerial functions primarily. They should have the power to hire, fire, discipline, do performance appraisals, and monitor attendance. They should also have the power to approve overtime, and authorize vacations.

A manager is a professional who takes a leadership role in an organisation and manages a team of employees. Often, managers are responsible for managing a specific department in their company. There are many types of managers, but they usually have duties like conducting performance reviews and making decisions. Managers are often the line of communication between a company's employees and its high-level executives.

Managerial roles as given by Mintzberg

Interpersonal Management Roles

The managerial roles in this category involve providing information and ideas.

1.Figurehead – As a manager, you have social, ceremonial and legal responsibilities. You're expected to be a source of inspiration. People look up to you as a person with authority, and as a figurehead.

2.Leader – This is where you provide leadership for your team, your department or perhaps your entire organization; and it's where you manage the performance and responsibilities of everyone in the group.

3.Liaison – Managers must communicate with internal and external contacts. You need to be able to network effectively on behalf of your organization.

Informational Management Roles

The managerial roles in this category involve processing information.

1.Monitor – In this role, you regularly seek out information related to your organization and industry, looking for relevant changes in the environment. You also monitor your team, in terms of both their productivity, and their well-being.

2.Disseminator – This is where you communicate potentially useful information to your colleagues and your team.

3.Spokesperson – Managers represent and speak for their organization. In this role, you're responsible for transmitting information about your organization and its goals to the people outside it.

Decisional Management Roles

The managerial roles in this category involve using information.

1.Entrepreneur – As a manager, you create and control change within the organization. This means solving problems, generating new ideas, and implementing them.

2.Disturbance Handler – When an organization or team hits an unexpected roadblock, it's the manager who must take charge. You also need to help mediate disputes within it.

3.Resource Allocator – You'll also need to determine where organizational resources are best applied. This involves allocating funding, as well as assigning staff and other organizational resources.

4.Negotiator – You may be needed to take part in, and direct, important negotiations within your team, department, or organization.

Authority, responsibility, and accountability.

Meaning and definition of authority:

Authority is the power and right to give orders and make others obey.On other words, Authority is legitimate power, given by the rules and recognized by other parties. It allows one to demand action and expect obedience from others. For example, suppose a company gives a manager authority. In that case, it gives him the right to order others to act in the desired way.

Meaning of Responsibility:

The term responsibility has two different senses in management literature. Some writers explain it as a duty or task which assigned to a subordinate on the basis of his position in the organization. Responsibility is also the obligation of an individual to perform the duty or task assigned to him.

Meaning of Accountability:

Accountability is the acceptance of responsibility for one's own actions. It implies a willingness to be transparent, allowing others to observe and evaluate one's performance.

Interrelationship between Authority, Responsibility and Accountability:

Authority is the power delegated by senior executives to assign duties to all employees for better functioning. Responsibility is the commitment to fulfill a task given by an executive. Accountability makes a person answerable for his or her work based on their position, strength, and skills.

How Authority distinguished from power?

Power is the capacity of a person to influence others and alter their actions, beliefs, and behaviors. However, it's important to note that there is a difference between power vs. influence. Authority is the legitimate power that a person or group is granted to practice over others within an organization.

Sources of Authority:

(a) Formal Authority Theory-According to this theory, the authority originates in the formal structure of an organisation. Every manager or executive possesses authority because of his organisational position and this authority is known as formal authority. Authority conferred by law is called as formal authority. Subordinates accepts the formal authority of a manager because of his position in the organisation. The subordinates are aware of the fact if they disregard the formal authority they will be punished. According to the rules and regulations of the company the formal authority theory therefore states that the superiors have the right to delegate their authority. Thus formal authority flows from top to bottom.

(b) Acceptance Theory-The theory states that the authority is the power that is accepted by others. Formal authority is reduced to nominal authority if it is not accepted by the subordinates. The moment his authority is rejected by the subordinates, he ceases to have the authority even though he is legally or formally authorized to command and to get his decision carried out. According to the acceptance theory, authority flows from bottom to top. A manager has authority if he gets obedience from the subordinates.

(c) Competency Theory-According to this theory, the authority arises because of the personal qualities and technical competence of the manager. Many persons derive informal authority because of their competence. For example, a person possesses expert knowledge in a particular subject, people will go to him for guidance in that matter even though he has got no formal authority.

Delegation of Authority:

The delegation of authority refers to the division of labor and decision-making responsibility to an individual that reports to a leader or manager. It is the organizational process of a manager dividing their own work among all their people.

Principles of delegation of authority

1.Principle of Functional Definition: An organization is comprised of different functional departments, each contributing to the organizational goals and, in turn, have their specific objectives.Thus, clearly defined objectives of each department, the expected results, the specific activities to be performed and intradepartmental relationships help the manager to determine the requirements of that specific position.

2.Principle of Result Expected: Before actually delegating the authority to the subordinate, the manager must know the purpose of such delegation and the results expected from it. The goals, targets and the standard of performance must be clearly defined to direct the actions of the subordinate towards the accomplishment of a given task in a required manner. This principle helps in determining the authority to be delegated which is sufficient for completing the responsibility.

3.Principle of Partity of Authority and Responsibility: This principle states that the responsibility and the authority co-exists. This means, if the subordinate is assigned certain responsibility, he must be given some level of authority i.e. power to perform his responsibility.Thus, both the responsibility and the authority shall be clearly defined to the subordinate, so that he knows what he is required to do within the powers delegated to him.

4.Principle of Unity of Command: According to this principle, every subordinate should have a single supervisor from whom he gets the authority and to whom he is solely accountable. This means the subordinate should get the instructions from a single superior and perform those responsibilities as assigned by him. In case, if the subordinate is required to report to more than one boss, then there may be a conflict and delay in the managerial operations.

5.Principle of Absoluteness of Responsibility: This principle asserts that responsibility cannot be delegated. This means even after delegating the authority to the subordinate to perform certain tasks on the manager’s behalf; the manager will be solely responsible for the doings of the subordinate. In other words, whatever actions being taken by the subordinate, the manager will be accountable to his senior. Thus, the responsibility is absolute and remains with the superior.

6.The Scalar Principle: There are clear lines of authority in the organization, i.e. who is under whom. This helps the subordinate to know, who delegates the authority to him and to whom he shall be accountable. Also to whom he shall contact in case things are beyond his control. Thus, this principle asserts, that there should be a proper hierarchy in the organization.

7.Principle of Exception: According to this principle, the subordinate shall be given complete freedom to perform his responsibilities under the purview of his authority. The manager should not interfere in between his work and must allow him to do even if he commits mistakes. But in some exceptional cases, the managers can interfere and even withdraw the authority delegated to the subordinate.

Centralization and decentralization of authority:

Centralisation of authority denotes the concentration of authority in a few hands, generally at the top of the organisational hierarchy. Decisions are taken at the top by a few, and communicated down to the lower rungs of the management. That’s means that all operational and policy directions are given by a few at the top management level while those below have to carry out the instructions. Decentralisation of authority may be defined as “a situation in which ultimate authority to command and ultimate responsibility for results is localised as far down in the organisation as efficient management of the organisation, permits. It is carried out by creating; under a central organisation, a number of autonomous units with mandates to operate as independent units.”

Change Management

Meaning and definition of change management:

Change management is defined as the methods and manners in which a company describes and implements change within both its internal and external processes. This includes preparing and supporting employees, establishing the necessary steps for change, and monitoring pre- and post-change activities to ensure successful implementation.

Significant organizational change can be challenging. It often requires many levels of cooperation and may involve different independent entities within an organization. Developing a structured approach to change is critical to help ensure a beneficial transition while mitigating disruption.

Changes usually fail for human reasons: the promoters of the change did not attend to the healthy, real and predictable reactions of normal people to disturbance of their routines. Effective communication is one of the most important success factors for effective change management. All involved individuals must understand the progress through the various stages and see results as the change cascades.

Types of change Management:

Within directed change there are three different types of change management Develpomental, transitional , and transformational: Developmental change management – In its simplest form, a directed change can take the form of developmental change. In this the business improves what it is currently doing: improving existing skills, processes, methods, performance standards or conditions are all developmental changes. Examples are; increasing sales or quality, interpersonal communication training, simple work process improvements, team development and problem-solving efforts. These are classic examples of continuous improvement, quality circle driven changes, and ‘enhancement’ projects.

Transformational change management – A third, and far more challenging type of change is called transformational change. In this, the future state though part of the vision of the future is not, and cannot be known in detail – much of the final state arises from evolutions – the outcome of trial-and-error as new information, new boundaries and new interactions are integrated. It is partly for this reason that programmes and programme management disciplines were developed. Unlike projects that require predetermined outputs and outcomes and a linear trajectory of activity defined within a bounded plan programmes are designed to deal with ambiguity and to unfold a tranche at a time. As with delivery so with adoption of the change – though a vision and a strategy are fundamental, the actual change process, the sequence and content and timing of changes will be determined less by planning and more by the rates at which the underlying beliefs and value systems change.

This is a much more unpredictable and scary place than traditional projects and change planning is accustomed to working in.

Transitional change management – A second form of directed change- transitional change – leads to the replacement of what already exists with something different that is regarded as ‘new’ by the people involved. For the change to happen individuals have to emotionally let go of the old way of operating, leading to the need for the organisation having to dismantle the old while the new state is being put into place. In transitional change the final destination can be completely visualised and in great detail before the transition. This means that this type of change is an ideal candidate for being delivered through a project and traditional types of change management tools, as the people are largely impacted at the level of skills and actions, with the deeper-lying cultural values barely affected. Examples are re-organisations, simple acquisitions, creation of new products or services that replace old ones, and IT implementations that do not require significant shifts in culture or behaviour.

Need for change:

Internal forces: Internal forces of change arise from inside the organization and relate to the internal functioning of the organization. They might include low performance, low satisfaction, conflict, or the introduction of a new mission, new leadership.

Need for improving productivity: Increased productivity indicates greater output from the same amount of input. It means higher efficiency with which a company or economy can transform resources into goods. Thus, productivity growth is our opportunity to create more from less.

Need to reduce costs: Cost reduction is the process of decreasing a company's expenses to maximize profits. It involves identifying and removing expenditures that do not provide added value to customers while also optimizing processes to improve efficiency.

Need for improving quality of work life: Quality of work life” is a generic phrase that covers a person's feelings about every dimension of work including economic rewards and benefits, security, working conditions, organizational and interpersonal relationships, and its intrinsic meaning in a person's life.

Domino effect: A domino effect or chain reaction is the cumulative effect produced when one event triggers a chain of similar events.[1] This term is best known as a mechanical effect and is used as an analogy to a falling row of dominoes. It typically refers to a linked sequence of events where the time between successive events is relatively small.

Deficiency in the existing system: Significant deficiency means a shortcoming in the system that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes.

External forces: External forces are those changes that are part of an organization's general and business environment. There are several kinds of external forces an organization might face: Demographic. A changing work demographic might require an organizational change in culture.

a)Change in market situations- National and international:National Market means the NASDAQ National Market, the NASDAQ SmallCap Market, the New York Stock Exchange and the American Stock Exchange.International trade allows countries to expand their markets and access goods and services that otherwise may not have been available domestically.

b)Change in technology: A technological change is an increase in the efficiency of a product or process that results in an increase in output, without an increase in input. In other words, someone invents or improves a product or process, which is then used to get a bigger reward for the same amount of work.The telephone is an example of a product that has undergone a technological change.

c)Changes in population dynamics: Population dynamics is the study of how and why populations change in size and structure over time. Important factors in population dynamics include rates of reproduction, death and migration.

d)Changes in the political scenario: In modern times the great majority of the world’s political systems have experienced one form or another of internal warfare leading to violent collapse of the governments in power. Certain crisis situations seem to increase the likelihood of this kind of breakdown. Wars and, more particularly, national military defeats have been decisive in prompting many revolutions.

e)Changes in the legal system: Generally, the change in law clause would deal with the enactment of any law including repeal, modification or re-enactment, change in interpretation or application of any law by a final judgment of a court of record or any change in rates under Tax law.

Resistance to change : Individual and Organisational reasons:

1)Habits: We individuals are influenced by our habits in our ways of working and accept or reject a change depending upon the effect which a change may have on the existing habits of the individuals.
For example, change in the office location might be subjected to resistance from the individuals as this might compel them to change their existing life routine and create a lot of difficulties in adjustment or coping with the schedule. The individuals might have to drive a longer way for reaching their office, or start early from home for reaching their office in time, etc.
2)Lack of Acceptability or Tolerance for the Change: Some individuals endorse change and welcome a change initiative happily while few individuals fear the impact of change. Over a period of time change fatigue also builds up.

3)Fear of a Negative Impact Economically or on the Income: During the process of organizational restructuring or introduction of organization-wide change as a strategic move on the part of the management, several inhibitions, and fear rule the thought process of the individuals. Fear of possible loss of a job as a result of change or a change in their income structure or may be a change in their work hours could be one amongst the possible reasons.

4)Fear of the Unseen and Unknown Future: Individuals develop inertia towards the change due to the fear of unknown or uncertainties in the future. This can be tackled through effective communication with the participants of change and making people aware of the positives of change and the course of action which individuals are expected to follow to cope with the changing requirements successfully.

5)Fear of Losing Something Really Valuable: Any form of threat to personal security or financial security or threat to the health of the individuals may lead to fear of losing something precious as a result of the implementation of change.
6)Selective Processing of Information: It can be considered as a filtering process in which the individuals perceive or make judgments by gathering selective information which is greatly influenced by their personal background, attitude, personal biases or prejudices, etc. If an individual maintains a negative attitude towards any kind of change, then they are having a usual tendency of looking at the negativities associated with the change and involve all the positive aspects of it.

7)A Rigid Belief that change cannot bring about any facilitating change in the organization and it only involves the pain and threats to the individuals.

Overcoming resistance to change:

1) Kurt Lewin’s Model:Kurt Lewin developed a change model involving three steps: unfreezing, changing and refreezing. The model represents a very simple and practical model for understanding the change process. For Lewin, the process of change entails creating the perception that a change is needed, then moving toward the new, desired level of behavior and finally, solidifying that new behavior as the norm. The model is still widely used and serves as the basis for many modern change models.

Unfreezing:

Before you can cook a meal that has been frozen, you need to defrost or thaw it out. The same can be said of change. Before a change can be implemented, it must go through the initial step of unfreezing. Because many people will naturally resist change, the goal during the unfreezing stage is to create an awareness of how the status quo, or current level of acceptability, is hindering the organization in some way. Old behaviors, ways of thinking, processes, people and organizational structures must all be carefully examined to show employees how necessary a change is for the organization to create or maintain a competitive advantage in the marketplace. Communication is especially important during the unfreezing stage so that employees can become informed about the imminent change, the logic behind it and how it will benefit each employee. The idea is that the more we know about a change and the more we feel it is necessary and urgent, the more motivated we are to accept the change.

Changing

Now that the people are 'unfrozen' they can begin to move. Lewin recognized that change is a process where the organization must transition or move into this new state of being. This changing step, also referred to as 'transitioning' or 'moving,' is marked by the implementation of the change. This is when the change becomes real. It's also, consequently, the time that most people struggle with the new reality. It is a time marked with uncertainty and fear, making it the hardest step to overcome. During the changing step people begin to learn the new behaviors, processes and ways of thinking. The more prepared they are for this step, the easier it is to complete. For this reason, education, communication, support and time are critical for employees as they become familiar with the change. Again, change is a process that must be carefully planned and executed. Throughout this process, employees should be reminded of the reasons for the change and how it will benefit them once fully implemented.

Refreezing

Lewin called the final stage of his change model freezing, but many refer to it as refreezing to symbolize the act of reinforcing, stabilizing and solidifying the new state after the change. The changes made to organizational processes, goals, structure, offerings or people are accepted and refrozen as the new norm or status quo. Lewin found the refreezing step to be especially important to ensure that people do not revert back to their old ways of thinking or doing prior to the implementation of the change. Efforts must be made to guarantee the change is not lost; rather, it needs to be cemented into the organization's culture and maintained as the acceptable way of thinking or doing.

2) ADKR’S Model:The ADKAR Model of Change Management is an outcome-oriented change management method that aims to limit resistance to organizational change. Created by Jeffrey Hiatt, the founder of Prosci, the ADKAR Model is the Prosci change management methodology. ADKR Stand for • Awareness • Desire • Knowledge • Ability • Reinforcement As per the ADKAR change management model, awareness and desire aim to move you out of the current state, where change is needed but has not yet begun. Knowledge and ability occur during the transition, and reinforcement focuses on the future.

GOAL 1: Create awareness of the need to change.

Without a doubt, communicating the need for change is fundamental, but creating awareness for the change goes beyond simply announcing it. In order for employees to be truly aware of the necessity for change, they must not only understand the reasoning behind it but also come to agree with that reasoning. Begin by providing clear explanations of why the change is needed. Let’s say you’re introducing Microsoft Sharepoint. Start by explaining that when employees travel or work from home, it’s difficult for them to access documents and communicate with the in-office team. To solve this problem, the company will use Microsoft’s SharePoint cloud-based service. Be sure to focus on the benefits of the change as they apply to the people affected. In this case, SharePoint will allow off-site workers to easily access documents and data. Making the switch will streamline communication and eliminate information silos. Lastly, always encourage your team to ask questions about how you decided on the change and how it will be implemented, and about other aspects of the change process plan.

GOAL 2: Foster desire to make the change

Just because employees understand why a change should be made doesn’t mean that they want that change. In order for them to adopt the change, they must desire it. Thankfully, you can foster that desire. Start by designating change leaders. Not only will your change leaders show public support for the change, but they most naturally connect with the people who will be affected by it. Choose change leaders who are able to relate to how daily routines will be affected so that they can provide specific support and guidance. In order to foster desire, change leaders need to get specific about the benefits of the change as they apply to particular individuals or teams. Avoid touting advantages for the company.

Goal 3: Provide knowledge on how to change

The knowledge milestone in the ADKAR Model is primarily about training and education. In order to begin the transition, your team will need to understand how their responsibilities, skills, tools, and processes will be impacted. Given that everyone must reach each milestone individually, knowledge-building needs to be specific. Provide knowledge that applies directly to each team’s or individual’s responsibilities. For example, if you are introducing new software, the IT team may be responsible for setting everyone up to use it, while other departments will need to focus more on how to use the software. The knowledge needed to perform distinct roles in the change is different even though the overall change may be the same. Another way to increase comprehension is to use a variety of creative employee training methods: Traditional classroom training Job shadowing/mentoring Videos Blog series Interactive self-guided learning Of course, knowledge-building should go beyond facilitating the change. It is equally important to provide knowledge that allows your team to see the change through to the end.

Goal 4: Ensure that employees have the ability to make the change

Regardless of how well employees know how to do something, having confidence in their own competencies determines whether or not they can or even will do something

The Prosci change management methodology uses athletics to prove this point: While plenty of baseball fans understand the mechanics behind throwing a curveball, not all of them would make great pitchers.

To bridge the gap between knowledge and ability, put change leaders in charge of coaching individuals or teams. Task change leaders with collecting feedback from their teams and bringing potential issues and obstacles to your attention. Hands-on training is also extremely valuable. By giving teams a chance to test out the change before fully rolling it out, you give them the opportunity to build confidence. Plus, you can monitor performance and provide detailed feedback. For larger-scale changes, consider implementing them in stages so you can identify issues early on and make adjustments to your implementation plan.

Goal 5: Reinforce the change

Initial momentum may get you to the finish line, but you won’t cross it if employees start relying on old habits. Once new processes are in place, new software is installed, or the new organizational chart is official, reinforce the change long after its implementation.

Celebrate success during and after the transformation so that you can build and maintain enthusiasm. Try creative motivation techniques like these: Zendesk’s Champagne Campaign, which involves setting small goals for employees and then recognizing the success by placing a small bottle of champagne on their desks iDoneThis’s weekly show-and-tell video call, which provides an opportunity for employees to share what they are proud of accomplishing

LESSON PLAN:-04

Introduction

Workplace automation is the process of instructing software and/or hardware with network connections to create automated workflows. Press one button, multiple actions follow. It’s a bit like playing a game of digital dominos.
It’s often applied to repetitive tasks that would otherwise require multiple manual actions. A workplace example of this is an onboarding flow; HR need only enter a new joiner’s name within an automated system to trigger actions like having all onboarding documents emailed and meetings scheduled.

Meaning and definition of mechanization and automation:

The process of beginning to use machines, technology, and automation to do work is called mechanization. Mechanization is a system in which almost all the stages are carried out by machinery instead of manually, as in the case of traditional practices. Automation is a mechanized system, which is controlled by an instrument fed by a programmer.
Mechanization is a necessary precondition for automation, but has different meaning. In a continuous system, raw materials are fed to the machine at one end and product comes out of the machine from the other end continuously. In cheese production, milk is fed to the machine at one end and it is continuously converted into curd and cheese during passage through the machine.

The pretreatments of milk for cheesemaking like standardization, bactofugation, pasteurization, etc. were already mechanized but with the developments taking place in the area of mechanization and automation, now almost each and every stage of cheese manufacturing is mechanized. Steps like starter production, curd making, cutting, cheddaring, hooping, conveying, packaging, block forming, etc. have been mechanized for continuous and automated cheese production. APV and Tetrapak are two of the leading industries which manufacture and supply mechanized systems of cheese production. Some of their machines are discussed in this chapter.

Evolution from mechanization to automation

The technology of automation has evolved from the related field of mechanization, which had its beginnings in the Industrial Revolution. Mechanization refers to the replacement of human (or animal) power with mechanical power of some form. The driving force behind mechanization has been humankind’s propensity to create tools and mechanical devices. Some of the important historical developments in mechanization and automation leading to modern automated systems are described here.

Early developments: The first tools made of stone represented prehistoric man’s attempts to direct his own physical strength under the control of human intelligence. Thousands of years were undoubtedly required for the development of simple mechanical devices and machines such as the wheel, the lever, and the pulley, by which the power of human muscle could be magnified. The next extension was the development of powered machines that did not require human strength to operate. Examples of these machines include waterwheels, windmills, and simple steam-driven devices. More than 2,000 years ago the Chinese developed trip-hammers powered by flowing water and waterwheels. The early Greeks experimented with simple reaction motors powered by steam. The mechanical clock, representing a rather complex assembly with its own built-in power source (a weight), was developed about 1335 in Europe.

Merits and Demerits of Mechanization:

Merits of Mechanization:

1. It is an accepted fact that the office work performed through labour-saving devices is done at a greater speed than the same work done by clerks.

2. It is also seen that not only speedy work is possible, but also greater accuracy with more economy.

3. The initial cost to introduce machines may be high. But in the long run the machine work will prove to be cheaper.

4. Standardization, simplification and uniformity of work can be maintained.

5. The machine information is clear, complete, concise and correct. Mechanization ensures accuracy of work.

Demerits of Mechanization:

1. The initial cost of a machine is high. An idle machine is a waste. This wastage is greater, if the machine is costly.

2. Adoption of certain machines will lead to unemployment.

3. Machines are subject to break-down and lie idle when electricity fails (if it is electrically operated).

4. Depreciation charges are high; this will reduce the profit.

5. Certain types of machines may become obsolete within a short span of time.

Merits and Demerits of Automation:

Merits of Automatic:

1.Improved working environment With the use of automation it is possible to improve the working conditions and safety within your production process or plant. Automation can reduce health and safety risks, eliminate manual handling and reduce the risk of repetitive strain injury.

2.Increased competitiveness, sales and profit Automation enables to you to become more competitive in your market. This is because as your production process is more automated, human error is reduced, product quality become more consistent, and cost per part goes down due to increased production speeds and the reduction in resources required to produce the goods.

3.No labour crisis Finding labour for mundane, repetitive tasks is becoming more and more difficult, and is likely to become more difficult in the UK after Brexit. Unemployment in the UK is currently at the lowest it’s ever been since July 1975, so many factories are struggling to find factory workers, especially for heavy manual work. Automation can eliminate the need for staff to perform these types of tasks.

4.Increase production capacity Automation increases your production capacity as machines can be set to work 24/7 unmanned. Automated machines do not have breaks, sick leave or holidays, and therefore even if they are only running during normal shift hours, this alone can often lead to a production increase of 140%+. Automated machinery can also typically run faster and produce more accurately made products with fewer defects.

5.Compliance consistency Automated manufacturing is inherently more consistent and accurate in production quality. In order to meet market demands these days, product quality has to be better and more consistent than ever before, often the only way to achieve this is with automation.

Demerits of Automation:

1.Capital expenditure Whilst automation can prove highly effective and bring you a positive ROI, it may also require a fairly high capital cost. That’s why, before making a decision we recommend considering both the investment needed and also the ROI you expect to achieve. When calculating the ROI it is important to include increased throughput value, reduced labour costs and the reduction in defects/recalls along with the capital expenditure before deciding whether or not there is a business case for investment.
2.Gets rid of jobs It is true that with the introduction of automation there are some jobs that may become redundant, but this does not necessarily have to be a negative implication of automation. Instead of staff performing mind-numbing, monotonous or unpleasant tasks, they can be trained to transfer to working in other areas of your business. Many companies have found that after installation of automation they have seen sales rise, thus creating more jobs in different parts of their business.

3.Bespoke automation becomes redundant when production processes change As with any type of machinery, if you change your production process or product you are manufacturing so that a particular machine is no longer part of the process then the machine becomes redundant. Therefore it is very important to future proof any automation you install into your production process. A skilled automation company will design your automation system to enable it to be easily adapted to suit changes in your product design or production process. Productivity enhancement tools and facilities at different workplaces

Banks

a) ATM: An ATM, which stands for automated teller machine, is a specialized computer that makes it convenient to manage a bank account holder's funds.

b) Passbook printing kiosk: Self Service Passbook Printer is an automated kiosk where in customer can print their passbook on their own.

c) Cheque / cash depositing machine: The Cash Deposit Machine, better known as Automated Deposit cum Withdrawal Machine (ADWM) is an ATM like machine that allows you to deposit cash directly into your account using the ATM cum debit card. You can use this machine to instantly credit your account without visiting the branch.

Retail Industry:
a) Barcode Scanner and POS Machine (Point of Sale): A barcode reader, also called a price scanner or point-of-sale (POS) scanner, is a hand-held or stationary input device used to capture and read information contained in a barcode. A POS machine is the most advanced payment accepting machine. It accepts all kinds of credit and debit card payments and issues receipts along with maintaining transactions.

b) Card swipe machine: A card swipe machine is a device that allows customers to swipe the magnetic stripe of a credit card through a slot and, at times, to enter a personal identification number (PIN) for verification.

d) SMS alerts: SMS alerts, also known as SMS notifications or text alerts, are messages sent automatically to subscribers who have indicated they wish to receive text messages from a business.

Corporate Office:

a) Biometric system: A biometric system is a technological system that uses information about a person (or other biological organism) to identify that person.

b) Photocopy machine: It is a machine that makes paper copies of printed pages, pictures, etc.

c) LED Projector: LED projector, a combination of red, green and blue LED bulbs are used to create a white light that is then filtered through the lens to form an image on the screen.

d) Scanners: A scanner is a device that captures images from posters, magazine pages and similar sources for computer editing and display.

e) Laptops: A laptop, laptop computer, or notebook computer is a small, portable personal computer (PC) with a screen and alphanumeric keyboard.

f) Smartphones: a mobile phone that performs many of the functions of a computer, typically having a touchscreen interface, internet access, and an operating system capable of running downloaded apps.

g)Video conferencing: Video conferencing is live, visual connection between two or more remote parties over the internet that simulates a face-to-face meeting.

h) Intercom: An intercom, also called an intercommunication device, intercommunicator, or interphone, is a stand-alone voice communications system for use within a building or small collection of buildings which functions independently of the public telephone network.

i) Internet and wi-Fi: WiFi is a wireless technology that establishes a wireless network to allow computers and devices with the required wireless capacity to communicate via radio waves. The Internet, on the other hand, is a global network of networks where computers communicate with each other via Internet Protocol

j) VoIP (voice-over internet protocol): Voice over Internet Protocol (VoIP), is a technology that allows you to make voice calls using a broadband Internet connection instead of a regular (or analog) phone line.

Airports:

a) self check-in kiosk: Some airlines have a self-check-in process allowing passengers with bags to check-in at Self Bag Drop machines. Passengers then attach the baggage tag and drop the bag at the baggage drop belt.

b) CUTE workstations: CUTE stands for Common Use Terminal Equipment and applies to the sharing of traditional check-in desks and the software platform to generate the bag tags, and CUSS is Common Use Self Service, for the sharing of check in self-service kiosks.

c) Automated backdrop: The literal meaning of the noun backdrop is "scenery in the background, often on a stage." Its more figurative meaning is "the setting or conditions within which something happens."

d) AODB solutions: Airport Operational. DataBase (AODB) AODB general description. AODB is the “core” of the airport operations management system. It allows the integration of airport control systems, airport resource allocation and airport invoicing systems under a unique, friendly, fast and intuitive user interface.

e) Airport hub wireless: An airline hub or hub airport is the name given to the airports that airlines use outside their headquarters. The hub is also used as a term that expresses the connectivity of an airport to the other airports. The more places an airport provides access, the higher the flight frequency is and the greater the HUB.

f) Advanced ATS: An applicant tracking system (ATS) is software for recruiters and employers to track candidates throughout the recruiting and hiring process.

LESSON PLAN:-01

1. Understanding Economics

Smith defined economics as “an inquiry into the nature and causes of the wealth of nations.”

Criticism of Smith’s Definition

1.The wealth-centric definition of economics limited its scope as a subject and was seen as narrow and inaccurate. Smith’s definition forced the subject to ignore all non-wealth aspects of human existence.

2.The Smithian definition over-emphasized the material aspects of well-being and ignored the non-material aspects. It was assumed that human beings acted as rational economic agents who mindlessly strived to maximize their own well-being.

3.The Smithian definition prevents the subject from exploring the concept of resource scarcity. The allocation and use of scarce resources are seen as a central topic of analysis in modern economics.

Alfred Marshall’s Definition of Economics

British economist Alfred Marshall defined economics as the study of man in the ordinary business of life. Marshall argued that the subject was both the study of wealth and the study of mankind. He believed it was not a natural science such as physics or chemistry, but rather a social science.

Criticism of Marshall’s Definition

1.The Marshallian definition, like the Smithian definition, ignored the problem of scarce resources, which possess unlimited potential uses.

2.Marshall’s definition restricted economics as a subject to only analyze the material aspects of human welfare. Non-material aspects of welfare were ignored. Critics of the Marshallian definition asserted that it was difficult to separate material and non-material aspects of welfare.

3.The Marshallian definition does not provide a clear link between the acquisition of wealth and welfare. Marshall’s critics claimed that it left the subject in a state of perpetual confusion. For instance, there are plenty of activities that might generate wealth but that can reduce human welfare.

Lionel Robbin’s Definition of Economics

1.Robbin’s definition of economics transformed the subject from a normative social science into a positive science with an undue emphasis on individual choice. His definition prevented the subject from analyzing topics such as social choice and social interaction theory, which are important topics within the modern microeconomic theory.

2.Robbin’s definition prevented it from analyzing macroeconomic concepts such as national income and aggregate supply and demand. Instead, economics was merely used to analyze the action of individuals, using stylized mathematical models.

Modern Definition of Economics

The modern definition, attributed to the 20th-century economist, Paul Samuelson, builds upon the definitions of the past and defines the subject as a social science. According to Samuelson, “Economics is the study of how people and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various persons and groups of society.”

Meaning of Microeconomics

Microeconomics is the social science that studies the implications of incentives and decisions, specifically about how those affect the utilization and distribution of resources. Microeconomics shows how and why different goods have different values, how individuals and businesses conduct and benefit from efficient production and exchange, and how individuals best coordinate and cooperate with one another. Generally speaking, microeconomics provides a more complete and detailed understanding than macroeconomics.

One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations. It also analyzes market failure, where markets fail to produce efficient results.

Meaning of Macroeconomics

Macroeconomics is a branch of economics that studies how an overall economy—the markets, businesses, consumers, and governments—behave. Macroeconomics examines economy-wide phenomena such as inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment.

Macroeconomists study such questions as: What makes the business cycle fluctuate; what makes economic growth go up and down; how are prices determined; what is the rate of inflation, and what determines it; what is productivity growth; and what are the determinants of productivity? Importantly, macroeconomists also study the role government has in determining the pace of growth, the long-run rate of potential output in an economy, and the inflation rate. The Fed cares about macroeconomics because its goals are determined and defined in macroeconomic concepts: Stable inflation or stable prices and maximum employment are measured and achieved on an economywide, macroeconomic level, not at an individual level. Because the Fed's goals are macroeconomic goals, it often thinks in terms of macroeconomics.

Basic Concepts:-

Utility-It refers to want satisfying power of a commodity. It is the satisfaction, actual or expected, derived from the consumption of a commodity. Utility differs from person- to-person, place-to-place and time-to-time. In the words of Prof. Hobson, “Utility is the ability of a good to satisfy a want”.

Characteristics of Utility:

The following are the important characteristic features of utility:

1. Utility has no Ethical or Moral Significance:

A commodity which satisfies any type of want, whether moral or immoral, socially desirable or undesirable, has utility, i.e., a knife has utility as a household appliance to a housewife, but it has also a utility to a killer for stabbing some body.

2. Utility is Psychological

Utility of a commodity depends on a consumer’s mental attitude and assessment regarding its power to satisfy his particular want. Thus, utility of a commodity may differ from person to person. Psychologically, every consumer has his likes and dislikes and everyone determines his own level of satisfaction.

3. Utility is always Individual and Relative:

Utility of a commodity varies in different situations in relation to time and place. Even the same consumer may derive a higher or lower utility for the same commodity at different times and different places. For example—a person may find more utility in woolen clothes during the winter than in summer or at Kashmir than at Mumbai.

4. Utility is not Necessarily Equated with Usefulness:

Utility simply means the ability to satisfy a want. A commodity may have utility but it may not be useful to the consumer. For instance—A cigarette has utility to the smoker but it is injurious to his health. However, demand for a commodity depends on its utility rather than its usefulness. Thus many commodities like opium liquor, cigarettes etc. have demand because of utility, even though, they are harmful to human beings.

5. Utility cannot be Measured Objectively:

Utility being a subjective phenomenon or feeling of a consumer cannot be expressed in numerical terms. So utility cannot be measured cardinally or numerically. It cannot be measured directly in a precise manner. Professor Marshall has however, unrealistically assumed cardinal measurement of utility in his analysis of demand.

6. Utility Depends on the Intensity of Want:

Utility is the function of intensity of want. A want which is unsatisfied and greatly intense will imply a high utility for the commodity concerned to a person. But when a wan is satisfied in the process of consumption it tends to experience a lesser utility of the commodity than before. Such an experience is very common and it is described as a tendency of diminishing utility experienced with an increase in consumption of a commodity. In other words, the more of a thing we have, the less we want it.

7. Utility is Different from Pleasure:

A commodity may have utility but its consump¬tion may not give any pleasure to the consumer, e.g., medicine or an injection. An injection or medicinal tablet gives no pleasure, but it is necessary for the patient.

8. Utility is also Distinct from Satisfaction:

Utility and satisfaction, both are though inter-related but they have not been considered as the same in a strict sense.

Different Types of Utility:

In economics, production refers to the creation of utilities in several ways.

Thus, there are following types of utility:

1. Form Utility:

This utility is created by changing the form or shape of the materials. For example—A cabinet turned out from steel furniture made of wood and so on. Basically, from utility is created by the manufacturing of goods.

2. Place Utility:

This utility is created by transporting goods from one place to another. Thus, in marketing goods from the factory to the market place, place utility is created. Similarly, when food-grains are shifted from farms to the city market by the grain merchants, place utility is created.

Transport services are basically involved in the creation of place utility. In retail trade or distribution services too, place utility is created. Similarly, fisheries and mining also imply the creation of place utility. Place utility of a commodity is always more in an area of scarcity than in an area of scarcity than in an area of abundance e.g., Kashmir apples are more popular and fetch higher prices in Pune than in Srinagar on account of such place utility

3. Time Utility:

Storing, hoarding and preserving certain goods over a period of time may lead to the creation of time utility for such goods e.g., by hoarding or storing food-grains at the time of a bumper harvest and releasing their stocks for sale at the time of scarcity, traders derive the advantage of time utility and thereby fetch higher prices for food-grains. Utility of a commodity is always more at the time of scarcity. Trading essentially involves the creation of time utility.

4. Service Utility:

This utility is created in rendering personal services to the customers by various professionals, such as lawyers, doctors, teachers, bankers, actors etc.

Price-It is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk taking ability.
Inflation refers to a general rise in the level of prices. Its opposite is deflation, a general fall in the price level.

Value- It a fair return or equivalent in goods, services, or money for something exchanged.,

Real value vs Nominal Value

Nominal value is measured in terms of money, whereas real value is measured against goods or services. A real value is one which has been adjusted for inflation, enabling comparison of quantities as if the prices of goods had not changed on average; therefore, changes in real value exclude the effect of inflation. In contrast, a nominal value has not been adjusted for inflation, and so changes in nominal value reflect at least in part the effect of inflation but will not hold the same purchasing power

Wealth- Wealth measures the value of all the assets of worth owned by a person, community, company, or country. Wealth is determined by taking the total market value of all physical and intangible assets owned, then subtracting all debts. Essentially, wealth is the accumulation of scarce resources.

Classification of Wealth:-

1)Personal wealth:-It is the total value of a specific person's assets and possessions; it is often calculated to gain a perspective on a person's financial well-being, to help manage finances, or to determine the amount of an inheritance.

2)Social Wealth:- Social wealth is linked to social networks, particularly those where members have a sufficient level of trust for network members to communicate effectively and provide each other with valuable resources.

Welfare:-It is a statutory procedure or social effort designed to promote the basic physical and material well-being of people in need.

1.Economic Welfare:-It is the level of prosperity and standard of living of either an individual or a group of persons. In the field of economics, it specifically refers to utility gained through the achievement of material goods and services.

2.Social welfare:- It refers to the weighted sum of utility across all members of society. Markets can yield many different allocations of resources across members of society which are efficient in the particular sense that no person can be made better off without making someone else worse off.

Relation between wealth and welfare:-

(a) For individual wealth: Generally, as wealth increases, welfare increases. The reason for this is that more wealth increases the capacity to generate monetary value, greater power to exchange goods or purchasing power for the owner and hence greater wellbeing. This is largely true in case of individuals i.e. individual wealth.

(b) For national wealth: When national income increases, national wealth can increase. But, the welfare of people will increase only if this national income is distributed proportionately among all sections of the society and among all sectors. Nation’s welfare also depends upon social and cultural formation and hence there is not always a direct relation between wealth and welfare in a society.

Market:- A market is a place where parties can gather to facilitate the exchange of goods and services. The parties involved are usually buyers and sellers. The market may be physical like a retail outlet, where people meet face-to-face, or virtual like an online market, where there is no direct physical contact between buyers and sellers.

Capital:-It is a large sum of money which you use to start a business, or which you invest in order to make more money.

Investment:- It is an asset or item accrued with the goal of generating income or recognition. In an economic outlook, an investment is the purchase of goods that are not consumed today but are used in the future to generate wealth.

Income:- Income is the revenue a business earns from selling its goods and services or the money an individual receives in compensation for his or her labor, services, or investments.

Production:-It is the process of making or manufacturing goods and products from raw materials or components. In other words, production takes inputs and uses them to create an output which is fit for consumption – a good or product which has value to an end-user or customer.

Consumption:- It can be defined in different ways, but is best described as the final purchase of goods and services by individuals. The purchase of a new pair of shoes, a hamburger at the fast food restaurant or services, like getting your house cleaned, are all examples of consumption.

Saving:- Savings is the amount of money left over after spending and other obligations are deducted from earnings. Savings represent money that is otherwise idle and not being put at risk with investments or spent on consumption.

Business cycle:- It is a natural occurrence in the economy. It is generally described as a sequence of periods of expansion, followed by a period of contraction, and finally a period of recovery.

Aggregate demand:- It is a measurement of the total amount of demand for all finished goods and services produced in an economy. Aggregate demand is expressed as the total amount of money exchanged for those goods and services at a specific price level and point in time.

Aggregate supply:- It is also known as total output, is the total supply of goods and services produced within an economy at a given overall price in a given period.

Classification of Human Wants

Human wants can be classified into various categories depending on various bases in Economics, which are as follows:

Economic and Non-Economic wants

Want for things that can be bought by paying a price in money or currency are economic wants, such as they want for a diamond necklace. Want for non-material qualities of human life such as peace, equality, acceptance, etc., are called non-economic wants.

Individual and Collective Wants

Individual wants refer to the wants of one specific person who may not be wanted by anyone else. Such wants vary from one person to another. Collective want refers to those wants which are required by a commodity such as a hospital or a school.

Necessities, Comforts, and Luxuries

Necessities refer to the want of products or services essential for survival. Examples of such wants are food, clothing, and housing. Out of these are the wants that improve the efficiency of humans and improve the quality of life such as food, better house, etc.

4 factors of production

There are two main types of factors of production: primary and secondary factors. Economists have established land, labor, capital and entrepreneurship as the four primary factors of production. Some economists have identified capital finance, or monetary capital, as the fifth factor of production, but it is not wholly accurate to understand capital finance as a primary factor. These are the four factors or production:

1. Land as a factor of production

As a factor of production, land can take on various forms—from raw property to commercial real estate. Land is considered a primary factor of production because it can help generate economic value. The use of land as a factor of production has changed over time, and sometimes, it isn't a necessary factor for profitable production depending on an industry's specific needs. For instance, technology companies are well-known for beginning startup operations and launching products without making any significant investments in land.

2. Labor as a factor of production

Labor is defined as any human input to an economic venture. As a factor of production, labor is any work performed by people contributing to a good or service's production. Over time, labor has been identified as the main source of economic value by political and economic theorists. Production employees are paid for their time, effort and expertise in wages, meaning nearly all economic ventures must invest in labor to create production and earn profit. Each industry needs labor to accomplish its specific goals, regardless of the varying cost of this labor.

3. Capital as a factor of production

Capital as a factor of production refers to man-made, manufactured resources created by factories, machines and humans. While the term capital is commonly used to describe money, it's used to describe value when discussing factors of production. Economists consider capital a production good and not a consumer good because of the way it's used in production. For instance, hammers, forklifts, delivery vehicles and computers can all be capital production goods if used to create consumer products and generate income.

4. Entrepreneurship as a factor of production

As a factor of production, entrepreneurship refers to the initial investment and subsequent initiatives assumed by entrepreneurs to start and grow a business. They typically are the first employees of their companies and dedicate their personal financial capital, production capital and labor when beginning a venture. As entrepreneurs become more successful in their ventures, they serve as a facilitator to combine the other three factors of production. This might result in recruiting more labor or acquiring land and capital to carry out the venture's operations.

LESSON PLAN:-02

Basic problems of an economy

The fundamental problem in economics is the issue with the scarcity of resources but unlimited wants.Economics has to deal with the fact that a man's needs cannot be fulfilled. The more man’s needs are fulfilled, the more wants they develop with time. This problem arises because the resources of all types are limited and have alternative uses. If the resources were unlimited or if a resource only had one single use, then the economic problem would probably not arise.But that not being the case, the main problem of scarcity and choice occurs in economics.

The Problem of Scarcity

We live in a world of scarcity which implies that human’s wants are unlimited but the means to fulfil them are limited. At any one time, only a limited amount of goods and services can be produced. This is because the existing supplies of factors of production are extremely inadequate. These factors of production or inputs are used in producing goods and services that are called economic goods which have a price. These facts explain scarcity as the principal problem of every society and suggest the Law of Scarcity, The law states that human wants are virtually unlimited and the resources available to satisfy these wants are limited.

The Problem of Choice

We live in a world of scarcity which implies producers can produce only a small portion of goods and services that consumers want. Therefore, scarcity of resources gives rise to the fundamental economic problem of choice. As producers cannot produce enough goods and services to satisfy all the wants of the consumers, it has to make choices. A decision to produce one good requires a decision to produce less of some other good. So choice involves sacrifice. Thus every society is faced with the basic problem of deciding what it is willing to sacrifice to produce the goods it wants the most. There are a number of problems that can arise from choices that are made by people, whether they are individuals, firms or government. Choices or alternatives or opportunity costs are illustrated in terms of a production possibility curve. A production possibility curve shows all possible combinations of two goods that a society can produce within a specified time period whose resources are fully and efficiently employed.

This problem of scarcity and choice gives rise to the basic questions of economics.

The questions are following:

1.What to Produce and in What Quantities?

2.How to Produce these Goods?

3.For whom is the Goods Produced?

4.How efficiently are the Resources being Utilised?

5.Is the Economy Growing

1.What to Produce and in What Quantities?

The first central problem of an economy is to decide what goods and services are to be produced and in what quantities. This involves allocation of scarce resources in relation to the composition of total output in the economy. Since resources are scarce, the society has to decide about the goods to be produced and once the nature of goods to be produced is decided, then their quantities are to be decided. Since the resources of the economy are scarce, the problem of the nature of goods and their quantities has to be decided on the basis of priorities or preferences of the society. If the society gives priority to the production of more consumer goods now, it will have less in the future. A higher priority on capital goods implies less consumer goods now and more in the future. But since resources are scarce, if some goods are produced in larger quantities, some other goods will have to be produced in smaller quantities.

2.How to Produce these Goods?

The next basic problem of an economy is to decide about the techniques or methods to be used in order to produce the required goods. This problem is primarily dependent upon the availability of resources within the economy. If land is available in abundance, it may have extensive cultivation. If land is scarce, intensive methods of cultivation may be used. If labour is in abundance, it may use labour-intensive techniques; while in the case of labour shortage, capital-intensive techniques may be used. The technique to be used also depends upon the type and quantity of goods to be produced. For producing capital goods and large outputs, complicated and expensive machines and techniques are required. On the other hand, simple consumer goods and small outputs require small and less expensive machines and comparatively simple techniques.Further, it has to be decided what goods and services are to be produced in the public sector and what goods and services in the private sector. But in choosing between different methods of production, those methods should be adopted which bring about an efficient allocation of resources and increase the overall productivity in the economy

3.For whom is the Goods Produced?

The third basic problem to be decided is the allocation of goods among the members of the society. The allocation of basic consumer goods or necessities and luxuries comforts and among the household takes place on the basis of among the distribution of national income. Whosoever possesses the means to buy the goods may have then. A rich person may have a large share of the luxuries goods, and a poor person may have more quantities of the basic consumer goods he needs.

4. How efficiently are the Resources being utilised?

This is one of the important basic problems of an economy because having made the three earlier decisions, the society has to see whether the resources it owns are being utilised fully or not. In case the resources of the economy are lying idle, it has to find out ways and means to utilise them fully.

The role of technology and a shifting the Production Possibility Curve

Due to new technology, the PPC shifts outward, allowing for new production possibilities beyond its original frontier. Due to the lack of skilled workers to use the new technology, the economy is underutilizing its resources, so the nation’s production would be plotted inside the PPC curve since there are not enough skilled workers.The PPC shifts to the right because of technological advances or growth of resources. In addition, both increase the productive capacity and the economic output. In the context of production possibilities frontier, state its economic value.

LESSON PLAN:-03

1.Developed and Developing economics

Developed Countries

Developed Countries are the countries which are developed in terms of economy and industrialization. The Developed countries are also known as Advanced countries or the first world countries, as they are self-sufficient nations. Human Development Index (HDI) statistics rank the countries on the basis of their development. The country which is having a high standard of living, high GDP, high child welfare, health care, excellent medical, transportation, communication and educational facilities, better housing and living conditions, industrial, infrastructural and technological advancement, higher per capita income, increase in life expectancy etc. are known as Developed Country. These countries generate more revenue from the industrial sector as compared to service sector as they are having a post-industrial economy. The following are the names of some developed countries: Australia, Canada, France, Germany, Italy, Japan, Norway, Sweden, Switzerland, United States.

Developing economics

The countries which are going through the initial levels of industrial development along with low per capita income are known as Developing Countries. These countries come under the category of third world countries. They are also known as lower developed countries. Developing Countries depend upon the Developed Countries, to support them in establishing industries across the country. The country has a low Human Development Index (HDI) i.e. the country have low Gross Domestic Product, high illiteracy rate, educational, transportation, communication and medical facilities are not very good, unsustainable government debt, unequal distribution of income, high death rate and birth rate, malnutrition both to mother and infant which case high infant mortality rate, high level of unemployment and poverty. The following are the names of some developing countries: Colombia, India, Kenya, Pakistan, Sri Lanka, Thailand, Turkey.

Capitalism

Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy. The purest form of capitalism is free market or laissez-faire capitalism. Here, private individuals are unrestrained. They may determine where to invest, what to produce or sell, and at which prices to exchange goods and services. The laissez-faire marketplace operates without checks or controls. Today, most countries practice a mixed capitalist system that includes some degree of government regulation of business and ownership of select industries.

Two types of capitalism may be found in the economic system:

1.Laissez faire capitalism.

The old, laissez faire capitalism, where government intervention in the economy is absent or negligible

2.Regulated and mixed capitalism

The modern, regulated or mixed capitalism, where there is a substantial amount of government intervention in the economic and industrial development.

Characteristics of a ‘pure’ capitalism system:

1.Private Property

Every individual has a right to hold property. This means that every individual is free to consume his private property and every individual has a right to transfer his property to his successors after death. Individuals have their property rights protected and are usually free to use their property as they like as long as they do not infringe on the legal property rights of others. Private property, however, is protected, controlled and enforced by law. Private property is necessary because it supplies the motive underlying economic activity. In a capitalist economy, the factors of production—land, labour and capital—are privately owned, and production occurs at private initiative.

2.Free Enterprise

Free enterprise, an essential feature of the capitalist system, is merely an extension of the concept of property rights. The term free enterprise implies that private firms are allowed to obtain resources, to organise production and to sell the resultant product in any way they choose. In other words, there will not be any government or other artificial restrictions on the freedom and ability of the private individuals to carry out any business.

3.Price Mechanism

The price mechanism plays an important role in the production of goods and services. Under capitalism, the price is determined by the demand and supply.

4.The Market System

The market mechanism is the key factor that regulates the capitalist economy. A market economy is one in which buyers and sellers express their opinions about how much they are willing to pay for or how much they demand of goods and services. Prices guide the purchase decisions of the consumers. At the same time, while they decide to buy or not to buy a product, consumers vote for or against the product by using their money. Thus, market prices, which reflect the desires of millions of consumers, provide guidance to investors and other business persons. The market system, also called the price system, may, therefore, be regarded as the organising force in a capitalist economy.

5.Economic Freedom

Another feature of capitalism is economic freedom. This freedom implies three things: a. Freedom of enterprise, b. Freedom of contrast, c. Freedom to use one’s property. Under the capitalism, everybody is free to take up any occupation that he likes, and to enter into agreements with fellow citizens in a manner most profitable to him. In a capitalist economy, the individual is free to choose any occupation he is qualified for. This freedom of choice enables the worker to make the best possible bargain for his labour. This implies that the employers have to competitively bid for labour. Freedom of occupational choice, however, does not mean guarantee of the job a worker opts for; the choice is practically limited by the extent of availability of the jobs.

6.Consumers’ Sovereignty

Consumers’ sovereignty is at its best in the capitalist system where consumers have complete freedom of choice of consumption. Under capitalism, the consumer is the king. Consumers’ sovereignty means freedom of choice on the part of every consumer. The consumer buys whatever he likes and as much as he likes. The money price which the consumer offers expresses his wish. The production decisions in the free market economy are based on the consumer desires which are reflected in the demand pattern.

7.Unplanned Economy

As is clear from the features mentioned above, the capitalist system is essentially characterised by the absence of a central plan. No central economic planning is done in a capitalist economy. There are no rules and regulations framed by the central agency. The productive function is the result of decision taken by a large number of entrepreneurs. Freedom of enterprise, occupation and property rights rule out the possibility of a central plan. Resource allocation and investment decisions in a free market economy are influenced by market forces rather than by the State.

8.Freedom to Save and Invest

The freedom to save is implied in the freedom of consumption, for savings depend on income and consumption. The term saving implies the sacrifice of consumption. As George Halm observes- “The right to save is supported by the right to transmit wealth, so that the choice between present and future consumption is not limited to the adult life of one person. The freedom to save, inherit, and accumulate wealth is, therefore, a right which is perhaps more typical for the private enterprise system than is free choice of consumption and occupation.”

9.Economic Inequalities

Another feature of capitalism is the existence of glaring inequalities in income, wealth and economic power. The existence of big monopolies results in the concentration of not only income and wealth but also of economic power in the hands of a few people.

10.Motive of Profit

Profit is an important element of capitalism Investment tends to take the direction in which there is more possibility of profit. If the producers feel that they can obtain greater profit by the production of comfortable goods they will be inclined to do so without caring what people actually need.

11.Competition

Competition among sellers and buyers is an essential feature of an ideal capitalist system. Competition reduces market imperfections and associated problems. Therefore, in a free market economy, a sufficient amount of competition is considered necessary if the whole production and distribution process is to be regulated by market forces. Competition is necessary in a private enterprise economy to keep initiative constantly on alert, to protect the consumer, and to maintain a sufficiently flexible price system.

12.Limited Role of Government

The absence of a central plan does not mean that the government does not play any role in a private enterprise economy. Indeed, government intervention is necessary to ensure some of the essential features and smooth functioning of the capitalist system. For example- government interference is necessary to define and protect property rights, ensure freedom of entry and exit, enforce contractual agreements among private entrepreneurs, ensure the satisfaction of certain community wants, etc. However, government interference in the system is comparatively very limited.

Merits of Capitalism:

1.Automatic Working – Capitalism is controlled by the profit motive and price mechanism. Thus, there is coordination under capitalism. The whole activity is automatic in capitalism.

2.Capital Formation– Capitalist economy encourages formations of capital in the society. New industrial and commercial institutions are set up with the objective of profits and also encourage income and savings.

3.Maximum Satisfaction – In capitalism, production is carried on, keeping in view the needs and tastes of the consumer. This provides maximum satisfaction to the consumer who is a king in a capitalist economy.

4.Reward according to Capacity– In capitalism people are rewarded according to their capacity, to work and labour. The more people have the spirit of daring adventure, the more they are rewarded.

5.Efficiency – Under capitalism there is wide competition among the producers. In the competitive race it is the able producer who wins the race. An efficient producer produces the best goods at cost of production. Thus, capitalism encourages efficiency.

Demerits of Capitalism:

1.Economic Inequality – Capitalism gives complete freedom of private property, occupation and profession and is controlled by price mechanism. This leads to economic inequalities. The rich become richer and the poor become poorer.

2.Inefficiency in Working– The efficiency of the capitalistic system depends on the existence of free competition and the mobility of factors of production. But the existence of social, economic and legal issues hampers free competition with the result that the factors of production often lie idle.

3.Neglect of National Interest– The capitalists are mainly oriented towards self-interest of maximisation of profits and for this purpose they complete each of the formalities. They neglect the social interest. They do not complete their activities, keeping in view the national interest.

4.Lack of Coordination – Under capitalism the central government has no control over the activities of the businessmen and producers. The decisions pertaining to production mostly depend on the producers. The leads to irregularities, excess production and trade cycles. Thus there is a lack of coordination under capitalism.

5.Unemployment – Some of the economists are of the view that under a capitalist system full employment situation cannot be brought due to the lack of central economic planning. As a result, optimum use of resources cannot be possible. This brings up the situation of unemployment.

Socialism

Socialism is a populist economic and political system based on public ownership (also known as collective or common ownership) of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs. Communism and socialism are umbrella terms referring to two left-wing schools of economic thought; both oppose capitalism, but socialism predates the "Communist Manifesto," a 1848 pamphlet by Karl Marx and Friedrich Engels, by a few decades. In a purely socialist system, all legal production and distribution decisions are made by the government, and individuals rely on the state for everything from food to healthcare. The government determines the output and pricing levels of these goods and services. Socialists contend that shared ownership of resources and central planning provide a more equal distribution of goods and services and a more equitable society.

Characteristics of Socialism

1.Government Ownership: In socialist economy the means of production are either owned by the government or their use is controlled by the government. The state holds the ownership on the means of production and they are utilised for the welfare of the society. There is no private property in respect of the means of production. In communist countries like the USSR and China, the means of production are mostly owned by the state. In some socialist economies, the private sector also plays a very important role. In such cases, the government directs and regulates investment allocation and production pattern in accordance with national priorities. In some countries, such as India, some of the basic sectors, including a major part of institutional finance, are in the public sector so that the resource allocation and investment pattern of the private sector may be regulated by regulating the flow of the basic inputs to the private sector. When the state owns almost the whole of the means of production, it is much easier to achieve the desired pattern of resource allocation. State capitalism, of course, has its own defects and limitations.

2.Central Planning: Under socialism, the central planning authority or a Planning Commission formulates an overall plan for the entire economy according to certain objectives and priorities. The socialist economies generally have a central authority like the central planning agency to formulate the national plan for development and to direct resource mobilisation, allocation and investment to achieve the plan targets. In the word of Dickinson, “Economic planning is the making of measured economic decisions, what and how much is to be produced, and to whom this is to be allocated by the conscious decision of determinate authority, on the basis of comprehensive survey of the economic systems as a whole.” Socialist economies are sometimes called command economies because the central planning authority commands the pattern of resource utilisation and development. They are also called centrally planned economies. Centrally planned economies include the USSR, China, the German Democratic Republic (East Germany), Poland, Romania, etc.

3.Social Welfare: Another feature of socialism is that the means of production are operated with the object of promoting and serving the good of the community rather than for the benefit of few persons. Under socialism, the productive resources of the community are diverted to the production of goods and services which maximise social welfare rather than earn the largest profits.

4.Lack of Competition: Since there is governmental control over means of production, government has a hand in the matter of the kind of product to be produced, the quantity to be produced and determination of its price. There is no scope for competition.

5.Restriction on Consumption: In communist countries, there is no consumer sovereignty because the state decides what may be made available to consumers, unlike in the market economies where the consumers have the freedom to choose from a wide variety. The consumers in a communist system, thus, have to content themselves with what the state thinks is sufficient for them.

6.Restriction on Occupation: The freedom of occupation is absent or restricted in socialist countries. An individual may not have the freedom to choose any occupation he is qualified for. Similarly, individual freedom of enterprise is absent or restricted.

7.Fixation of Wages and Prices by the Government: The wage rates and prices in a communist economy are fixed by the government and not by market forces. Non-communist socialist countries may also fix wages and prices or regulate them by certain means.

8.Equitable Distribution of Income: An equitable distribution of income is an important feature of the socialist system. This does not mean, however, that socialist systems aim at perfect equality in income distribution. Wage differentials, depending on the nature and requirements of the job, are recognised in socialist countries. The objective of equitable income distribution maybe achieved by fixing the wage rates and other economic rewards or by means of fiscal and other appropriate measures. The traditional socialism emphasised government ownership of factors of production. But a number of today’s socialist systems are based on government control of the means of production rather than pure state capitalism. Even the Euro-communism shows a more liberal view than the Russian and Chinese systems. The recent changes in USSR and India are its best example.

Merits of Socialism:

1.Economic Equality – Under socialism, there is control of government over production, there is no scope for centralisation of wealth. Wealth is distributed among all the people. This avoids economic inequalities.

2.Production Planning – Under the socialist economy, the object is to serve the real demands and to fulfill the real needs of the people. For this purpose it arranges plant productions.

3.Economic Stability – Under socialism the government establishes coordination between the demand for production and supply of various goods. Thus there is a little likelihood of over-production and under-production. As a result, there is economic stability in a socialist economy.

4.Proper use of National Resources – Under capitalism, the central planning authority is better equipped than a capitalist market in locating price output fluctuations. The state uses the means of production for optimum welfare of the society.

Demerits of Socialism:

1.Difficulties of Management – In a socialist system all production setup is based on government planning, wherein the government officials have to shoulder all responsibilities. As a result, the government officials are heavily burdened with the work and it makes proper management difficult.

2.Lack of Freedom – In a socialist economy, it is a government which controls the economy. The workers are not free to choose occupation according to their choice. The government controls on all the activities of human life hinder developments.

3.Lack of Consumer’s Sovereignty – In a socialist setup proper attention is not paid towards the likes and dislikes of the consumer. The government machinery determines the nature and quantity of production. Thus, the consumer is not a king in a socialist economy.

4.Lack of Rational Calculation of Cost – The economists are of the view that in socialist system, there is lack of rational calculation of cost in production process. Efficient production becomes impossible in the absence of rational calculation of cost. The reason is the state ownership of the sources of production.

Mixed Economy

A mixed economic system is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

According to neoclassical theory, mixed economies are less efficient than pure free markets, but proponents of government interventions argue that the base conditions required for efficiency in free markets, such as equal information and rational market participants, cannot be achieved in practical application.

Characteristics of Mixed Economy:

1.Division of Public and Private Sector – In mixed economy, public and private sectors are divided into two parts. In one part are the industries, the responsibility for the development of which is entrusted to the state and they are owned and managed by the state. In the second part, the consumer goods industries, small and cottage industries, agriculture, etc., are given to the private sector. It may be noted that the government does not work against the private sector.

2.Government Control – Mixed economy cannot function without exercising control over the private enterprises in the public interest. This control is necessary for the government to introduce and implement its policies.

3.Protection of Labour – Under mixed economy, government protects the weaker sections of society, especially labour, that is, it saves labour from exploitation by the capitalist. Minimum wages and the working hours have been fixed. The government takes a number of steps to prevent industrial disputes.

4.Reduction of Economic Inequalities – In mixed economy the government takes necessary steps for the reduction of inequalities of income and wealth. In the democratic system, the governments try to reduce economic inequalities for promoting social justice, social welfare and increasing production for all.

Merits of Mixed Economy:

1.Economic Freedom – Under mixed economy the consumers are free to act according to their choice. There is complete freedom for people to choose their profession. Economic liberty is available to people.

2.Control on Monopolistic Activities – In a mixed economy, both public and private sector co-exist and the private sector gets the opportunity to develop. There is a restriction on monopolistic activities for which the government enacts various rules and regulations.

3.Social Welfare – Under this system, the capitalist organisations are controlled by government. The industrial, economic and financial policies of government are based on the concept of social welfare.

4.Planning and Proper Use of Resource – Under mixed economy the attention is given to planning. After proper survey all the resources are distributed into different sectors of the economy. This leads to proper and efficient utilisation of resources.

Demerits of Mixed Economy:

1.Temporary Economic System– Mixed economy cannot be maintained as permanent economic system. At the very early stage of development this system was found suitable but later on, its principles went on diminishing.

2.Danger to Democracy– It is possible that with the passage of time socialism may become powerful. In such condition the whole economic system would go under the control of government. Thus, there might be danger to democracy.

3.Imbalance in the Economy – The mixed economy cannot provide proper development as the government wants to maintain a balance between the private and public sector. The policies of the government are not clear; with the result there exists presence of imbalance in the economy.

Mechanisms used to solvethe basic problems under each economicsystemto be explained with the help of examples. The role of government along withthe price mechanism to be emphasized

1.Solution to Basic Problems in a Capitalistic Economy: Under capitalistic economy, allocation of various resources takes place with the help of market mechanism. Price of various goods and services including the price of factors of production are determined with help of the forces of demand and supply. Free price mechanism helps producers to decide what to produce. The goods which are more in demand and on which consumers can afford to spend more, are produced in larger quantity than those goods or services which have lower demand. The price of various factors of production including technology helps to decide production techniques or methods of production. Rational producer intends to use those factors or techniques which has relatively lower price in the market. Factor earnings received by the employers of factors of production decides spending capacity of the people. This helps producers to identify the consumers for whom goods could be produced in larger or smaller quantities. Price mechanism works well only if competition exists and natural flow of demand and supply of goods is not disturbed artificially.

2.Solution to Basic Problems in a Socialistic Economy: Under socialistic economy, the government plays an important role in decision making. The government undertakes to plan, control and regulate all the major economic activities to solve the basic economic problems. All the major economic policies are formulated and implemented by the Central Planning Authority. In India, Planning Commission was entrusted with this task of planning. The Planning Commission of India has now been replaced by another central authority NITI Ayog (National Institution for Transforming India). Therefore, the central planning authority takes the decisions to overcome the economic problems of what to produce, how to produce and for whom to produce. The central planning authority decides the nature of goods and services to be produced as per available resources and the priority of the country. The allocation of resources is made in greater volume for those goods which are essential for the nation. The state’s main objectives are growth, equality and price stability. The government implements fiscal policies such as taxation policy, expenditure policy, public debt policy or policy on deficit financing in order to achieve the above objectives. The methods of production or production techniques are also determined or selected by the central planning authority. The central planning authority decides whether labour intensive technique or capital intensive technique is to be used for the production. While deciding the appropriate method, social and economic conditions of the economy are taken into consideration. Under socialistic economy, every government aims to achieve social justice through its actions. All economic resources are owned by the government. People can work for wages which are regulated by the government as per work efficiency. The income earned determines the aggregate demand in an economy. This helps the government in assessing the demand of goods and services by different income groups.

3.Solution to Basic Problems in a Mixed Economy: Practically, neither capitalistic economy nor socialistic economy exists in totality. Both the economic systems have limitations. Consequently, a new system of economy has emerged as a blend of the above two systems called mixed economy. Therefore, mixed economy is defined as a system of economy where private sectors and public sectors co-exist and work side by side for the welfare of the country. Under such economies, all economic problems are solved with the help of free price mechanism and controlled price mechanism (economic planning). Free price mechanism operates within the private sector; hence, prices are allowed to change as per demand and supply of goods. Therefore, private sector can produce goods as per their demand and their price in the market. The government may control and regulate production of the private sector through its monetary policy or fiscal policy. On the other hand, controlled price mechanism (economic planning) is used for the public sector by the planning authority. The goods and services to be produced in the public sector, hence, are determined by the central planning authority. Private sector determines the production technique or production method on the basis of factor prices, availability of technology etc. On the other hand, production technique or production method for the public sector is determined by the central planning authority. While determining the production technique for the public sector, national priority, national employment policy and social objectives are major considerations. Private sector allocates its resources to produce those goods which are demanded by people who command high purchasing power. Although, production by the private sector is sometimes controlled and regulated by the government through various policies such as licensing policy, taxation policy, subsidy etc., the price determined by free price mechanism may go beyond the purchasing power of low or marginal income group. Therefore, the government may undertake production of certain goods in its hands. The rationing policy is also introduced to provide essential goods at reasonable price to the poor people. The government, thus, ensures social justice by its actions in the mixed economy.

LESSON PLAN:-04

Parameters of development: per capita income and human development index

Per capita income

Per capita income is a measure of the amount of money earned per person in a nation or geographic region. Per capita income can be used to determine the average per-person income for an area and to evaluate the standard of living and quality of life of the population. Per capita income for a nation is calculated by dividing the country's national income by its population.

Human Development Index (HDI)

The HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. The HDI can also be used to question national policy choices, asking how two countries with the same level of GNI per capita can end up with different human development outcomes. These contrasts can stimulate debate about government policy priorities.The Human Development Index (HDI) is a summary measure of average achievement in key dimensions of human development: a long and healthy life, being knowledgeable and have a decent standard of living. The HDI is the geometric mean of normalized indices for each of the three dimensions.

The health dimension is assessed by life expectancy at birth, the education dimension is measured by mean of years of schooling for adults aged 25 years and more and expected years of schooling for children of school entering age. The standard of living dimension is measured by gross national income per capita. The HDI uses the logarithm of income, to reflect the diminishing importance of income with increasing GNI. The scores for the three HDI dimension indices are then aggregated into a composite index using geometric mean.

Planning and economic development in India

For the smooth functioning of any economy, planning plays an important role. The Planning Commission was set up in March, 1950 by a Resolution of the Government of India. The Planning Commission has been entrusted with the responsibility of the creation, development and execution of India's five year plans. India's five year plans are also supervised by the Planning commission. The economy of India is based on planning through its five-year plans, developed, executed and monitored by the Planning Commission. With the Prime Minister as the ex-official Chairman, the commission has a nominated Deputy Chairman, who has rank of a Cabinet minister.

Planning without an objective is like driving without any destination. There are two sets of objectives for planning, namely the short-term objectives and the long-term objectives. While the short-term objectives vary from plan to plan, depending on the immediate problems faced by the economy, the process of planning is inspired by certain long term objectives.

The long-term objectives are:

1.A high rate of growth

2.Economic self-reliance

3.Social justice and

4.Modernization of the economy

5.Economic stability

1. First Five year Plan

The 1st five year plan was presented by Jawaharlal Nehru, who was the Prime Minister during that period. It was formulated for the execution of various plans between 1951 to 1956. The Planning Commission was responsible for working out the plan.

Objectives

The primary aim of the 1st five year plan was to improve living standards of the people of India. This could be done by making judicious use of India's natural resources. The total outlay of the 1st five year plan was worth Rs. 2.069 crore. This amount was assigned to different sectors which included:

a.Industrial sector

b.Energy, Irrigation

c.Transport, Communications

d.Land rehabilitation

e.Social services

f.Development of agriculture and community

g.Miscellaneous issues

Events took place during this period

a.3 Irrigation projects were started during this period, namely Mettur Dam, Hirakud Dam and Bhakra Dam.

b.The government had taken steps to rehabilitate the landless workers, whose main occupation was agriculture. These workers were also granted fund for experimenting and undergoing training in agricultural know how in various cooperative institutions. Soil conservation, was also given considerable importance.

c.The Indian government also made considerable effort in improving posts and telegraphs, railway services, road tracks, civil aviation.

d.Sufficient fund was also allocated for the industrial sector. In addition measures were taken for the growth of the small scale industries.

2.Second Five year Plan

With India's five year plans the country has attained a more or less stable economic setup down the years. The 1st five year plan ended in the year 1956. The 2nd five year plan was effective from 1956 to 1961.

Objectives

Industries got more importance in the 2nd five year plan. The focus was mainly on heavy industries. The Indian government boosted manufacturing of industrial goods in the country. This was done primarily to develop the public sector. The Nehru-Mahalanobis model was adopted.Rapid industrialisation with particular emphasis on the development of basic and heavy industries Industrial Policy of 1956 accepted the establishment of a socialistic pattern of society as the goal of economic policy.

Events took place during this period

a.As many as five steel plants including the ones in Durgapur, Jamshedpur as well as Bhilai were set up as per the 2nd five year plan.

b.Hydroelectric power plants were formed during the tenure of the 2nd five year plan.

c.There was considerable increase in production of coal.

d.The North eastern part of the country, witnessed increase in the number of railway tracks.

e.During the term of the 2nd five year plan, Atomic Energy Commission came into being. Tata Institute of Fundamental Research was born.

3)Third Five year Plan

India's 1st and 2nd five year plans paved the way for the 3rd five year plan, the term of this plan being from the year 1961 to 1966. Five year plans were introduced by the Indian government, so that people could make the optimum use of the resources better their living standards. Effective usage of the resources would eventually ensure an enhancement in output.

Objectives

a.Increasing the national income by 5 percent per annum.

b.Making India self-sufficient by increasing agricultural production. This step was taken to ensure that India does not have to bank on others for food products.

c.Minimizing rate of unemployment.

d.Ensuring that people enjoy equal rights in the country.

Events took place during this period

a.3rd five year plan laid considerable stress on the agricultural sector. However, with the short lived Sino Indian War of 1962 India diverted its attention to the safety of the country. Due to the Sino Indian War, India facedcost push inflation.

b.During the period 1965 to 1966, owing to Green Revolution, once again agriculture attracted attention.Along with dams, India got many fertilizer plants and cement making plants which resulted in abundant production of wheat in Punjab.

c.Role of the states increased and they were given more prominence. Many primary schools had started functioning in the village areas. Various bodies looking into matters related to secondary education were also formed. To promote democracy, there was commencement of the Panchayat elections.

d.There was formation of state electricity boards. The state governments were entrusted with the responsibility of constructing roads.

3.Plan Holidays – Annual Plans

Plan holiday for 3 years. The prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the Annual Plans. During these plans a whole new agricultural strategy involving wide-spread distribution of High-Yielding Varieties of seeds, the extensive use of fertilizers, exploitation of irrigation potential and soil conservation was put into action to tide-over the crisis in agricultural production. During the Annual Plans, the economy basically absorbed the shocks given during the Third Plan, making way for a planned growth.

4.Fourth Five year Plan

The 4th five year plan of India also served as a stepping stone for the economic growth. The following section will highlight the main events that had taken place under the 4th five year plan.

Objectives

‘Growth with stability’ and progressive achievement of self-reliance Garibi Hatao program

Events took place during this period

a.India had to reform and restructure its expenditure agenda, following the attack on India in the year 1962 and for the second time in the year 1965. India had hardly recuperated when it was struck by drought. India also had a stint of recession. Due to recession, famine and drought, India did not pay much heed to long term goals. Instead, it responded to the need of the hour. It started taking measures to overcome the crisis.

b.Food grains production increased to bring about self-sufficiency in production. With this attempt, gradually a gap was created between the people of the rural areas and those of the urban areas.

c.The need for foreign reserves was felt. This facilitated growth in exports. Import substitution drew considerable attention. All these activities widened the industrial platform. Following the 4th Five Year Plan an alteration in the socio economic structure of the society was observed.

5.Fifth Five year Plan

Fifth Plan (1974 - 79) The fifth plan prepared and launched by D D Dhar proposed to achieve two main objectives viz, ‘removal of poverty’ (Garibi Hatao) and ‘attainment of self-reliance’ through promotion of high rate of growth, better distribution of income and a very significant growth in the domestic rate of savings. The plan was terminated in 1978 (instead of 1979) when Janta Govt. came to power.

Objectives

The 5th Five Year Plan was laid out during a crisis period to overcome the impediments posed by the wavering economic condition. The 5th Five Year Plan was designed in a way to meet the needs of the time. The issues that were emphasised were:

a.Reducing the discrepancy between the economic developments at the regional, national, international level. It emphasized on putting the economic growth at par with each other.

b.Improving the agricultural condition by implementing land reform measures.

c.Improving the scope of self-employment through a well-integrated program.

d.Reducing the rate of unemployment both in the urban and the rural sectors.

e.Encouraging growth of the small scale industries.

f.Enhancing the import substitution in the spheres including chemicals, paper, mineral and equipment industries.

g.Applying policies pertaining to finance and credit in the industrial sector.

h.Stressed on the importance of a labour intensive production technology in India

Events took place during this period

The world economy was in a troublesome state when the fifth five year plan was chalked out. This had a negative impact on the Indian economy. Prices in the energy and food sector skyrocketed and as a consequence inflation became inevitable. Therefore, the priority in the fifth five year plan was given to the food and energy sectors. In the later stages the increase in the supply of food grains and the export of minerals and oil reserve earned quite a good amount of foreign exchange to the Indian Economy.

6.Sixth Five year Plan

There were 2 Sixth Plans. First one is by Janta Govt (for 78 - 83) which was in operation for only 2 years. Second is by the Congress Govt. when it returned to power in 1980.

6th Five Year Plan is also referred to as the Janata Government Plan and it was revolutionary since it marked a change from the Nehruvian model of Five Year Plans. The sixth five year plan has changed a lot of things in India. On one hand it had improved the tourism industry in India and on the other hand it aimed at development in the Information Technology sector.

Objectives

‘Direct attack on the problem of poverty by creating conditions of an expanding economy’
Events took place during this period

a.The transport and communication system also improved under this Plan. The National Highways were all built during this time. Apart from the construction of new highways, the condition of theroads were meliorated.

b.Economic Liberalization was introduced for the first time in India during this period. Ration shops were closed because government no more produced articles at a subsidized rate. Price control measures were no more useful. As a consequence the prices of various goods increased leading togrowth in the standard of living of the residents of India.

c.Family Planning was implemented for the first time in India. Family Planning helped to create awareness among the Indians regarding population. However, this measure to control population was not accepted across India. It was readily accepted by the people residing in the developed areas of the country but the mass of the less developed areas refused to accept the plan and neverimplemented it.

7.Seventh Five year Plan

7th Five Year Plan which covered a time span of another five years started on 1985 and went on till 1989. The primary aim of the five year plan was to upgrade the industrial sector and enable India to establish itself as one of the developed countries of the world.

Objectives

The objective of the 7th Five Year Plan was to put emphasis on policies and programs that would accelerate the growth in food grains production, increase employment opportunities and raise productivity. This was targeted to achieve by focusing on the following points:

a.Introduction and application of modern technology

b.Justice meted out to people from various social status

c.Improving the position of the weak in the Indian society

d.Development of agriculture

e.Reducing poverty in India

f.Assuring the essentials of food, shelter and clothing to the people

g.Striving to achieve independence as per the Indian economy is concerned

h.Help the small as well as the large farmers to increase their productivity

Events took place during this period

a.This plan was proved successful in spite of severe drought conditions for the first three years consecutively.

b.Special care was taken to spread education among girls, enhance telecommunication within thecountry.

c.The government of India also strove to maintain a balance in the economy and by striking a balance within export and import.

8.Annual Plans

It was the beginning of privatization and liberalization in India.

9.Eighth Five year Plan.

8th Five Year Plan commenced on 1992 and carried on till 1997. The basic objective of this period was the modernization of industrial sector. This plan focused on technical development. Through this plan the reduction of deficit and foreign debt was aimed at. The rectification of certain flawed plans and policies were also done under this five year plan. During this period only India received a coveted opportunity to become a member of the World Trade Organization on January 1st 1995.

Objectives

Rapid economic growth, high growth of agriculture and allied sector, and the manufacturing sector, growth in exports and imports, improvement in trade and current account deficit.

Events took place during this period

Self-sufficiency in agricultural production was a top priority during India's eighth Five Year Plan since most of the population depended on that. Production of food increased to over 150% than before which was a huge success.

10.Ninth Five year Plan

Like all other Five Year Plans made so far, the 9th Five Year Plan (1997-2002) is formulated, executed and supervised by the Planning Commission.

Objectives

a.Industrialization at a rapid pace
b.Reduction in poverty level
c.Gaining self-sufficiency on local resources

d.Complete employment for all countrymen

e.Price stabilization should be initiated to hasten up the rate of growth of the Indian economy

f.Control the ever-increasing rate of population

g.Creating an independent market, for enhancing private financial investments

h.Promotion of social events like conservation of specific benefits for special social groups, female empowerment, etc.

i.Achieving self-sufficiency in food production

j.Generation of equal opportunities for employment and taking steps to reduce poverty

Events took place during this period

Partly success

11.Tenth Five year Plan

The 10th Five Year Plan (2002-2007) targets at a GDP growth rate of 8% per annum. Taking note of the inabilities of the earlier Five Years Plans, especially that of the 9th Five Year Plan, the Tenth Five Year Plan decides to take up a resolution for immediate implementation of all the policies formulated in the past.

Objectives

a.The Tenth Five Year Plan proposes schooling to be compulsory for children, by the year 2003.

b.The mortality rate of children must be reduced to 45 per 1000 livings births and 28 per 1000 livings births by 2007 and 2012 respectively

c.All main rivers should be cleaned up between 2007 and 2012

d.Reducing the poverty ratio by at least five percentage points, by 2007

e.Making provision for useful and lucrative employments to the population, which are of the best qualities

f.According to the Plan, it is mandatory that all infants complete at least five years in schools by 2007.

g.By 2007, there should be a decrease in gender discriminations in the spheres of wage rate and literacy, by a minimum of 50%

h.Taking up of extensive afforestation measures, by planting more trees and enhance the forest and tree areas to 25% by 2007 and 33% by 2012

i.Ensuring persistent availability of pure drinking water in the rural areas of India, even in the remote parts

j.The alarming rate at which the Indian population is growing must be checked and fixed to 16.2%, between a time frame of 2001 and 2011

k.The rate of literacy must be increased by at least 75%, within the tenure of the Tenth Five Year Plan

l.There should be a decrease in the Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007. The Plan also intended to bring down the Maternal Mortality Ratio to 1 per 1000 live birth by the year 2012.

Events took place during this period

Partially successful

12.Eleventh Five year Plan

India has emerged as a super power. The transition was not easy. Guidelines for operating the economy was provided by the five year plans.Owing to India's five year plans, great advancement has been made with regard to India's national income. Since 1951, the year when the 1st five year plan was presented by the then Prime Minister Jawaharlal Nehru, India has come a long way. India has taken giant strides and today it is considered as one of the emerging powers.

13.Twelfth Five year Plan

The Planning Commission of India posted the draft Document of the 12th Five year Plan on its website in the first week of December 2012 for feedback from the public before it is adopted by the National Development Council (NDC) on 28 December and declared the Five Year Plan for the country from 2012 to 2017. The stated vision of the Plan Document is “of India moving forward in a way that would ensure a broad-based improvement in living standards of all sections of the people through a growth process which is faster than in the past, more inclusive and also more environmentally sustainable”. This mantra of “faster, sustainable and more inclusive growth”’ is indeed ideal and laudable

Objectives of NITI aayog:-

The NITI Aayog tries to accomplish the following objectives and opportunities:-

Creating an effective administration paradigm in which the Government is an enabler rather than a provider of the first and last resort.

To focus on technology upgradation and capacity building for implementation of programmes and initiatives.

To undertake other activities as may be necessary in order to further the execution of the national development agenda, and the objectives mentioned above.

Attaining progress from food security. Focusing on a mix of agricultural production and the actual returns that farmers get from their produce.

Ensuring that India is an active participant in global debates and deliberations.

Ensuring that the economically vibrant middle-class is actively engaged and utilized to its full potential.

Leveraging India’s pool of entrepreneurial, scientific, and intellectual human capital.

Incorporating the geo-economic and geopolitical strength of the NRI Community.

The NITI Aayog’s Role in Achieving Social Development Goals

The NITI Aayog has been tasked with coordinating ‘Transforming our World: the 2030 Agenda for Sustainable Development Goals (SDGs). SDGs established for the time period 206-2030 have evolved through a long inclusive process that has resulted in the achievement of the Millennium Development Goals (MDGs). SDGs cover 17 goals, and 169 related targets were agreed upon at the UN Summit from September 25th to September 27th, 2015, in which India was represented by the Hon’ble Prime Minister. These SDGs will stimulate and fulfil action in critical areas of humanity and the planet over the next 15 years.

-The task at hand for the NITI Aayog is to act proactively, rather than simply collecting data on SDGs on a regular basis, in order to fructify the goals and targets by maintaining high-quality standards, rather than just quantity. The Ministry of Statistics and Programme Implementation (MoSPI) has already undertaken a parallel exercise to interact with the ministries in order to evolve the SDG targets and goals.

-To accomplish these tasks, the first step has already been completed on a draught mapping of the targets and goals on proposed Nodal and other Ministries in consultation with MoSPI. Furthermore, the Centrally Sponsored Schemes (CSS), which include the ‘core,’ ‘optional,’ and ‘core of the core’ schemes carried out by the states, have been mapped with some recent initiatives carried out by the Central Government. In addition, Ministries are implementing Central Sector Schemes, and states are implementing various State Schemes to align with one or more SDGs.

LESSON PLAN:-05

Structural Changes in the Indian Economy after liberalization

In the late 1980s, government expenditure began to exceed its revenue by such large margins that meeting the expenditure through borrowings became unsustainable. Prices of many essential goods rose sharply. Imports grew at a very high rate without matching the growth of exports. As pointed out earlier, foreign exchange reserves declined to a level that was not adequate to finance imports for more than two weeks. There was also not sufficient foreign exchange to pay the interest that needed to be paid to international lenders. Also, no country or international funder was willing to lend to India.

India approached the International Bank for Reconstruction and Development (IBRD), popularly known as World Bank and the International Monetary Fund (IMF), and received $7 billion as loan to manage the crisis. For availing the loan, these international agencies expected India to liberalise and open up the economy by removing restrictions on the private sector, reduce the role of the government in many areas and remove trade restrictions between India and other countries.

So, the government initiated a variety of policies that fall under three heads viz., liberalisation, privatisation and globalisation.

Liberalization

The basic aim of liberalization was to put an end to those restrictions which became hindrances in the development and growth of the nation. The loosening of government control in a country and when private sector companies’ start working without or with fewer restrictions and government allow private players to expand for the growth of the country depicts liberalization in a country.

The objectives of this policy were following

1.Enhance the competition among the domestic industries

2.Encourage international trade with planned imports and exports

3.Increasing international technology and capital

4.Expand the international market frontier of the nation

5.Reduce the burden of debt in the country

Privatization

This is the second of the three policies of LPG. It is the increment of the dominating role of private sector companies and the reduced role of public sector companies. In other words, it is the reduction of ownership of the management of a government-owned enterprise. Government companies can be converted into private companies in two ways:
1.By disinvestment
2.By withdrawal of governmental ownership and management of public sector companies

There are three forms of Privatisation which are a strategic sale, partial sale, and token privatisation.

1.In the strategic sale or denationalisation, the Government needs to deliver 100% of productive resources ownership to the owners of the private companies.

2.The Partial Sale or Partial privatization owns a minimum of 50% ownership with the help of the transfer of shares. They would, therefore, own the majority of the shares and would have control of the autonomy and functioning of the company.

3.In the token or the deficit privatisation or token privatisation, the Government would have to disinvest the share capital by up to 5-10% in order to meet the shortage in the budget.

This policy, therefore, aims to improve the financial situation in the country and reduce the work pressure of the public sector companies. Moreover, funds could be raised from the disinvestment. With the reduced work pressure the efficiency of the public sector would automatically increase and yield better quality of goods and services for the use of consumers.

Objectives of Privatization

1.Improve the financial situation of the government

2.Reduce the workload of public sector companies

3.Raise funds from disinvestment

4.Increase the efficiency of government organizations

5.Provide better and improved goods and services to the consumer

6.Create healthy competition in the society

7.Encouraging foreign direct investments (FDI) in India

Globalisation

In this policy, the country's economy is expected to grow with the help of the global economy. This means that the primary focus would be on foreign trade and institutional and private investments. It is the third and the last policy that is to be implemented. The objective of this phenomenon is to develop and independent the world with the implication of suitable strategies. It is the attempt to create a world where the requirements of one country can be driven and turned into one large economy. One of the major outcomes of Globalisation is outsourcing.

Outsourcing means an enterprise can employ professionals from other countries to reach a particular goal. There is a lot of contractual work that is being outsourced in the field of Information Technology leading to its development. This has opened new avenues for a lot of private sectors and Indian skills are regarded as the most effective and vibrant across the globe. The low wage rate and dedicated employees have made India one of the constructive nations suitable for international outsourcing.

Disinvestment

Disinvestment refers to an act of an organisation or the government of a state to raise funds by selling ownership stake. The sale can also be a liquidation of asset or stake in a subsidiary of an organisation or government undertaking.

The aim of disinvestment is to facilitate re-allocation of funds or resources to better use or monetise assets. Disinvestment also helps in lowering debt and restructuring of business. The process helps in increasing the return on investment.

Objectives of Disinvestment

1.To reduce the financial burden of the sick, loss-making PSU’s on the Government

2.To improve public finances

3.To introduce competition and market discipline

4.To fund growth, social sector welfare

5.To encourage a wider share of ownership

6.To depoliticize non-essential services

Current challenges facing the Indian Economy:-

Poverty – Poverty is an economic state where people are experiencing scarcity or the lack of certain commodities that are required for the lives of human beings like money and material things. Therefore, poverty is a multifaceted concept inclusive of social, economic and political elements.

Absolute : Also known as extreme poverty or abject poverty, it involves the scarcity of basic food, clean water, health, shelter, education and information. Those who belong to absolute poverty tend to struggle to live and experience a lot of child deaths from preventable diseases like malaria, cholera and water-contamination related diseases. Absolute Poverty is usually uncommon in developed countries.

Relative : It is defined from the social perspective that is living standard compared to the economic standards of population living in surroundings. Hence it is a measure of income inequality. For example, a family can be considered poor if it cannot afford vacations, or cannot buy presents for children at Christmas, or cannot send its young to the university.

Vicious circle of poverty:-

Vicious circle of poverty implies that poverty is the cause of poverty. A poor person, in order to repay his existing debt, will borrow some more, thereby adding to his debt. Further, he will also incur interest payment obligations. This will only increase his total amount of debt. He is also likely to pass on this debt to his children, who will remain caught in this poverty trap. Poor people tend to remain poor and pass on the poverty situation to the future generations.

Main programmes for poverty alleviation:

Below are given a few important poverty alleviation programs in brief for quick reference:

Jawahar Gram Samridhi Yojana

Jawahar Gram Samridhi Yojana (JGSY) is the restructured, streamlined and comprehensive version of the Jawahar Rozgar Yojana (JRY). It was started on 1 April 1999. The main aim of this programme was the development of rural areas.

National Pension Scheme (NPS)

The National Pension System (NPS) is a pension scheme sponsored by the government that was started in 2004 for all government employees. The scheme was made open to all citizens in 2009. It is a voluntary and long-term retirement scheme.

National Family Benefit Scheme (NFBS)

This scheme was started in August 1995. This scheme is sponsored by the state government. It was transferred to the state sector scheme after 2002–03. It is under the community and rural department.

Pradhan Mantri Gramin Awaas Yojana

This Pradhan Mantri Gramin Awaas Yojana scheme is aimed at creating housing for everyone. It was initiated in 1985. It aimed at creating 20 lakh housing units out of which 13 lakhs were in rural areas. This scheme also would give out loans to people at subsidized rates to make houses. It was started in 1999–2000. In 1999–2000, ?1438.39 crores was used for this scheme and about 7.98 lakh units were built. In 2000-01 a central outlay of ?1710.00 crores was provided for this scheme. It improved the standard of living in rural areas: health, primary education, drinking water, housing, roads.

To know more in detail about other Poverty Alleviation Programmes, visit the linked article

A critical assessment of PAPs (Poverty Alleviation Programmes)

Efforts at poverty alleviation have borne fruit in that for the first time since independence, the percentage of absolute poor in some states is now well below the national average. Despite various strategies to alleviate poverty, hunger, malnourishment, illiteracy and lack of basic amenities continue to be a common feature in many parts of India. Though the policy towards poverty alleviation has evolved in a progressive manner, over the last five and a half decades, it has not undergone any radical transformation. You can find a change in nomenclature, integration or mutations of programmes.

However, none resulted in any radical change in the ownership of assets, process of production and improvement of basic amenities to the needy.

Rural development- >

Rural development usually refers to the method of enhancing the quality of life and financial well-being of individuals, specifically living in populated and remote areas. Traditionally, rural development was centred on the misuse of land-intensive natural resources such as forestry and agriculture.

Rural Credit

Rural Credit means credit for the farming families to match the primary investment on fertilizers, seeds, tools, and other personal expenses.

Need of Rural Credit:-

(1) Long gestation period

The gestation period between sowing crops and understanding income after the agricultural produce and sale is very long.

Therefore, the farmers need to take credit.

(2) To buy inputs

Farmers need money to buy seeds, fertilisers, tools, etc.

(3) Personal expenses

They need money for personal expenses like marriage, death, religious ceremonies, to repay old debts, etc.

Sources of Rural Credit

Simply understanding what Rural Credit means is not enough. Commerce students also need to learn the various sources from which such monetary assistance is available to rural families. Listed below are the five major sources for Rural Credit in India.

1. Land Development Banks

These banks provide a considerable sum of money as a credit to farmers by using their land as collateral. This low-interest loan has a repayment tenure ranging between 15 and 20 years. Farmers are free to avail this loan to bear the cost of land development work, including the creation of wells or other irrigation related facilities. Still, land development credits are underutilized since most farmers remain unaware of this source of funding.

2. Co-operative Credit Societies

One of the most economical sources of funding for farmers, co-operative credit facilitates credit to small- and medium-scale farmers. These short-term credits are extended by Primary Agricultural Credit societies or PACs. Nonetheless, these societies have not been able to minimize the influence of moneylenders on the Rural Credit market.

3. Regional Rural Banks

Set up by the government, regional rural banks or RRBs extend monetary assistance to marginal farmers, landless laborers and artisans.

4.Commercial Banks

Originally, commercial banks were reluctant to provide credit for agriculture due to the risks involved with such a move. However, today, these banks extend monetary help both directly and indirectly, to farmers. Direct investment in agriculture refers to short and medium term loans to simplify farming activities. Indirect investment, on the other hand, refers to the advances to farmers made through intermediary agencies or institutions.

5.Government

Also known as Taccavi loans, these are short-term credits extended by the Indian government to assist struggling farmers, especially in the aftermath of natural calamities, such as floods and droughts.

Agricultural marketing:

Agricultural marketing covers the services involved in moving an agricultural product from the farm to the consumer. These services involve the planning, organizing, directing and handling of agricultural produce in such a way as to satisfy farmers, intermediaries and consumers. Numerous interconnected activities are involved in doing this, such as planning production, growing and harvesting, grading, packing and packaging, transport, storage, agro- and food processing, provision of market information, distribution, advertising and sale. Effectively, the term encompasses the entire range of supply chain operations for agricultural products, whether conducted through ad hoc sales or through a more integrated chain, such as one involving contract farming.

Defects and government measures to improve agricultural marketing:-

Lack of Output Quality:

Absence of Grading:

Inadequate Storage and Warehousing Facilities:

Lack of Adequate Transport Facilities:

Lack of Information:

A Long Chain of Intermediaries:

Agricultural diversification:-

Agricultural diversification is one of the essential components of economic growth. It is the stage where traditional agriculture is transformed into a dynamic and commercial sector by shifting the traditional agricultural product mix to high standard products, which has a high potential in stimulating production rate. Here, agricultural diversification is supported by a change in technology or consumer demand, trade or government policy, and by transportation, irrigation, and other developments of infrastructure.

Alternate farming /organic farming:-

Alternatives include using animal and green manure rather than chemical fertilizers, integrated pest management instead of chemical pesticides, reduced tillage, crop rotation (especially with legumes to add nitrogen), alternative crops, or diversification of the farm enterprise.

Importance of organic farming:-

It helps to maintain environment health by reducing the level of pollution. It reduces human and animal health hazards by reducing the level of residues in the product. It helps in keeping agricultural production at a sustainable level. It reduces the cost of agricultural production and also improves the soil health

Human Capital formation:-

Human capital formation refers to the process of adding to the stock of human capital over time. It is the process of acquiring and increasing the number of skilled and experienced people. It is essential for the development of an economy.

How people become resource:-

People become resources through the skills they acquired, through the knowledge they apply, through the productivity they contribute, and through their abilities. To understand this better, we will focus on human capital formation first. Let’s discuss this.

Role of human capital in economic development:-

Human capital is the fundamental source of economic growth. It is a source of both increased productivity and technological advancement. In fact, the major difference between the developed and developing countries is the rate of progress in human capital. The underdeveloped countries need human capital to staff new and expanding government services to introduce new systems of land use and new methods of agriculture, to develop new means of communication to carry forward industrialization, and to build the education system. Prof. Galbraith is right in saying that ''we now get a larger part of economic growth from investment in men and improvements brought about by improved men.''

Growth of education sector in India:-

Education – formal and informal

Formal education refers to the structured education system that runs from primary (and in some countries from nursery) school to university, and includes specialised programmes for vocational, technical and professional training.

Informal education refers to learning that occurs away from a structured, formal classroom environment. Informal learning comes in many forms, including viewing videos, self-study, reading articles, participating in forums and chat rooms, performance support, coaching sessions, and games…

Unemployment

Unemployment, the condition of one who is capable of working, actively seeking work, but unable to find any work. It is important to note that to be considered unemployed a person must be an active member of the labour force and in search of remunerative work.

Types of unemployment

There are basically four types of unemployment: (1) demand deficient, (2) frictional, (3) structural, and (4) voluntary unemployment.

1.Demand deficient unemployment

Demand deficit unemployment is the biggest cause of unemployment that typically happens during a recession. When companies experience a reduction in the demand for their products or services, they respond by cutting back on their production, making it necessary to reduce their workforce within the organization. In effect, workers are laid off.

2. Frictional unemployment

Frictional unemployment refers to those workers who are in between jobs. An example is a worker who recently quit or was fired and is looking for a job in an economy that is not experiencing a recession. It is not an unhealthy thing because it is usually caused by workers trying to find a job that is most suitable to their skills.

3. Structural unemployment

Structural unemployment happens when the skills set of a worker does not match the skills demanded by the jobs available, or alternatively when workers are available but are unable to reach the geographical location of the jobs.

An example is a teaching job that requires relocation to China, but the worker cannot secure a work visa due to certain visa restrictions. It can also happen when there is a technological change in the organization, such as workflow automation that displaces the need for human labor.

4. Voluntary unemployment

Voluntary unemployment happens when a worker decides to leave a job because it is no longer financially compelling. An example is a worker whose take-home pay is less than his or her cost of living.

Causes of Unemployment

Unemployment is caused by various reasons that come from both the demand side, or employer, and the supply side, or the worker.

Demand-side reductions may be caused by high interest rates, global recession, and financial crisis. From the supply side, frictional unemployment and structural employment play a great role.

Policy measures (after 2000):

Food for Work Programme:

The Food for Work Programme was started in 2000-01 as a component of EAS full form??. It was first launched in eight drought-affected states of Chhattisgarh, Gujarat, Himachal Pradesh, Madhya Pradesh, Orissa, Rajasthan, Maharashtra and Uttaranchal. It aims at enhancing food security through wage employment. Food grains are supplied to states free of cost, however, the supply of food grains from the Food Corporation of India (FCI) godowns has been slow.

Sampoorna Gramin Rozgar Yojana (SGRY):

The JGSY, EAS and Food for Work Programme were revamped and merged under the new Sampoorna Gramin Rozgar Yojana (SGRY) Scheme from 1st September, 2001. The main objective of the scheme continues to be the generation of wage employment, creation of durable economic infrastructure in rural areas and provision of food and nutrition security for the poor.

Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005:

It was launched on February 2, 2005. The Act provides 100 days assured employment every year to every rural household. One-third of the proposed jobs would be reserved for women. The central government will also establish National Employment Guarantee Funds. Similarly, state governments will establish State Employment Guarantee Funds for implementation of the scheme. Under the programme, if an applicant is not provided employment within 15 days s/he will be entitled to a daily unemployment allowance.

National Rural Livelihood Mission: Ajeevika (2011)

It is the skill and placement initiative of Ministry of Rural development. It is a part of National Rural Livelihood Mission (NRLM)–the mission for poverty reduction is called Ajeevika (2011). It evolves out the need to diversify the needs of the rural poor and provide them jobs with regular income on monthly basis. Self Help groups are formed at the village level to help the needy.

Pradhan Mantri Kaushal Vikas Yojna:

The cabinet on March 21, 2015 cleared the scheme to provide skill training to 1.4 million youth with an overall outlay of Rs. 1120 crore. This plan is implemented with the help of Ministry of Skill Development and Entrepreneurship through the National Skill Development Corporation. It will focus on fresh entrant to the labour market, especially labour market and class X and XII dropouts.

National Heritage Development and Augmentation Yojna (HRIDAY):

HRIDAY scheme was launched (21 Jan. 2015) to preserve and rejuvenate the rich cultural heritage of the country. This Rs. 500 crore programme was launched by Urban Development Ministry in New Delhi. Initially it is launched in 12 cities: Amritsar, Varanasi, Gaya, Puri, Ajmer, Mathura, Dwarka, Badami, Velankanni, Kanchipuram, Warangal and Amarvati. These programmes played/are playing a very crucial role in the development of the all sections of the society so that the concept of holistic development can be ensured in the real sense.

Sustainable Development

Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Effect of Economic Development on Resources and Environment:

Economic development leads to the scarcity of natural resources. The present production technology makes use of renewable and non-renewable natural resources to such an extent that their regeneration becomes difficult. In this way natural resources tend to reduce.

Need for sustainable development for improving the quality of life –

sustainable development aims at sustaining the present level of resources and providing the present generation with good quality life where good quality of life refers to standard living with all necessary and basic needs. Sustainable development means to protect, preserve and conserve the natural environment for the future needs. Besides, sustainable development will only succeed if the environmental components achieve their stability and the society experience good quality of life upon the natural environment.

Global warming

Global warming is the long-term heating of Earth's surface observed since the pre-industrial period (between 1850 and 1900) due to human activities, primarily fossil fuel burning, which increases heat-trapping greenhouse gas levels in Earth's atmosphere. This term is not interchangeable with the term "climate change."

Following are the major effects of global warming:

Rise in Temperature

Global warming has led to an incredible increase in earth’s temperature. Since 1880, the earth’s temperature has increased by ~1 degrees. This has resulted in an increase in the melting of glaciers, which have led to an increase in the sea level. This could have devastating effects on coastal regions.

Threats to the Ecosystem

Global warming has affected the coral reefs that can lead to the loss of plant and animal lives. Increase in global temperatures has made the fragility of coral reefs even worse.

Climate Change

Global warming has led to a change in climatic conditions. There are droughts at some places and floods at some. This climatic imbalance is the result of global warming.

Spread of Diseases

Global warming leads to a change in the patterns of heat and humidity. This has led to the movement of mosquitoes that carry and spread diseases.

High Mortality Rates

Due to an increase in floods, tsunamis and other natural calamities, the average death toll usually increases. Also, such events can bring about the spread of diseases that can hamper human life.

Loss of Natural Habitat

A global shift in the climate leads to the loss of habitats of several plants and animals. In this case, the animals need to migrate from their natural habitat and many of them even become extinct. This is yet another major impact of global warming on biodiversity.

LESSON PLAN:-06

Statistics

Meaning of Economics?

Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources. Economics focuses on the actions of human beings, based on assumptions that humans act with rational behaviour, seeking the most optimal level of benefit or utility. The building blocks of economics are the studies of labour and trade. Since there are many possible applications of human labour and many different ways to acquire resources, it is the task of economics to determine which methods yield the best results. Economics is the study of how people and society choose to employ scarce resources that could have alternative uses in order to produce various commodities that satisfy their wants and to distribute them for consumption among various persons and groups in society.

Statistics in Economics

Statistics deals with the collection, analysis, interpretation and presentation of numerical data. It is a branch of mathematics and also used in the disciplines such as accounting, economics, management, physics, finance, psychology and sociology. Economic statistics is part of applied statistics that concerns the collection, processing, grouping, distribution, and analysis of economic data. Statistics, in itself, is the collation and analysis of numerical data to arrive at specific conclusion. Any study about Economics and Statistics involves the validation of theories with quantified data sets.

Scope of Statistics

In ancient times, statistics was used by the state for the purpose of administration. But now a days, it is widely used as a tool of all sciences. There is hardly any field whether it be biology, botany, astronomy, physics, chemistry, sociology, or psychology where statistical tools are not used. The word statistics is used in two senses: (a) the plural sense and (b) the singular sense. In a plural sense it refers to quantitative information or simply statistical data. In singular sense, it refers to method or methods used in arriving at the quantitative information or dealing with it.

Functions of Statistics
Main functions of statistics are given below:

(i) Statistics simplifies complex data: With the help of statistics a mass of data can be presented in such a manner that they become easy to understand e.g. the complex data may be presented in the form of totals, averages, percentages etc.

(ii) Statistics presents the facts in a definite form: By stating conclusions in a numerical or quantitative form, we can achieve definiteness.

(iii) Statistics provides a technique of comparison: By using statistical tools such as average ratios, percentages etc. data can be made comparable for drawing conclusion.

(iv) Statistics studies relationship: Correlation analysis is used to discover functional relationship between different phenomena e.g. the relationship between demand and supply, the relationship between advertisement and sales can easily be explained with the help of correlation analysis.

(v) Statistics helps in formulating policies: Many policies are framed on the basis of statistics like import, export, wage-policy etc.

(vi) Statistics helps in forecasting: The future behaviour of phenomena such as market situation for the future in predicted on the basis of available statistics of past and present.

(vii) Statistics help to test and formulate theories: Statistical data and techniques are useful while testing theories e.g. whether increase in demand affects the price can be tested by collecting and comparing the relevant data.

Importance of statistics in economics
The word statistics is used both in plural as well as in singular sense. In plural sense statistics means numeric facts which can be used to draw conclusions and in singular sense it means the statistical methods with the help of which statistical information is used to treat and draw conclusions from them. Importance of statistics in economics: Statistics plays an important role in the field of economics. It is an important tool which helps in solving different economic problems. Statistics helps in economic planning by collecting data of national resources both human and natural. For drawing a plan of their use we need the help of Statistics. Statistics helps in analysing different economic problems which needs immediate attention. Such as:

a. Statistics serves as a raw material to the economists in making certain economic laws

b. Framing economic policies

c. Making comparisons

d. Studying and calculating National Income.

Limitations of Statistics

1.The statistical methods can’t study the nature of phenomenon which cannot be expressed in quantitative terms.

2.Statistics does not deal with individual items.

3.Statistics does not depict entire story of phenomenon.

4.Statistical results are dependent on the information collected, if the collected information is of poor quality, then the results will give misinformation.

5.Statistical Law of inertia of large numbers and Law of statistical regularity is not as exact as laws in science and mathematics, these laws are probability based.

6.Statistical results are true only on average, it doesn’t signify the outliers.

7.Statistics deals only with measurable aspects of things and therefore, can seldom give the complete solution to problem. They provide a basis for judgement but not the whole judgment

Measures of Central Value

A measure of central tendency is a single value that attempts to describe a set of data by identifying the central position within that set of data. As such, measures of central tendency are sometimes called measures of central location. They are also classed as summary statistics. The mean (often called the average) is most likely the measure of central tendency that you are most familiar with, but there are others, such as the median and the mode. The mean, median and mode are all valid measures of central tendency, but under different conditions, some measures of central tendency become more appropriate to use than others.

Arithmetic Mean

can be used with both discrete and continuous data, although its use is most often with continuous data. The mean is equal to the sum of all the values in the data set divided by the number of values in the data set. So, if we have n values in a data set and they have values x1, x2, x3,…., xn, the sample mean, usually denoted by x¯(pronounced "x bar"), is:

This formula is usually written in a slightly different manner using the Greek capitol letter,S, pronounced "sigma", which means "sum of...":

Example.

The dataset – 8, 16, 29, 44, 50, 59, 73, 89, 93

Mean = (8+16+29+44+50+59+73+89+93)/9

= 51.22

An important property of the mean is that it includes every value in your data set as part of the calculation. In addition, the mean is the only measure of central tendency where the sum of the deviations of each value from the mean is always zero. The mean has one main disadvantage: it is particularly susceptible to the influence of exceptional data. These are values that are unusual compared to the rest of the data set by being especially small or large in numerical value.

Median

The median is the middle score for a set of data that has been arranged in order of magnitude. The median is less affected by outliers and skewed data.

In larger data sets, it’s easier to use simple formulas to figure out the position of the middle value in the distribution. Different methods are used to find the median of a data set depending on whether the total number of values is even or odd.

Median of an odd-numbered data set For an odd-numbered data set, find the value that lies at the (n+1)/2 position, where n is the number of values in the data set. Ex. Median of the dataset 8, 16, 29, 44, 50, 59, 73, 89, 93 is (9+1)/2 = 5thnumber, i.e. 50

Median of an even-numbered data set For an even-numbered data set, find the two values in the middle of the data set: the values at the n/2 and (n/2) + 1 positions. Then, find their mean. Ex. Median of the dataset 8, 16, 29, 44, 50, 59, 73, 89, 93, 100 is Mean of 10/2 = 5th and (10/2) + 1 = 6th number, i.e. (50+59)/2 = 54.5

Continuous Series

In case of continuous series median class is located where N/2th item [not (N+1)/2th item] lies. Themedian can then be obtained as follows

L = lower limit of the median class,

c.f. = cumulative frequency of the class preceding the median class,

f = frequency of the median class,

i = magnitude of the median class interval.

Quartiles

Quartiles are the measures which divide the data into four equal parts, each portion contains equal number of observations. There are three quartiles. The first Quartile (denoted by Q1) or lower quartile has 25% of the items of the distribution below it and 75% of the items are greater than it. The second Quartile (denoted by Q2) or median has 50% of items below it and 50% of the observations above it. The third Quartile (denoted by Q3) or upper Quartile has 75% of the items of the distribution below it and 25% of the items above it. Thus, Q1 and Q3 denote the two limits within which central 50% of the data lies.

In case of discrete data set

Q1 = ((n + 1)/4)th Term

Q3 = (3(n + 1)/4)th Term

Percentiles

Percentiles divide the distribution into hundred equal parts, so you can get 99 dividing positions denoted by P1, P2, P3,..., P99. P50 is the median value.

Mode

The mode is the most frequent score in our data set. On a histogram it represents the highest bar in a bar chart or histogram. Therefore, sometimes mode is considered as the most popular option. Normally, the mode is used for categorical data where the most common category is required to be find out.

Discrete series

Arithmetic Mode can be determined by inspection and finding the variable which has the highest frequency associated with it. However, when there is very less difference between the maximum frequency and the frequency preceding it or succeeding it, then grouping table method is used.

Continuous Series

In case of continuous frequency distribution, modal class is the class with largest frequency. Mode can be calculated by using the formula

Relative Position of Arithmetic Mean, Median and Mode

The relative magnitude of the three are Mean>Median>Mode or Mean

Skewness

Skewness is a measure of asymmetry or distortion of symmetric distribution. It measures the deviation of the given distribution of a random variable from a symmetric distribution, such as normal distribution. A normal distribution is without any skewness, as it is symmetrical on both sides. Hence, a curve is regarded as skewed if it is shifted towards the right or the left.
A frequency distribution can be of 2 types:

1.Symmetrical Distribution

A frequency distribution is said to be symmetrical if the frequencies are equally distributed on both the sides of central value.A symmetrical distribution may be either bell – shaped or U shaped.In symmetrical distribution, the values of mean, median and mode are equal i.e. Mean=Median=Mode

2.Asymmetrical Distribution/Skewed Distribution

A frequency distribution is said to be skewed if the frequencies are not equally distributed on both the sides of the central value.

A skewed distribution may be-

a)Positively Skewed Distribution

In this, the distribution is skewed to the right (positive). Here, Mean exceeds Mode and Median.

b)Negatively Skewed Distribution

In this, the distribution is skewed to the left (negative). Here, Mode exceeds Mean and Median.

Measures of dispersion

The measures of central tendency are not adequate to describe data. Two data sets can have the same mean but they can be entirely different. Thus to describe data, one needs to know the extent of variability. This is given by the measures of dispersion. Range, interquartile range, and standard deviation are the three commonly used measures of dispersion.

Dispersion is the extent to which values in a distribution differ from the average of the distribution.

To quantify the extent of the variation, there are certain measures namely:

1.Range

2.Quartile Deviation

3.Mean Deviation

4.Standard Deviation

Range

Range (R) is the difference between the largest (L) and the smallest value (S) in a distribution.

Thus, R = L – S

Higher value of range implies higher dispersion and vice-versa.

Example.

Dataset 8, 16, 29, 44, 50, 59, 73, 89, 93, 100

L = 100 and S = 8

Range = 100 – 8 = 92

Quartile Deviation

Quartile deviation is a statistic that measures the deviation in the middle of the data. Quartile deviation is also referred to as the semi interquartile range and is half of the difference between the third quartile and the first quartile value. The formula for quartile deviation of the data is

Mean Deviation

Mean deviation or mean absolute deviation is the average deviation of a data point from the mean, median, or mode of the data set.It is defined as the sum of the deviations (ignoring signs) from an average divided by the number of items in a distribution.The average can be mean, median or mode. Theoretically median is the best average of choice because sum of deviations from median is minimum, provided signs are ignored. However, practically speaking, arithmetic mean is the most commonly used average for calculating mean deviation and is denoted by the symbol MD.

Standard Deviation

Ungrouped data

Four alternative methods are available for the calculation of standard deviation of individual values. All these methods result in the same value of standard deviation. These are:

1.Actual Mean Method

2.Assumed Mean Method

3.Direct Method

4.Step-Deviation Method

Actual Mean Method

When the actual mean is known the formula used it Where, d = x-x¯

Assumed Mean Method

When the actual mean is not used, the assumed mean is Ax¯ such that d = X – Ax¯. The formula used is

Direct Method

Standard Deviation can also be calculated from the values directly, i.e., without taking deviations,

Step-Deviation Method

If the values are divisible by a common factor, they can be so divided and standard deviation can be calculated from the resultant values.

Continuous frequency distribution

Like ungrouped data, S.D. can be calculated for grouped data by any of the following methods:
1.Actual Mean Method

2.Assumed Mean Method

3.Step-Deviation Method

Actual Mean Method

Mean of the distribution where mid-point of the classes are m

Assumed Mean Method

Standard deviation can be calculated by taking deviations from an assumed mean Deviations of mid-points from an assumed meanwhere mid-point of the classes are m and assumed mean is A d = m – A

LESSON PLAN:-07

Correlation

Correlation refers to the statistical relationship between two entities. In other words, it's how two variables move in relation to one another. If the change in one variable appears to be accompanied by a change in the other variable, the two variables are said to be correlated and this inter-dependence is called correlation or covariation.

For example, there may exist a relationship between heights and weights of a group of students, the scores of students in two different subjects are expected to have an interdependence or relationship between them.

To understand how correlation works, it's important to understand the following terms:
i)Positive correlation: A positive correlation would be 1. This means the two variables moved either up or down in the same direction together.
ii)Negative correlation: A negative correlation is -1. This means the two variables moved in opposite directions.
iii)Zero or no correlation: A correlation of zero means there is no relationship between the two variables. In other words, as one variable moves one way, the other moved in another unrelated direction.

Techniques for Measuring Correlation

Three important tools used to study correlation are scatter diagrams, Karl Pearson’s coefficient of correlation and Spearman’s rank correlation.

A scatter diagram visually presents the nature of association without giving any specific numerical value. A numerical measure of linear relationship between two variables is given by Karl Pearson’s coefficient of correlation. A relationship is said to be linear if it can be represented by a straight line. Spearman’s coefficient of correlation measures the linear association between ranks assigned to individual items according to their attributes. Attributes are those variables which cannot be numerically measured such as intelligence of people, physical appearance, honesty, etc.

Scatter Diagram

A scatter diagram shows the relationship between two quantitative variables measured for the same individuals. The values of one variable appear on the horizontal axis, and the values of the other variable appear on the vertical axis. Each individual in the data appears as a point on the graph. These variables can be taken as independent variables, though this makes the second variable dependent on this former one. Correspondingly, all these points are plotted on the graph and their totality is termed as scatter diagram. After plotting all these points on a graph, the generated profiles of these scatter plots are used to draw an extrapolation. Consequently, students can also calculate the correlation of coefficient of this given data using their plotted representation. Notably, scatter diagram correlation is a quantitative measure of random variables and their association with each other.

Types of Scatter Diagrams

1.Perfect Positive Correlation: A scatter diagram is known to have a perfect positive correlation if all the plotted points are on a straight line when represented on a graph. All these points form a straight line which is rising from its lower left corner to the top right corner.

2.Perfect Negative Correlation:A scatter diagram is known to have a perfect negative correlation if all the plotted points are on a straight line when represented on a graph. All these points form a straight line which is decreasing from top left corner towards the bottom right corner.

3.High Degree of Positive Correlation: If a scatter diagram represents high degree of positive correlation than all its plotted points are roughly along a straight line, even though they do not clearly create a line. This representation typically forms a band like structure which is rising from bottom left corner towards the top right corner.

4.High Degree of Negative Correlation: If a scatter diagram represents high degree of negative correlation than all its plotted points are roughly along a straight line, even though they do not clearly create a line. This representation typically forms a band like structure which is decreasing from top left corner to the right bottom corner.

5.Low Degree of Positive Correlation: In low degree of positive correlation, the points are much scattered and these points are found to be slowly rising from its left bottom corner to its top right corner.

6.Low Degree of Negative Correlation: In low degree of negative correlation, the points are much scattered and these points are found to be slowly decreasingfrom top left corner of a graph to its bottom right corner.

7.No Correlation: While scatter diagram definition looks to find the correlation between variables, there can be representations which are incoherent and scattered. This is also a valid analysis since it shows that the 2 given variables are not correlated.

Karl Pearson’s Coefficient of Correlation

Karl Pearson’s coefficient of correlation (r) is one of the mathematical methods of measuring the degree of correlation between any two variables.

Properties of Correlation Coefficient

1.‘r’ is a dimensionless number whose numerical value lies between +1 to –1. The value +1 represents a perfect positive correlation, while the value –1 represents a perfect negative correlation. The value 0 (zero) represents lack of correlation.
2.A high value of r indicates strong linear relationship. Its value is said to be high when it is close to +1 or –1.
3.A low value of r (close to zero) indicates a weak linear relation. But there may be a non-linear relation.
4.The coefficient of correlation is a pure number and is independent of the units of measurement of the variables.
5.If r = 0 the two variables are not correlated. There is no linear relation between them. However other types of relation may be there.
6.The magnitude of r is unaffected by the change of origin and change of scale. Given two variables X and Y let us define two new variables.
U=(X-A)/B ; V=(Y-C)/D
Where A and C are assumed means of X and Y respectively. B and D are common factors and of same sign. Then rxy = ruv

Spearman’s rank correlation

The Karl Pearson’s correlation coefficient is not applicable in cases where the direct quantitative measurement of a phenomenon under study is not possible. Sometimes it is required to examine the extent of association between two ordinally scaled variables such as two rank orderings. For example, study of intelligence, efficiency, performance, competitive events, etc. In such cases, a measure to ascertain the degree of association between the ranks of two variables, X and Y, is called Rank Correlation.

Index numbers

An index number is a statistical measure, designed to measure changes in a variable, or a group of related variables.

Index number is a single ratio (or a percentage) which measures the combined change of several variables between two different times, places or situations.

Uses of index number

1.Index numbers are economic barometers. Index numbers measure the level of business and economic activities and are therefore helpful in gauging the economic status of the country. Index number is a special type of averages which helps to measure the economic fluctuations on price level, money market, economic cycle like inflation, deflation etc.

2.Index numbers helps in formulating suitable economic policies and planning etc. Many of the economic and business policies are guided by index numbers. For example, while deciding the increase of DA of the employees; the employers have to depend primarily on the cost of living index. If salaries or wages are not increased according to the cost of living it leads to strikes, lock outs etc. The index numbers provide some guide lines that one can use in making decisions.

3.Index numbers are used in studying trends and tendencies. Since index numbers are most widely used for measuring changes over a period of time, the time series so formed enable us to study the general trend of the phenomenon under study.

4.Index numbers are useful in forecasting future economic activity. Index numbers are used not only in studying the past and present workings of our economy but also important in forecasting future economic activity.

5.Index numbers measure the purchasing power of money. The cost of living index numbers determine whether the real wages are rising or falling or remain constant. The real wages can be obtained by dividing the money wages by the corresponding price index and multiplied by 100. Real wages helps us in determining the purchasing power of money.

Method of Averaging relatives

When there is only one commodity, the price index is the ratio of the price of the commodity in the current period to that in the base period, usually expressed in percentage terms. The method of averaging relatives takes the average of these relatives when there are many commodities.

Laspeyres’ index

Laspeyres’ Index is a methodology to calculate the consumer price index by measuring the change in the price of the basket of goods to the base year. It was invented by Etienne Laspeyres, an economist from Germany to analyse the changes in the prices as compared to the base year period.

Paasche’s index

Paasche’s Price Index is defined as a methodology to calculate Inflation by measuring the Price change in a Commodity as compared to the base year. It was invented by Hermann Paasche, an Economist from Germany to understand the Actual Inflation in the Basket of Goods compared to the base year value.

Fisher’s Ideal Index

An index number obtained as geometric mean (i.e., square root of the product) of indices obtained by Laspeyres’ and Paasche’s formulae, satisfies certain important properties (to be discussed later), is known as the Fisher’s ideal formula.

Some Important Index Numbers

Consumer price index

Consumer price index (CPI), also known as the cost of living index, measures the average change in retail prices.

Wholesale Price Index

The Wholesale price index number indicates the change in the general price level. Unlike the CPI, it does not have any reference consumer category. It does not include items pertaining to services like barber charges, repairing, etc.

Index of Industrial production

Unlike the Consumer Price Index or the Wholesale Price Index, this is an index which tries to measure quantities.The IIP is a composite indicator that measures changes in the volume of production of a basket of industrial products over a period of time, with respect to a chosen base period.

Problems involved in constructing Price Index Number

1.The choice of the base year One if the major problem concerns the construction Price Index Number is the choice of a base year. Movements in prices will appear to be more or less significant, according to the base year chosen for the prices of items selected. It is important, therefore, to select a base year when prices were relatively stable and so years during periods either of severe inflation or deflation should be avoided. This problem arises because the Retail Price Index can equally be calculated as a base-weighted or a current-weighted index, but the two types of index do not necessarily give the same answer.

2.The number of commodities to be included (coverage) One of the problem with constructing Price Index Numberlies in the fact that it is impossible to cover all commodities and their price. Moreover, the price at which a particular good or service is sold may vary from one part of the market to another. A representative selection has to be made, therefore, and a further complication will arise when choices have to be made among various grades or qualities of goods.

3.Choice of prices Selection of prices of goods and services included in index numbers is a problem as different purposes of index numbers require different prices to be chosen.

4.Method to be used

Different purpose of index number require different methods to be used and choosing which can be difficult.

Human Development Index

The HDI is a summary composite measure of a country's average achievements in three basic aspects of human development: health, knowledge and standard of living. It is a measure of a country's average achievements in three dimensions of human development:

a long and healthy life, as measured by life expectancy at birth;

knowledge, as measured by mean years of schooling and expected years of schooling; and

a decent standard of living, as measured by GNI per capita in PPP terms in US$.

The HDI sets a minimum and a maximum for each dimension, called "goalposts", then shows where each country stands in relation to these goalposts. This is expressed as a value between 0 and 1. The higher a country's human development, the higher its HDI value.

Sensex

Sensex is the short form of Bombay Stock Exchange Sensitive Index with 1978–79 as base. The value of the Sensex is with reference to this period. It is the benchmark index for the Indian stock market. It consists of 30 stocks which represent 13 sectors of the economy and the companies listed are leaders in their respective industries. Ifthe Sensex rises, it indicates that the market is doing well and investors expect better earnings from companies. It also indicates a growing confidence ofinvestors in the basic health of the economy.

Some Mathematical Tools used in Economics:

Equation of a straight line

1.General Equation of a Line

The general equation of a straight line is

Ax+By+C=0

A,B?0 where A,B,C are constants which belong to real numbers.

2.Slope-intercept Form

This equation represent a straight line in a graph.

Which can also be written as

y=mx+c

Where m=(-A/B) and c=(-C/B)

3.Intercept Form

The intercept of a line is the point through which the line crosses the x-axis or y-axis. Suppose a line cuts the x-axis and y-axis at (a, 0) and (0, b), respectively. Then, the equation of a line making intercepts equal to a and b on the x-axis and the y-axis respectively is given by

(x/a)+(y/b)=1

The general form can be rewritten as

x/(-C/A)+y/(-C/B)=1

Where C?0 and where a=(-C/A) and b=(-C/B)

Slope of a straight line

In Mathematics, a slope of a line is the change in y coordinate with respect to the change in x coordinate. The net change in y-coordinate is represented by ?y and the net change in x-coordinate is represented by ?x. Hence, the change in y-coordinate with respect to the change in x-coordinate is given by, m = change in y/change in x =?y/?x In the Slope-intercept Form of equation of straight line m represents the slope of the straight line

LESSON PLAN:-01

Classification of human activities - economic and non-economic.

1) Economic Activities:-

Economic activities are those activities that are based on the production, distribution, exchange, and consumption of goods and services. Economic activities are carried out by human beings to earn their income and to acquire wealth. For example, a trader, an agriculturist, a manufacturer, a doctor, a teacher, and laborers working in a factory are all examples of economic activities. These activities are performed by people to earn their livelihood and to acquire wealth.

2)Non-economic Activities:-

Economic activities are those activities that are based on the production, distribution, exchange, and consumption of goods and services. Economic activities are carried out by human beings to earn their income and to acquire wealth. For example, a trader, an agriculturist, a manufacturer, a doctor, a teacher, and laborers working in a factory are all examples of economic activities. These activities are performed by people to earn their livelihood and to acquire wealth. It encompasses any acts that are carried out to satisfy human emotions, whether they are social, religious, cultural, personal, recreational, charitable, or patriotic.

Types of economic activities:

1) Primary Sector

Products from the earth, such as raw materials and staple foods, are extracted or harvested by workers in the primary sector of the economy. Agriculture (both subsistence and commercial), mining, forestry, grazing, hunting and gathering, fishing, and quarrying are some of the activities associated with primary economic activity, as well as other related activities. Additionally, the packaging and processing of raw materials are regarded as being a part of this industry.

The primary sector employs a decreasing proportion of the workforce in both developed and developing countries. As of 2018, only about 1.8 percent of the labour force in the United States was employed in primary sector activity. This represents a significant decrease from 1880, when approximately half of the population worked in the agriculture and mining industries. People who work in primary activities are referred to as “red-collar workers” because their jobs require them to be outside most of the time.

2)Secondary Sector

The secondary sector of the economy is responsible for the production of finished goods from the raw materials extracted by the primary sector of the economic system. It is in this sector that all manufacturing, processing, and construction jobs are found. People who work in secondary activities are referred to as blue-collar employees.

Metalworking and smelting, automobile production, textile production, the chemical and engineering industries, aerospace manufacturing, energy utilities, breweries and bottlers, construction, and shipbuilding are all examples of activities associated with the secondary sector. When it comes to the United States, approximately 12.7 percent of the working population was involved in secondary sector activity in 2018.

3) Tertiary Sector

This sector of the economy is also referred to as the “service industry” or “service sector.” Sales of goods and services produced by the secondary sector are made to the general public as well as to businesses in all five economic sectors by the third sector.

This industry is comprised of a wide range of activities such as retail and wholesale sales; transportation and distribution; restaurants; clerical services; media; tourism; insurance; banking; health care; and the practise of law

Workers in the tertiary sector account for an increasing proportion of the workforce in both developed and developing countries. In the United States, tertiary workers account for approximately 61.9 percent of the labour force. Nonagricultural self-employed are classified as a separate category by the Bureau of Labour Statistics, and they account for another 5.6 percent of workers, though the sector in which they work is determined by their job.

4)Quaternary Sector

Quaternary activities are specialised tertiary activities in the ‘Knowledge Sector’ that require their own classification because they are so specialised. The demand for and consumption of information-based services has increased dramatically in recent years, affecting everyone from mutual fund managers to tax consultants, software developers, and statisticians. Personnel employed in office buildings, elementary schools and university classrooms, hospitals and doctors’ offices, theatres, accounting and brokerage firms, and other similar establishments fall under this category of services. The same way that some tertiary functions can be outsourced, quaternary activities can be done as well. They are not reliant on resources, are not affected by the environment, and are not necessarily restricted to a specific geographical area.

5)Quinary Sector

Services that are centred on the creation, re-arrangement, and interpretation of new and existing ideas, data interpretation, as well as the use and evaluation of new technologies, are classified as quinary activities. They are sometimes referred to as “gold collar” professions because they represent another subdivision of the tertiary sector that represents the specialised and highly compensated skills of senior business executives, government officials, research scientists, financial and legal consultants, and other professionals, among other things. Their significance in the structure of advanced economies outweighs the fact that they are few in number. Quinary activities are carried out by decision-makers or policymakers at the highest level of authority.

Definition and concept of business:

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or non-profit organizations. Business types range from limited liability companies to sole proprietorships, corporations, and partnerships.

Classification of business activities:

The business activities are broadly classified into two categories namely:

1) Industry: The industry sector is defined as a sector where raw material gets transformed into beneficial products. An industry may create capital goods or consumer goods such as cloth, radio, bread, butter, etc. The industry can be classified into three categories namely:

(a) Primary Industry: Primary industry is known as extractive industries. It involves activity connected with the production of wealth directly from natural resources such as water, air, land, etc. The primary sector involves activities like processing and extraction of natural resources etc. These primary industries are further divided as:

Extractive Industry: Industries that draw out or extract products from natural sources are known as Extractive Industry. Some of the examples of extractive industries involve lumbering, farming, mining, hunting, and fishing operations.

Genetic Industry: The industries that involve the ventures of breeding and rearing of living organisms, such as plants, birds, animals, etc. are known as genetic industry. For example, rearing of cattle dairy farms or rearing of plants in the nursery is covered in the genetic industry.

(b)Secondary Industry: The industry that uses raw materials as input and produces finished products as output is known as the secondary industry. Secondary industries are divided into two parts:

Manufacturing Industries: These industries are involved in the process of transformation of semi-finished goods or raw materials into finished goods.

Construction Industries: These industries are involved with the construction of dams, roads, buildings, etc. These industries use the commodities of manufacturing industries such as iron and steel, cement or lime.

(c)Tertiary Industry: Tertiary industries are regarded as providing services that promote the flow of services and goods. This industry helps in the actions of the primary and secondary sectors.

2) Commerce: Commerce refers to the sum total of all the activities related to the placing of products before the ultimate consumers. It provides a significant link between the producer and consumers of goods. The term “ commerce” is defined as an activity that aims to remove the hindrance in the process of exchange. Commerce includes all those business activities which are related to the sale and purchase of goods and services and facilitate their availability for consumption and use through trade, banking, insurance,and warehousing. Commerce is classified into two different categories namely:

Trade: Trade is an essential part of commerce. It involves selling and buying goods and services. There are two types of trades namely - Internal and External Trade.

Internal Trade: It refers to the selling and buying of goods or services within the geographical contours of a country. Internal trade is also known as domestic trade or home trade. Internal trade is divided into two types: Retail trade and Wholesale trade.

External Trade: External trade is referred to the selling and buying of goods or services beyond the geographical contours of the country. In external trade, the market is vast. External trade is of 3 types: export trade, import trade, and entrepot trade.

B.Auxiliary To Trade
In terms of business, the term “Auxiliary to Trade '' refers to all those activities which provide support to performing activities related to trade and industry. In fact, the auxiliary to trade provides a facilitating base to industry and trade. Such activities include insurance, banking, warehousing, advertising, and communication.

Characteristics of business :

1. Human activities:

Business cannot be performed without human efforts. The main aim of business is to produce goods and services to fulfill the requirement of human being internally associated in the production or the consumers.

2. Economic activities:

It is concerned with earning profits and generating wealth, which are measured in terms of money. Economic activities include production of goods and services, distribution of goods and services and the benefits generated from them.

3. Production of goods and services:

The main feature of business is to produce goods and services. Business is concerned with the production of goods and services to the society. In this process we get goods from shopkeeper, shopkeeper gets from wholesaler. The wholesaler gets from manufacturers. The shopkeeper, the wholesaler, the manufacturer are doing business to earn profit.

4. Risk and uncertainty:

There is no business if there is no risk but accidents never knock the door. In future anything may happen. So risk is a possibility that losses may occur. Introduction of new product, change in government policies, change in customer taste and preference etc are the risks.

5. Profit motive:

Business has the main aim to earn profit. To get maximum profit revenue of business should be maximized. Profit generation is vital for business survival and expansion. However, profit should be earned through legal and fair means and in ethical manner. Profit is the reward for the investors.

6. Continuous process:

Continuous process means to provide goods and services by the business to the customers continuously and regularly. In business, the exchange of goods and services is a regular feature. A businessman regularly deals in a number of transactions and not just one or two transactions.

7. Satisfaction of customers:

The aim of business is to satisfy human demands by producing quality of goods and also to supply right product in right time at right place to meet the right needs. Quality goods should be provided at reasonable price.

Industry

Types of industry on the basis of size: Based on size

It alludes to how much many masses headquarters contributed, the range concerning humans utilized, or the amount regarding creation. In a dispute concerning size, companies might also posture grouped on Small scope afterward large scope businesses.

Small Scale Industries

Small Scale Industries are these ventures the location fabricating, supplying sorts regarding assistance, creations are whole concerning a limited affiliation and petty size. For instance, it is ideas involving Small scope enterprises: Napkins, tissues, chocolates, toothpicks, lots of bottles, small toys, papers, and pens. Limited scope groups count number about a full-size quantity in delightful yet economic enhancement atop India. These agencies do a one-time interest on hardware, and plants, but ventures whoever obligation in conformity with keep concerning a proprietorship premise, recruit purchase than lease premise.

Large Scale Industries

Ventures at a variety of Scales include certain kinds of portions concerning an Economy. Enormous Scale businesses or Industries turn after the expertise of countless of us yet application legislators free help. Then again, younger endeavors affect the Economy to a ground degree the place singular economic professionals succeed. Limited scope Industries are short among accordance including the factor according to up to expectation aggregate up to expectation are now not popular. Nonetheless, such also affords an imitation of the country’s flourishing.

Medium-Scale Industry

Prior according to in accordance with grasping the wide variety of perspectives associated together including the Medium Scale Business, perception of the notion of Medium Scale Business is significant. According to consequences including the public administration concerning India, some commercial organization afterward business enterprise work continue to allude in accordance to and Medium Scale after so much amount has an ordinary chance between 5 to ten crores. The Medium Scale Industries yet corporations edit contributions impressively afterward the business, commodities, yet assembling result concerning the country.

Role of small businesses in India

Small businesses play a vital role in the economy. Think of the luxurious car that you see on the roads daily. The final product is the outcome of many small businesses that are integral parts that help the engine to run. It is these millions of small industries that get you the dream car. It has been seen that 65-75% of the innovation comes from small business industries. Here you will learn about the major role played by the small business and all the issues that are faced by them.

Industrial Units: In an economy like India, the majority of the industrial units are because of small business. This today accounts for more than 95% of the units. Almost 40% of the total industrial units are contributed because of the small industries. The small businesses are bagging around 45% of the total exports that happen from India.

1.Labor - Oriented: Small businesses generate a lot of labor. They give many employment opportunities to those living in rural and semi-urban areas. The small businesses help to lift the weight of unemployment in any economy. This is a significant role that they play predominantly in a country like India. India has a large labor force and the Indian government also encourages small industries that employ and utilize labor. The government encourages small businesses by drafting various policies and offering low-interest rates.

2.Human Resource: The small businesses rank next to agriculture to employ in the Indian economy. As compared to many big companies, the small businesses are capable of generating the maximum employment opportunities for each unit of capital that is invested. This makes the small business the second largest employment generator in the economy.

3.Utilization of Local Resources: The local community needs and demands let the small businesses to emerge in the semi-urban and the rural areas. The small businesses are community-based, and these are focused to work for and generate employment in a few areas. This lets any business utilize local resources like talent, raw materials, demographic opportunities and labor. When there is ample mobilization and utilization of any local resources, this helps to improve the economic condition of a particular area.

4.Flexible and Adaptable: Any new business opportunity gets captured at the correct time. Small businesses get an edge when it comes to adapting and growing in the light of any upcoming changes. The small business usually is the manufactures and the distributors, and they are thus capable of generating a personal touch with the business and with their clients as well. There is also no government intervention in the case of small businesses as these are limited in finance and size.

5.Promotes Development & Growth: Development of the region plays an important role in contributing to the country's development. The establishment of small businesses in any region or area helps to uplift the lifestyle, earning of the people residing. Businesses bring in more exposure to foreign markets, production scale and the overall evolution of state as well as workers.

Commerce:

Branches of Commerce:

There are six main branches of commerce:

1) Trade: Trade is the voluntary exchange of goods or services between different economic actors. Since the parties are under no obligation to trade, a transaction will only occur if both parties consider it beneficial to their interests.

2) Transport: Transport is a system for taking people or goods from one place to another, for example using buses or trains

3) Warehousing: Warehousing is the act of storing goods that will be sold or distributed later. While a small, home-based business might be warehousing products in a spare room, basement, or garage, larger businesses typically own or rent space in a building that is specifically designed for storage.

4) Insurance: Insurance is a legal agreement between two parties – the insurer and the insured, also known as insurance coverage or insurance policy.

5) Banking: Banking is the business of protecting money for others. Banks lend this money, generating interest that creates profits for the bank and its customers

6)Advertising: The definition of advertising is an industry used to call the attention of the public to something, typically a product or service.

7) Aids to trade: Aid for Trade includes measures to help countries develop trade strategies, plans or projects and implementation, such as building roads, ports, and telecommunications that link domestic and global markets, or investing in industries and sectors to help diversify exports.;

Nature of Commerce:

Commerce is considered to be a part of business. It is that activity of business which is concerned with the exchange of goods and services. Some persons feel that commerce and business are synonymous.

THE IMPORTANCE (FUNCTIONS) OF COMMERCE

1.It provides employment opportunities for the people.

2.It makes production and exchange of goods and services possible.

3.It improves the standard of living of people by making modern goods available.

4.It aids national and international co-operation by ensuring inter-dependence of nations

5.It facilitates division of labour and specialization.

6.It brings technological innovation and aids infrastructural development

The following characteristics will help in understanding the nature of commerce:

(i) Economic Activities:

Economic activities are taken up with a motive to earn profits. Commerce deals with those activities which are undertaken for profit. So only economic activities are included in commerce. It is the motive which is important and not the activity.

Some activity may both be economic and non-economic. A trader buys goods to sell them again and earn profit while a consumer buys goods for consumption. In the first case a motive is to make profit while in the second situation the motive of profit is absent. For a trader buying goods is an economic activity and a part of commerce while the purchase of goods by a consumer is non-economic activity, hence out of the purview of commerce.

(ii) Exchange of Goods and Services:

Commerce involves an exchange of goods and services for profit. The goods may be produced or procured from other sources. The purchase of goods should be to re-sell them. It means that goods should be purchased for trading purposes.

(iii) Earning Motive:

The motive for undertaking trading activities is to earn profit. Profit is an incentive or reward for undertaking commercial activities. Any activity which does not have the incentive of profit will not be a part of commerce. If a trader gives some goods as charity then it will not be a part of commerce because profit motive is missing. But if the same trader sells goods to customers, it will form a part of commerce because profit motive is present. So earning motive must be present in activities or transactions.

(iv) Creation of Utility:

Commerce creates place and time utility in goods. The goods may not be consumed at the place of production. These may be needed at different places. The goods are taken to those places where they are in need. Transportation facilities help in creating place utility in goods. The goods are also needed at different periods of time.

It may not be possible to produce goods whenever they are demanded. The producers go on producing goods as per their capacity. The goods are stored upto the time they are not demanded. The production is done at one time and consumers get them as per their needs. The storage facilities create time utility in goods. Both place and time utilities are helpful in increasing the volume of trade.

(v) Regularity of Transactions:

The transactions should be regular. No isolated transaction will be a part of commerce. The sale of old furniture for replacing it by new is not a part of commerce. At the same time the sale of furniture by a furniture trader is commerce since the transactions are regular.

Importance of Commerce

The importance of trade and commerce are mentioned in following points :-

1. Commerce tries to satisfy increasing human wants:

Human wants are never-ending. They can be classified as 'Basic wants' and 'Secondary wants'. Commerce has made distribution and movement of goods possible from one part of the world to the other. Today we can buy anything produced anywhere in the world. This has, in turn, enabled man to satisfy his innumerable wants and thereby promoting social welfare.

2. Commerce helps to increase our standard of living:

Standard of living refers to the quality of life enjoyed by the members of society. When man consumes more products his standard of living improves. To consume a variety of goods he must be able to secure them first. Commerce helps us to get what we want at the right time, right place and at the right price and thus helps in improving our standard of living.

3.Commerce links producers and consumers:

Production is meant for ultimate consumption. Commerce makes possible to link producers and consumers through retailers and wholesalers and also through the aids to trade. Consumers get information about different goods through advertisements and salesmanship. The manufacturers are regularly informed about the likes and dislikes of consumers through marketing research. Thus commerce creates contact between the centers of production and consumption and links them.

4. Commerce generates employment opportunities:

The growth of commerce, industry, and trade bring about the growth of agencies of the trade such as banking, transport, warehousing, advertising, etc. These agencies need people to look after their functioning. Increase in production results in increasing demand, which further results in boosting employment opportunities. Thus the development of commerce generates more and more employment opportunities for millions of people in a country.

5. Commerce increases national income and wealth:

When production increases, the national income also increases. In a developed country, manufacturing industries and commerce together account for nearly 80% of total national income. It also helps to earn foreign exchange by way of exports and duties levied on imports. Thus, commerce increases the national income and wealth of a nation.

Relationship between commerce, trade and industry

There is a close interrelationship between the different branches of business described above. One cannot function without the support of others. Commerce helps industry before and after production through the purchase of materials and the sale of finished products. Productions of goods and services is meaningless unless they are distributed among the consumers. Trade, involving buying and selling of goods, maintains a smooth flow of commerce and thereby supports industry. At the same time, industry provides the goods and services for distribution and thereby gives rise to commerce. As industry develops, trade and commerce also grow.

Industry, commerce and trade are closely related to each other. For example, industry provides goods and services which are distributed through commerce. No commercial activity is possible in the absence of industry and production. At the same time industry and production cannot survive unless the goods and services are distributed among consumer through commerce. Therefore, industry and commerce are interdependent. Industry provides the base for commerce and commerce serves s the backbone of industry.

Trade involves buying and selling of goods. It is the nucleus of commerce because all business activities revolve around or exchange. Trade provides the solid foundation upon which the superstructure of commerce has been raised. It provides necessary support to industry and maintains a smooth flow of commerce.

Business objectives.

Economic; social; human and national. Role of Profit in business.

Economic Objectives of Business

We learned in the previous topic that business is an economic activity. Hence, its purpose is to show economic results. Let’s understand the economic objectives of the business. They are as follows:

1] Profit Earning

Business is a set of activities undertaken with the prospect of sale for the purpose of earning a profit. Profit is the extra income over the expenses. The main objective of any business is to earn a profit. Just as a plant cannot survive without water, similarly a business cannot sustain without profit.

Profit is necessary for growing and expanding business activities. Profit guarantee a consistent stream of capital for the modernization and augmentation of business activities in the future. Profits likewise show the scale of stability, efficiency, and advancement of the business organization.

2] Market Share / Creation of Customers

In the words of Drucker, “There is only one valid definition of business purpose; to create a customer. “ Profits are not generated out of thin air. They are the result of the hard work of the businessman to satisfy the needs of the customers.

In the long run, the survival of the business completely depends upon the market share captured by the business. The creation of good and satisfaction of the needs of the customer is a crucial purpose of the business. So to generate profit and demand, the business must supply premium quality and give value for money products.

3] Innovation & Utilization of Resources

Innovation normally means to change processes or creating more effective processes, products and ideas. Nowadays, business is ever-changing and dynamic. To keep up with the growing competition a businessman has to introduce efficient design, latest trends, upgraded machinery, new techniques, etc.

Large corporations invest a humongous amount of capital in their Research & Development department to boost innovation. Whereas, on the parallel lines, utilization of resources is a proper use of workforce, raw material, capital and technology used in the business. A business has limited resources and that’s why its main objective is to put these resources to correct divisions.

4] Increasing Productivity

Productivity is a scale to measure the efficiency of the business activity. It is usually the last objective but just as important because productivity is measured by the output given by the activities. It is the end result of any business activity. Each business must go for more prominent productivity – to guarantee its survival and development. This goal can be accomplished by decreasing wastages and making proficient utilization of machines and supplies, HR, cash and so forth.

Social Objectives of Business

According to Dayton Hudson “The business of business is serving society, not just making money.” Business is one of the pillars on which the society stands. Therefore, it is a part of the society. In fact, it cannot thrive without the resources from the society. The business earns its income from the sale of products and services to the society. It is mandatory on the part of the business to take care of the social factors. The necessary social objectives of a business are as follows:

1] Providing Goods & Services at Reasonable Prices

Business exists in the first place to satisfy the needs of the society. It’s the first and major social objective of the business. Products and services ought to be of better quality and these ought to be provided at sensible costs. It is additionally the social commitment of business to keep away from misbehaviors like boarding, Black promoting and manipulative advertising.

2] Employment Generation

One of the major problem today’s generation facing is unemployment. Business generates employment. Therefore, it is the social objective of a business to give chances to beneficial employment to individuals of the society. In a nation like India, unemployment has turned into a critical issue.

3] Fair Remuneration to Employees

The business does not run on its own but the people are responsible for the success and failure of the business. The people on the inside of the business are more valuable i.e. employees. They are an asset of the business and make a ground-breaking contribution to the business. They must be given reasonable pay for their work. Notwithstanding wages and salary, a significant piece of profits ought to be distrib¬uted among them in acknowledgment of their commitments. Such sharing of benefits will expand the inspiration and proficiency of employees.

4] Community Service

Business must give back something to the society. As a result, the Library, dispensary, educational foundations and so on which a business can make and help in the advancement of society are created. Business enterprises can build schools, colleges, libraries, hospitals, sports bodies and research institutions. They can help non-government organizations (NGOs) like CRY, Help Age, and others which render services to weaker sections of society.

Human Objective of business:

Human objective are mainly concerned with the welfare of employee,shareholders and consumers.some of the important human objectives are as follows:

1.welfare of employees:the employees should be awarded by bonus time and again.so,that they will be encouraged towards their activities.

2.satisfaction of consmers;the satisfaction of the consumers is necessary to earn profit.so, consumers satisfaction is to be maintained by providing qualitative goods.

3.satisfaction of shareholders:the management should give reasonable return on the money invested by the shareholders.they should also be provided with required information.

National objectives of business:

Every business must work for national development and growth. The crucial national objectives of business include the creation of employment, promotion of social justice, contribution to the nation, helping self-sufficiency, and increasing exports.

Role of Profit in business.

1. Profits as ‘Surplus:

The goal of every business manager is to gen¬erate a surplus above cost. In fact, business exists for surplus generation. Profits are only a measure of the surplus of business income over expenses.

2. Profits as Regulator of Efficiency and Effec¬tiveness:

Profits act as a regulator of efficiency in business operations. Those who accomplish objectives with the least cost are able to make the maximum profits). In competitive conditions only profit-making com¬panies are supposed to use their human and mate¬rial resources better than others.

3. Profits and Resource Allocation:

In a competitive system the allocation of resources is determined by what consumers want to buy and how much they are willing to pay. If people demand more colour TV sets, its price will increase and its production will become profitable. So there will be transfer of resources from other industries to the colour TV industry.

4) Profits as Rent of Capital:

Profits may be taken as pay for use of capi¬tal. One of the purposes of profits is to compen¬sate the numerous owners—proprietors, partners or shareholders—for the use of the capital they have in¬vested in a business. Profits also must compensate them for risk-taking. If the business fails the capital may be lost.

5). Profits as Source of Capital:

A major portion of undistributed profits is rein¬vested in business for expansion and diversification. And one of the major sources of a company’s capital is its profit.

6).Profit and Innovation:

According to J. Schumpeter “profits become the key element in innovation in a dynamic, changing economy, profit-seekers are driven to bring forth new processes and products profits are the lure that keeps the economy seeking new and more ef¬ficient ways of meeting real and potential human wants”

LESSON PLAN:-02

Introduction to business organizations.

A business organisation is an entity that was formed to carry out activities to achieve vision and missions. This form of business is governed by legal systems such as the Property Act, Contract Act, Incorporation Rules, and National Insurance Act, among others.

Characteristics of business organization:

The following are the important characteristics of organization:

Specialization and division of work. The entire philosophy of organization is centered on the concepts of specialization and division of work. The division of work is assigning responsibility for each organizational component to a specific individual or group thereof. It becomes specialization when the responsibility for a specific task lies with a designated expert in that field. The efforts of the operatives are coordinated to allow the process at hand to function correctly. Certain operatives occupy positions of management at various points in the process to ensure coordination.

Orientation towards goals. Every organization has its own purposes and objectives. Organizing is the function employed to achieve the overall goals of the organization. Organization harmonizes the individual goals of the employees with overall objectives of the firm.

Composition of individuals and groups. Individuals forms a group and the groups forms an organization. Thus, organization is the composition of individual and groups. Individuals are grouped into departments and their work is coordinated and directed towards organizational goals.

Continuity. An organization is a group of people with a defined relationship in which they work together to achieve the goals of that organization. This relationship does not come to end after completing each task. Organization is a never ending process.

Flexibility. The organizing process should be flexible so that any change can be incorporated easily. It ensures the ability to adapt and adjust the activities in response to the change taking place in the external environment. The programs, policies and strategies can be changed as and when required if the provision for flexibility is made in the organizing process.

Types of business organization:

1) Private sector:

The private sector is the part of a country's economic system that is run by individuals and companies, rather than a government entity. Most private sector organizations are run with the intention of making profit. The part of the economy under control of the government is known as the public sector.

2) Public sector:

Public sector, portion of the economy composed of all levels of government and government-controlled enterprises. It does not include private companies, voluntary organizations, and households

3) Public Private Partnership (PPPs) /Joint Sector):

Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, and convention centers. Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place.

Sole trader:

A sole trader is a self-employed person who owns and runs their own business as an individual. A sole trader business doesn’t have any legal identity separate to its owner, leading many to say that as a sole trader you are the business. In this article, we look at what a sole trader is, how to get started and your ongoing responsibilities

Objectives of Sole trader

The sole trader business is set up for the following objectives:

1. To create self-employment :Sole trader business helps people to create work for them. Instead of looking for a job outside, a person can start his own small business.

2. To utilise funds: A person having surplus funds may start sole proprietorship to make productive use of his funds.

If the funds are small and not enough for a big business, it is better to set up a small business instead of keeping the funds idle. Sole proprietorship enables the owner to have full say and complete control over the business.

3. Independent living:Sole trader business provides opportunity for an independent and honourable living. The sole trader is his own master and frees to take all the decisions.

4. To serve customers:A sole trader comes in direct contact with his customers. Therefore, he can better understand and serve the consumers. Sole trader business can be set up nearest to consumers so that they can buy their daily necessities conveniently.

5. Equitable distribution of wealth:Sole trader business helps in the distribution of income and wealth among a large number of people. It avoids monopoly and concentration of wealth in a few hands.

Formation of sole trader: Sole trader business is started by the initiative of a single person. He prepares the blueprints of the business and arranges the necessary finance. No legal formalities are required in the formation of sole proprietorship. Any individual can start a business whenever and wherever he likes

The main advantages of proprietorship are as follows:

1. Easy formation:

A sole proprietorship can be set up easily and quickly. No legal formali¬ties and expenditure are involved in the establishment of a proprietorship. The proprietor can select the business of his choice without taking permission from anyone. There is no need to associate others or to enter into any agreement. Registration of the firm is not required and there is no loss of time. Only a licence may be needed in special cases, e.g., to set up a wine shop. The proprietor can start business operations as and when he desires.

2. Motivation to work:

The proprietor alone is entitled to receive all the profits of business and he alone has to bear all losses. There is a direct relationship between effort and reward. Therefore, there is an incentive to work hard. The proprietor is motivated to make the best possible use of his skills and resources to maximise profits.

3. Quick decisions:

The sole proprietor is completely free to take decisions and to imple¬ment them. He need not consult others or seek their approval.
Quick decisions and prompt actions help lo improve the efficiency of business operations. The proprietor can take on the spot decisions and will, therefore, not let any opportunity slip away.

4. Independent Control:

The sole proprietor is the supreme judge of all matters pertaining to his business. He enjoys complete freedom of action. He has absolute control of his business and nobody can interfere in his work. He exercises control over all functions of business. Authority and responsibility are vested in the same person. Personal supervision helps to improve the efficiency of business. Sole proprietor can function smoothly because there is no one to oppose his decisions.

5. Secrecy of affairs:

The sole trader is not required to publish his accounts. He is not expected to share his secrets with others. Complete secrecy of business affairs provides him greater competitive strength.

State the Demerits of Sole Proprietorship

Sole proprietorship suffers from the following drawbacks:

1. Limited capital resources:
The financial resources of a sole trader are limited. He has limited funds and his borrowing capacity is limited. His bargaining position is weak.

2. Limited managerial ability:

One person cannot be expert in each and every function of business. All the qualities required for success in business are rarely found in one individual. The proprietor may not be able to denote sufficient time to all the activities.
He may commit errors of judgement and his decisions may be unbalanced. The organising ability and managerial skills of a sole proprietor are limited. In the absence of experts, division of labour is not possible.

3. Unlimited liability:

The proprietor is personally liable for all the losses of business. Fear of loss of personal property due to failure of business makes the proprietor very cautious and conservative. As a result, the business may fail to grow and keep pace with new developments in its particular field. Risk involved is unlimited.

4. Uncertain life:

Sole proprietorship does not enjoy continuity of existence. It is depen¬dent on the life of the proprietor. Business may come to a standstill due to the illness, insolvency and death of the proprietor. His successors may not be capable enough to carry on the business successfully. The owner and his business are inseparable as the business has no separate legal status.

5. Limited scope for expansion:

Due to limited financial and managerial resources, there is little scope for expansion and growth in sole proprietorship. In the absence of large scale opera¬tions it cannot take advantage of economies of scale. Sole trader cannot attract trained employees due to limited opportunities for career advancement. Therefore, sole proprietorship is not suitable for large scale operations.

Partnership

A partnership is a kind of business where a formal agreement between two or more people is made who agree to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates.

In India, all the aspects and functions of the partnership are administered under ‘The Indian Partnership Act 1932’. This specific law explains that partnership is an association between two or more individuals or parties who have accepted to share the profits generated from the business under the supervision of all the members or behalf of other members.

Features of Partnership:

Following are the few features of a partnership:

1.Agreement between Partners: It is an association of two or more individuals, and a partnership arises from an agreement or a contract. The agreement (accord) becomes the basis of the association between the partners. Such an agreement is in the written form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it is always good, if the partners have a copy of the written agreement.

2. Two or More Persons: In order to manifest a partnership, there should be at least two (2) persons possessing a common goal. To put it in other words, the minimal number of partners in an enterprise can be two (2). However, there is a constraint on their maximum number of people.

3. Sharing of Profit: Another significant component of the partnership is, the accord between partners has to share gains and losses of a trading concern. However, the definition held in the Partnership Act elucidates – partnership as an association between people who have consented to share the gains of a business, the sharing of loss is implicit. Hence, sharing of gains and losses is vital.

4.Business Motive: It is important for a firm to carry some kind of business and should have a profit gaining motive.

5. Mutual Business: The partners are the owners as well as the agent of their firm. Any act performed by one partner can affect other partners and the firm. It can be concluded that this point acts as a test of partnership for all the partners.

6. Unlimited Liability: Every partner in a partnership has unlimited liability.

Types of Partnerships

A partnership is divided into different types depending on the state and where the business operates. Here are some general aspects of the three most common types of partnerships.

General Partnership

A general partnership comprises two or more owners to run a business. In this partnership, each partner represents the firm with equal right. All partners can participate in management activities, decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally.

In other words, the general partnership definition can be stated as those partnerships where rights and responsibilities are shared equally in terms of management and decision making. Each partner should take full responsibility for the debts and liability incurred by the other partner. If one partner is sued, all the other partners are considered accountable. The creditor or court will hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership.

Limited Partnership

In this partnership, includes both the general and limited partners. The general partner has unlimited liability, manages the business and the other limited partners. Limited partners have limited control over the business (limited to his investment). They are not associated with the everyday operations of the firm.

In most of the cases, the limited partners only invest and take a profit share. They do not have any interest in participating in management or decision making. This non-involvement means they do not have the right to compensate the partnership losses from their income tax return.

Limited Liability Partnership

In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is guarded against other partners legal and financial mistakes. A limited liability partnership is almost similar to a Limited Liability Company (LLC) but different from a limited partnership or a general partnership.

Partnership at Will

Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that have to be fulfilled by a firm to become a Partnership at Will are:

i)The partnership agreement should have not any fixed expiration date.

ii)No particular determination of the partnership should be mentioned.

Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the mentioned date that it will be considered as a partnership at will.

Indian Partnership Act 1932

Most of the businesses in India adopt a partnership business, so to monitor and govern such partnership The Indian Partnership Act was established on the 1st October 1932. Under this partnership act, an agreement is made between two or more persons who agrees to operate the business together and distribute the profits they gain from this business.

Advantages of Partnership:

i)Easy Formation – An agreement can be made oral or printed as an agreement to enter as a partner and establish a firm.

ii)Large Resources – Unlike sole proprietor where every contribution is made by one person, in partnership, partners of the firm can contribute more capital and other resources as required.

iii)Flexibility – The partners can initiate any changes if they think it is required to meet the desired result or change circumstances.

iv)Sharing Risk – All loss incurred by the firm is equally distributed amongst each partner.

v)Combination of different skills – The partnership firm has the advantage of knowledge, skill, experience and talents of different partners.

Disadvantages of partnership:

1. Liabilities

In addition to sharing profits and assets, a partnership also entails sharing any business losses, as well as responsibility for any debts, even if they are incurred by the other partner. This can place a burden on your personal finances and assets. Basically, you may be responsible for decisions your partner makes in connection with the business. In looking at the advantages and disadvantages of a partnership, this may be one of the top issues to consider.

2. Loss of Autonomy

While you likely enjoy being in total control of your business, in a partnership, you would now share control with a partner and important decisions would be made jointly.

When you start exploring the advantages and disadvantages of a partnership, ask yourself this: Are you able to compromise and relinquish certain ways of doing business, if you have to? This may require a change in mindset, which may not be easily maintained over the long haul. If you've worked on your own for a long time and are used to being independent, you may find it stressful when you can't continue to do things your own way.

3. Emotional Conflict

A host of issues can surface that may make working with a partner difficult. For example, conflicts can arise from differences of opinion or from unequal effort put into the business. One partner may not pull his or her own weight. Relationships can sour. Don't discount the emotions in weighing the advantages and the disadvantages of a partnership.

But you may be able to prevent emotional problems by carefully choosing who you partner with, looking for someone who shares in your vision, who has values similar to yours, who has the same work ethic and where the chemistry is right. This can go a long way towards preventing unexpected problems.

4. Future Selling Complications

As circumstances change in the future, you or your partner may wish to sell the business. This could present difficulties if one of the partners isn't interested in selling.

You can deal with such an eventuality by including an exit strategy in the partnership agreement. For example, you may include "a right of first refusal" should your partner decide to sell his or her interest in the business to a third party. This ensures that you retain the right to accept the offer, thus preventing a stranger from joining the business. An exit strategy can address many other issues such as a partner's bankruptcy, disability or desire to move out of the country.

5. Lack of Stability

When balancing the advantages and disadvantages of a partnership, you also need to consider if you're able to cope with unpredictability. Even if you have a solid exit strategy in your partnership agreement, the change triggered by a partner's situation can cause instability in the business.

When balancing the advantages and disadvantages of a partnership, you also need to consider if you're able to cope with unpredictability. Even if you have a solid exit strategy in your partnership agreement, the change triggered by a partner's situation can cause instability in the business.

Types of partner:

1)Active/Managing Partner:

An active partner mainly takes part in the day-to-day running of the business and also takes active participation in the conduct and management of the business firm. He carries the daily business activities on behalf of other partners. He may act in different capacities such as manager, advisor, organiser and controller of affairs of the firm. To be precise, he acts as an agent of all the other partners in order to run main functions pertaining to business. Furthermore, subject to the clause in the partnership deed, the active partner can withdraw remuneration from the firm.

2) Sleeping Partner

A sleeping partner is also known as a “dormant partner”. This partner does not participate in the day-to-day functioning activities of the partnership firm. A person who has sufficient money or interest in the firm, but cannot devote his time to the business, can act as a sleeping partner in the firm. However, he is bound by all the acts of the other partners.

3)Nominal Partner

A nominal partner does not have any real or significant interest in the partnership firm. In simple words, he is only lending his name to the firm and does not have a voice in the management of the firm. On the strength of his name, the firm can promote its sales in the market or can get more credit from the market.

For example: A partnership is executed between the partner and the celebrity or a business tycoon for the sake of value addition to the firm and also for promoting branding by using the person’s fame and goodwill.

This partner does not share any profit and losses in the firm because he does not contribute any capital to the firm. However, it is pertinent to note that a nominal partner is liable to the outsiders and third parties for the acts done by other partners.

4) Partner by Estoppel

A partner by estoppel is a partner who displays by his words, actions or conduct that he is the partner of the firm. In simple words, even though he is not the partner in the firm but he has represented himself in such a manner which depicts that he has become a partner by estoppel or partner by holding out. It is pertinent to note that, though he does contribute in capital or management of the firm but on the basis of his representation in the firm he is liable for the credits and loans obtained by the firm.

There are two essential conditions of establishing a ‘holding out’:

1.Firstly, the person who is held out must have made a representation of words, actions or conduct that he is a partner in the firm.

2.Secondly, the other party must substantially prove that he had knowledge of such representation and he acted on it.

5) Partner in Profits only

This partner of a firm will only share the profits of the firm and won’t be liable for any losses of the firm. Moreover, if a partner who is in “partner in profits only” deals with any of the third parties or outsiders then he will be liable for the acts of profit only and not any of the liability. He is not allowed to take part in management of the firm. Such kinds of partners are associated with the firm for their goodwill and money.

6) Minor Partner

A minor is a person who is yet to attain the age of majority in the law of the land. According to Section 3 of the Indian Majority Act, 1875 a person is deemed to have attained the age of majority when he attains 18 years of age. However, a minor can also be appointed to claim the benefits of the Partnership.

A minor person after attaining the age of majority (i.e. 18 years of age) needs to decide within 6 months if he is willing to become a partner for the firm. If at all a minor partner decides to continue as a partner or wishes to retire, in both the cases he needs to make such a declaration by a public notice.

7) Secret Partner

In a partnership, the position of secret partner lies between the active and sleeping partner. The membership of the firm of a secret partner is kept secret from the outsiders and third parties. His liability is unlimited since he holds a share in profit and shares liabilities for losses in the business. He can even take part in working for the business

8) Outgoing partner

An outgoing partner is a partner who voluntarily retires without dissolving the firm. He leaves the existing firm, therefore he is called as an outgoing or retiring partner. Such a partner is liable for all his debts and obligations incurred before his retirement. However, he can be held liable for his future obligations, if at all he fails to give a public notice stating his retirement from the partnership firm.

9) Limited partner

A limited partner is a partner whose liability is only upto the extent of his contributions for the capital of the partnership firm.

10) Sub-Partner

A sub-partner is a partner who associates someone else in his share of the firm. He gives a part of his share to the person. It is pertinent to note that, the relationship is not between the sub-partner and the partnership firm but is between him and the partner. Therefore, a sub-partner is a non-entity of the firm and he does not hold any liability towards the firm.

Registration of Partnership firms.

Partnership registration means the registration of the partnership firm by its partners with the Registrar of Firms. The partners should register their firm with the Registrar of Firms of the state where the firm is located. Since partnership firm registration is not compulsory, the partners can apply for registration of the partnership firm either at the formation of the firm or subsequently at any time during its operation.

For partnership registration, the two or more people must come together as partners, agree on a firm name and enter into a partnership deed. However, partners cannot be members of a Hindu Undivided Family or husband and wife.

Contents of partnership deed

partners of a firm and it outlines the various terms and conditions of the partnership among the partners.

The contents of a partnership deed are as follows:

a) Name of the firm as determined by all the partners.

b)Name and details of all the partners of the firm.

c)The date on which business commenced.

d)Firm’s existence duration.

e)Amount of capital contributed by each partner.

f)Profit sharing ratio between the partners.

g)Duties, obligations and power of each partner of the firm.

h)The salary and commission (if applicable) that is payable to partners.

i)The process of admission or retirement of a partner.

j)The method used for calculating goodwill.

k)The procedure that must be followed in cases of dispute arising between partners.

l)Procedure for instances when a partner becomes insolvent.

m)Procedure for settlement of accounts in the event of dissolution of a firm.

Registration and Consequences of Non-registration:

Registration of Partnership Firm:

A partnership firm can be registered easily with the Registrar of Firms by enclosing the following details.

1.The name of the firm

2.The place where the principal business will be carried out.

3.Names of places where the firm would be opening the branches of business.

4.The name and address of the partners.

5.The date on which the business will be started.

6.Joining dates of various partners of the firm.

7.Time duration during which the partnership has been sustained.

8.Partnership deed with the signatures of the partners affixed appropriately.

The application must be submitted along with the above-stated information and the prescribed fee.

Consequences of Not Registering a Partnership Firm:

Although the Partnership Act, 1932, does not make the registration of partnership mandatory: https://www.mca.gov.in/MinistryV2/incorporation.html, the fact that it suggests the registration of partnership firm, should make one ponder about the ifs and buts of failing to do so. The Act subtly puts a persuasive pressure to register the partnership firms. Section 69 of the Act, lists out few disadvantages of not registering the firm. This section is quite elaborative and explanative and delineates the downsides of not having the firm registered. Perhaps the intention of the statute was to make it passively compulsive to register partnership firms.

Evaluation of partnership:-

Conducting partnership evaluation requires both staff and fiscal resources. Before planning such an evaluation, it is necessary to first identify funds in the program budget and staff who can lead the work. It is not unusual to dedicate 5-10% of a project budget to evaluation.

LESSON PLAN:-3

Corporate Organisations

Joint Stock Company

A joint stock company is an organisation which is owned jointly by all its shareholders. Here, all the stakeholders have a specific portion of stock owned, usually displayed as a share.

Each joint stock company share is transferable, and if the company is public, then its shares are marketed on registered stock exchanges. Private joint stock company shares can be transferred from one party to another party. However, the transfer is limited by agreement and family members.

Features of Joint Stock Company

1.Separate Legal Entity – A joint stock company is an individual legal entity, apart from the persons involved. It can own assets and can because it is an entity it can sue or can be sued. Whereas a partnership or a sole proprietor, it has no such legal existence apart from the person involved in it. So the members of the joint stock company are not liable to the company and are not dependent on each other for business activities.

2.Perpetual – Once a firm is born, it can only be dissolved by the functioning of law. So, company life is not affected even if its member keeps changing.

3.Number of Members – For a public limited company, there can be an unlimited number of members but minimum being seven. For a private limited company, only two members. In general, a partnership firm cannot have more than 10 members in one business.

4.Limited Liability – In this type of company, the liability of the company’s shareholders is limited. However, no member can liquidate the personal assets to pay the debts of a firm.

5.Transferable share – A company’s shareholder without consulting can transfer his shares to others. Whereas, in a partnership firm without any approval of other partners, a partner cannot move his share.

Advantages of Joint Stock Company:

1. Larger Capital- The huge capital required by modern enterprises would not be possible under other forms of organisations like sole individual proprietorship and even in partnership. The joint stock company by its widespread appeal to investors of all classes can raise adequate resources of capital required by large-scale enterprise.

2. Limited Liability- Liability of the shareholders of a company is limited to the face value of the shares they have purchased. It has a stimulating effect on investment. The private property of shareholder is not attachable to recover the dues of the company.

3. Stability of Existence- The organisation of a company as a separate legal entity gives it a character of permanence or continuity. As an incorporated body, a company enjoys perpetual existence.

4. Economies of Scale- Since the company operates on a large scale, it would result in the realisation of economies in purchases, management, distribution or selling. These economies would provide goods to the consumer at a cheaper price.

5. Scope for Expansion- As there is no restriction to the maximum number of members in a public company, expansion of business is easy by issuing new shares and debentures.

Disadvantages of Joint Stock Company:

1. Difficulty in formation- The legal formalities and procedures required in the formation of a company are many. It has to approach large number of people for its capital and it cannot commence business, unless it has obtained a certificate of incorporation and a certificate to commence business.

2. Lack of Secrecy- Every issue is discussed in the meeting of the board of directors. The minutes of meeting and accounts of the firm’s profit and loss etc., have to be published. In this situation maintenance of secrecy is difficult.

3. Delay in Decision Making- In company form of organisation, all important decisions are taken by the board of directors and shareholders in general meeting. Hence, decision making process is time consuming. Board of directors itself has often to be at the mercy of bureaucracy.

4. Concentration of Economic Power- The company form of organisation gives scope for concentration of economic power in a few hands. It gives easy scope for the formation of combinations which results in monopoly. Large joint stock companies tend to form themselves into combinations or associations exercising monopolistic power which may prove detrimental to other firms in the same line or to the consumers.

5. Lack of Personal Interest- In company form of organisation, the day-to-day management is vested with the salaried persons or executives who do not have any personal interest in the company. This may lead to reduced employee motivation and result in inefficiency.

Objectives of Company:-

General company objectives could be to increase profitability, boost productivity, improve customer service and customer experience, lower employee turnover, instill and uphold a positive corporate culture, or even reaching more of the right customers.

Stages of Formation of a Company:

Planning to start a new company. Know the different stages of formation of a company. Starting and registering a new company in India is a process of its own. It is indeed a complex procedure and has many legal formalities to it. Company formation can be roughly divided into four parts:

1.Promotion of the company:- This is the first step that is involved in the stages of formation of a company. We can say that promotion is the entire procedure by which a company is brought into existence. The plan to start a company is brought into reality by this step. business ideas are brought into the frame in this step. The promoter has a very important role at this stage. These are as under:

i)Promoter should not make secret profits out of the dealings of the company.

ii)Promoter must deposit with the company all money received on its behalf.

iii)Promoter exercise due diligence and care while performing the work of a promoter.

iv)Promoter will be personally responsible for all the preliminary contracts till all these are approved by the company.

v)Promote compensate any person who made investments in the company on the basis of untrue statements made by the promoter.

Types of promoter:

(a) Professional promoters- They promote the company in the initial stage and as soon as the company is incorporated and has a good position in the market the company would be handed over to its shareholders.

(b) Occasional promoters- As the name suggests are not very active in the promotion of the company. they might be promoters of a few other companies. they are only involved in the important affairs of the company.

(c) Financial promoters- Venture capitalists would invest money or capital into a venture and hold an important stake in the venture. They hold a strong power over the working of the company.

(d) Managing agents as promoters of the company- These promoters would float new companies in India. They would get managing agency rights in return.

2.Registration of the company:- This is the second step involved in the stages of formation of a company. By registration, the company comes into its existence. It is a very important factor that the company has to be registered under the Companies Act.

3.Certificate of incorporation:- The certificate of incorporation is issued when the Registrar of the company feels satisfied with the document filed in the step mentioned above. The certificate of incorporation is required to show that the company is incorporated according to the 2013 Companies act

4.Commencement of the business:- A private company can start its functioning once it receives the certificate of incorporation. but that is not the case with the public companies. for a public company to start doing its business, it needs a certificate of commencement of business. After a private company has received the certificate of incorporation, it can issue a prospectus by which the public can subscribe to its shares and raise the capital.

Incorporation of a company –

Incorporation is the way that a business is formally organized and officially brought into existence. The process of incorporation involves writing up a document known as the articles of incorporation and enumerating the firm's shareholders.

Steps of incorporation of company:-

The subsequent steps are concerned with the incorporation of a corporation.

1.Ascertaining Handiness of Name
The first step within the incorporation of an Associate in the company is to decide on an applicable name. A corporation is known through the name it registers. The name of the corporate is explicit within the memo of association of the corporate. The company’s name should finish with ‘Limited’ if it’s a public company and ‘Private Limited’ if it’s a non-public company.

To check whether or not the chosen name is accessible for adoption, the promoters ought to write Associate in application to the Registrar of corporations of the State. A five hundred rupee is paid with the applying. The Registrar then permits the corporate to adopt the name given they fulfill all legal documentation formalities at intervals an amount of 3 months.

2.Preparation of Memo of Association and Articles of Association-

The memo of association of a corporation will be cited as its constitution or rulebook. The memo states the sphere during which the corporate can do business, objectives of the corporate, yet because of the style of business the corporate plans to undertake. It’s divided into 5 clauses

i. Name Clause

ii. Registered workplace Clause

iii. Objects Clause

ix. Liability Clause

x. Capital Clause

Articles of Association are essentially a document that states rules that the inner management of the corporate can follow. The article creates a contract between the corporate and its members. The article mentions the rights, duties, and liabilities of the members. It’s equally binding on all the members of the corporate.

3.Printing, Linguistic Communication, and Stamping, Vetting of Memo and Articles

The Registrar of corporations usually helps promoters to draw up and draft the memo and articles of association. Above all, promoters haven’t any previous expertise in drafting the memo and articles. Once these are examined by the Registrar of corporations, then the memo of association and articles of association will be written. The memo and article are consequently divided into paragraphs and organized chronologically. The articles ought to be one by one signed by every subscriber or their representative within the presence of a witness; otherwise, it'll not be valid.

4.Power of Attorney

To fulfill the legal and complicated documentation formalities of incorporation of a corporation, the promoter could then use an Associate in a professional who can have the authority to act on behalf of the corporate and its promoters. The professional can have the authority to form changes within the memo and articles and different documents that are filed with the registrar.

5.Statutory Declaration

This declaration, moreover states that ‘All the necessities of the businesses Act and therefore the rules under that are compiled with respect of and matters precedent and incidental to that. A statutory declaration by any one of the subsequent persons stating that each one of the necessities of the Act relating to Registration are punctually complied with:

Associate in Advocate of the Supreme Court or state Supreme Court.

Associate in professional or attorney is entitled to seem before a state supreme court.

A controller is engaged in the information of the corporate and is additionally active in India.

Any person is called within the Articles of Association because of the Company’s Director, Manager, or Secretary.

6.Payment of Registration Fees

A prescribed fee is to be paid to the Registrar of corporations throughout incorporation. It depends on the nominal capital of the businesses that even have share capital.

7.Certificate of Incorporation

If the Registrar is totally glad that each one’s needs are consummated by the corporate that's being incorporated, then he can register the corporate and issue a certificate of incorporation. As a result, the incorporation certificate provided by the Registrar is definite proof that each one’s needs of the Act are met.

8.Capital Subscription Stage

A private company or a public company not having share capital will begin business at once on its incorporation. Capital Subscription Stage and Commencement of Business Stage are relevant solely within the case of a public company having a share capital. Such a corporation should suffer these 2 extra stages before it will begin its business.

The capital subscription stage deals with the task of getting the required capital for the corporate.

9.Certificate of Incorporation of the Company

After the higher than documents filed with the Registrar and therefore the prescribed fees paid. The Registrar can then issue a certificate referred to as Certificate of Incorporation and enter the name of the corporate within the Register unbroken in his workplace. This Certificate of Incorporation entitles the corporate to a legal person. In different words, the corporate is born upon the problem of a Certificate of Incorporation.

Memorandum of Association

The Memorandum of Association has to be signed by the owners of the company. In the case of a public company, a minimum of 7 people has to sign the Memorandum of Association . In the case of a private company, only two people have to sign it at a minimum.

Contents of MOA:

1. Name Clause: This clause states the company's proposed name.

i)It must end in the word "limited" if it's a public company or "private limited" if it's a private company.

ii)It can't be identical to any existing company's name.

iii)It can't allude to the new company doing the business of an existing company.

iv)It should not be misleading in any way.

2. Registered Office Clause: The registered office clause lists the name of the state where the company's registered office is physically located.

i)The registered office's physical location determines which jurisdiction the Registrar of Companies and which court the company would fall under.

ii)It also confirms the company's nationality.

iii)The registered office's full address must be provided to the Registrar of Companies to simplify further communications.

3. Objects or Objective Clause: The objects clause, also called the objective clause, is considered the most important in the MOA.

i)It defines and limits the scope of the company's operations.

ii)It details the company's scope of activity for the members and explains how the members' capital will be used.

iii)It protects shareholders funds and ensures the funds will be used for the specific business purposes for which they were raised and that they won't be risked in other endeavors.

4. Object Clause: The object clause explained why the company is establishing. Companies aren't legally allowed to do any kind of business other than the kind of business that is specifically stated in this clause. An object clause should contain:

i)A list of the main objects the company will be pursuing after it's Incorporated

ii)Incidental objects that are necessary to achieve the main object

iii)Any other objects that aren't included in the main objects or incidental object

iv)Nothing illegal

v)Nothing that's against the public interest

vi)Nothing that's against the country's general rule of law

5. Liability Clause: The liability clause explains what liability each of the company's members faces. If the company is limited by shares, the liability that each member faces can be no more than the face value of shares that he or she holds. If it's a company that's limited by guarantee, this clause must define how much liability each individual company member holds. If it's an unlimited company, this particular clause would not be included in the MOA.

6. Capital Clause: The capital clause lists information about the total capital held by the proposed company. This amount is called the company's authorized capital. Companies aren't permitted to collect more money than the amount listed under authorized capital. The way the capital is divided into equity share capital and preference share capital also needs to be listed in the capital clause. The number of shares the company puts in equity share capital and preference share capital, alongside their value, needs to be included in the MOA.

7. Association Clause: The association clause explains that any individual signing the bottom of the MOA wants to be part of the association that's being formed by the memorandum. The MOA has to be signed by at least seven people or more if it's a public company. It has to be signed by at least two or more people if it's a private company. The signatures also have to be affirmed by witnesses. There can be one witness for all of the signatures, but none of the subscribers can witness the signatures of the others. All subscribers and witnesses must provide their addresses and occupations in writing.

Articles of Association

It is also required to sign the Article of Association. Those who have signed the Memorandum of Association are required to sign the Articles of Association.

Contents of Articles of Association

i)Company Name: In an Article of Association, it is important the name of the company is present. This name should be distinguishable to establish the company as a legal entity. The name must include words to specify the type of company such as ‘Ltd.’ or ‘Inc.’.

ii)Purpose: Another essential component of this charter document is specifying the purpose. They need to elaborate on this purpose for stakeholders to understand what the company aims to achieve in the long term. It can be a general purpose statement or detailed information as per the rules of jurisdiction.

iii)Capital structure: It is also important to state the method used for organizing the capital structure. This represents the manner in which the company confers stakes in exchange for the support of stakeholders.

iv)Corporate governance: An Article of Association also mentions the rights and responsibilities of shareholders. The liability of different members in the company varies as per the jurisdiction. Their indemnity is outlined within the AOA. The rules are legally binding once set in writing. The document may also include the frequency of meetings, dispute resolution, quorums, voting, and participation.

Commencement of business

Steps of commencement of business:

Step 1: Define your goals

What is the purpose of the process? Why was it created? How will you know if it is successful?

Step 2: Plan and map your process

What are the strategies needed to achieve the goals? This is the broad roadmap for the process.

Step 3: Set actions and assign stakeholders

Identify the individual tasks your teams and machines need to do in order to execute the plan.

Step 4: Test the process
Run the process on a small scale to see how it performs. Observe any gaps and make adjustments.

Step 5: Implement the process

Start running the process in a live environment. Properly communicate and train all stakeholders.

Step 6: Monitor the results

Review the process and analyze its patterns. Document the process history.

Step 7: Repeat

If the process is able to achieve the goals set for it, replicate it for future processes

Certificate of Commencement of Business under Companies Act, 2013

A Public and Private Limited company having share capital cannot commence business until it has obtained the certificate of commencement of business (COB) from the concerned Registrar of Companies. Normally a new company will comply with the required formalities and obtain the certificate of commencement of business (COB) from the Registrar as soon as possible after formation because it cannot commence any business activities or exercise its borrowing powers without it.

Now under Section 11 of the Companies Act, 2013, a company cannot commence business or exercise any borrowing powers, unless

1.A declaration is filed by a director with the Registrar, to the effect that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration; and

2.The company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.

Prospectus

The prospectus is a legal document for market participants and investors to pursue, detailing the features, prospects, and promise of a financial product.

It is mandated by the law to be supplied to prospective customers.

Contents of Prospectus:

The prospectus contents are specified in the Companies Act. The prospectus must touch over the following content points:

1.Details of the company, such as name, registered office address, and objects

2.Details of signatories to the Memorandum and their shareholding particulars

3.Details of the directors

4.Details of shares offered and the class of the issue as well as voting rights

5.Minimum subscription amount

6.The amount payable on application, on allotment, and on further calls

7.Underwriters of the issue

8.Auditors of the company

9.Audited reports regarded profit and losses of the company

Classification of Companies according to mode of incorporation:

Classification of Companies according to mode of incorporation:

b) Statutory company: Statutory company is formed under a special Act passed by Parliament or by the State legislature. The powers of such a company are defined by the Act constituting it. This company is not required to have a Memorandum of Association and need not use the word ‘Limited’ against its name. The audit of such a company is to be conducted under the supervision of C& AG ( Comptroller and Auditor General of India). Examples: The Reserves bank of India, The Life Insurance Corporation of India

c) Registered or incorporated company: A company that is registered under the Companies Act is known as a Registered Company. Nowadays registered companies are most common in practice.

i)Liability of members: To make shares if he/she is allotted as per the Act. To pay call money or pay the due amount of shares. To abide by the decision of majority when they act 'bonafide'. To contribute to the Asset of the company in case of winding up and when the shares are partly paid up.

ii)Public interest: Public interest means that which is beneficial to the public as a whole, including but not limited to increasing competition among abstractors, encouraging the use of title guaranties throughout the state, making title guaranties more competitive than out-of-state title insurance, increasing the division’s market share, improving the quality of land titles, protecting consumers, and encouraging maximum participation by participating abstractors and participating attorneys physically located in all 99 counties.

iii)Ownership: Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different parties.

iv)Control: Control the power to influence or direct people's behaviour or the course of events.

v)Nationality: It a group of people who share the same history, traditions, and language, and who usually live together in a particular country

Public and private companies and their comparative studies:

Meaning of Private Company:

A privately-owned business isn’t similar to a public organisation. A privately owned business can’t exchange or trade its shares among the overall population or the general public. What’s more, the shares of privately owned businesses are not exchanged on open stock trades or public stock exchanges.

That doesn’t imply that privately owned businesses don’t have shares, and there’s none who can possess them. For privately-owned businesses, the shares are possessed or owned and secretly exchanged or traded by a couple of willing financial backers. A privately-owned business is run similarly to how a public organisation is run. The main distinction is on account of a privately owned business, the quantity of shares exchanged is generally more modest, and furthermore, the exchanged shares are claimed by restricted or limited people.

A public organisation can likewise change itself into a privately owned business with the assistance of a private equity firm.

Meaning of Public Company:

A public organisation can offer its own enrolled or registered securities to the overall population. After an IPO, an organisation turns into a public organisation. A public organisation can likewise be named a publicly-traded company.

A publicly-traded corporation implies that the organisation can exchange in public capital business or markets and can straightforwardly offer its shares to general society. According to the US Securities and Exchange Commission (SEC), in the event that an organisation has $10 million in resources and more than 500 supporters or subscribers, the organisation needs to enrol with SEC and must observe all the announcing guidelines and rules.

Privileges of private companies

A private company enjoys several exemptions and privileges under the Companies Act. Some of these privileges are given below:

1. Members:

A private company can be started by two persons only, whereas seven persons are required to start a public company.

2. Commencement of business:

A private company can commence business immediately after its incorporation. It is not required to obtain the certificate of commencement of Business.

3. Prospectus:

A private company is not required to issue or file a prospectus or statement in lieu of prospectus with the Registrar of Companies.

4. Statutory meeting:

A private company is not required to hold a statutory meeting or to file statutory report with the Registrar.

5. Directors:

A private company can have only two directors. It is exempted from restric-tions relating to the appointment, reappointment, retirement, and remuneration etc., of managerial personnel.

LESSON PLAN:-04

Public Sector Undertakings

Public sector, portion of the economy composed of all levels of government and government-controlled enterprises. It does not include private companies, voluntary organizations, and households.

The main characteristics of public sector undertakings are given below:

1. State Ownership:

Public undertakings are fully owned by the Government or some public authority. For example, Reserve Bank of India is owned by the Central Govern-ment while Delhi Transport Corporation is owned by the Government of Delhi State.

2. Government Control:

The ultimate control of a public sector undertaking lies with the Government.

3. Service Motive:

The primary objective of a public sector undertaking is to render service to the public at large. In order to serve the public, it may even incur loss. For example, the Food Corporation of India provides food grains to the public at subsidised prices.

4. State Financing:

The Government provides the capital and funds through appropria¬tions from its budget. The government may also provide loans from time to time from the State exchequer.

5. Bureaucratic Management:

The management of public sector undertakings is bureau¬cratic in the sense that their operations are governed by certain rules and regulations prescribed by the Government.

Objectives of Setting up Public Sector Unit (PSU)

1.To create an industrial base in the country

2.To generate a better quality of employment

3.To develop basic infrastructure in the country

4.To provide resources to the government

5.To promote exports and reduce imports

6.To reduce inequalities and accelerate the economic growth and development of a country.

Role of Public Sector in the Upliftment of Society

The public sector plays a major role in uplifting the economic condition of society in various ways.

The major role of the Public sector can be explained below:

Public sector & capital formation – This sector has been a major reason for the generation of capital in the Indian economy. A large amount of the capital comes from the Public sector Units in India

Creation of Employment opportunities – Public sector has brought about a major change in the employment sector in the country. They provide a lot of opportunities under various domains and thus helps in uplifting the Indian economy and society.

Development of Different Regions – The establishment of major factories and plants has boosted the socio-economic development of different regions across the country. Inhabitants of the region are impacted positively concerning the availability of facilities like electricity, water supply, township, etc.

Upliftment of Research and Development – Public sector units have been investing a lot to introduce advanced technology, automated equipment, and instruments. This investment would result in the overall cost of production.

Forms of public sector undertakings:

Departmental Undertakings: Departmental Undertakings are the common and more established form of establishing public enterprises. These enterprises are formed, operated, and part of the department of the ministry.

Features of Departmental Undertaking

The features of Departmental Undertaking are as follows:

Finance: These firms are funded directly by the Government Treasury through a yearly appropriation from the Government’s budget. The revenue generated by these is also paid into the treasury.

Accounting and Audit: The departmental undertaking is subject to the standard budgeting, accounting, and audit processes that apply to Government departments.

Appointment of Employees: The employees of the enterprise are Government servants, with the same recruitment and service conditions as other employees have under the Government. The appointments are made through Union Public Service Commission(UPSC) and Staff Selection Board(SSB). They are led by Indian Administrative Service (IAS) officials and civil servants who are transferable from ministry to ministry.

Formation: It is often regarded as a crucial subdivision of the government department, and is directly controlled by the ministry.

Minister Responsibility: The ultimate responsibility for the management of a departmental initiative rests with the minister in charge, who is accountable to the Parliament for the department’s affairs. In turn, the minister delegates his power to different other management levels in the departmental undertaking. They are responsible to the ministry since their management reports directly to the relevant ministry.

Merits of Departmental Undertaking

Complete Government Control: Government has complete control over departmental undertakings, as it completely owned, managed and controlled by a government ministry. Effective control is exercised over the operations by Parliament.

Fair Practices: These ensure a high degree of transparency because departmental enterprises are directly controlled by Parliament, and there are less possibilities for fraudulent and unfair actions.

Revenue: The revenue generated by the firm is immediately deposited into the treasury, and so serves as a source of income for the government.

Suitable for National Security: In regards to national security, this form is best suited since it is directly under the control and supervision of the relevant Ministry. Government departments can maintain secrets since they are directly under the jurisdiction of the relevant ministry. This is extremely important in terms of national security.

Strict audit control: The risk of misuse of public funds is further reduced because they are subject to strict accounting and audit standards. This format was preferred for operations that yielded money for the government, such as ordinance factories. Because their budgets are heavily subsidised by the state, most non-profit earning public utility services are similarly organised as departmental enterprises.

Demerits of Departmental Undertaking

Inflexibility of Operation: Departmental undertakings fail to provide the flexibility required for the successful functioning of business because departmental management suffers from operational rigidity. It becomes difficult to bring about fundamental changes, reformation, and innovation that are required from time to time.

Delay in Decision Making: Employees or heads of departments in such companies are not permitted to make independent decisions without the permission of the relevant ministry. This causes delays in situations where prompt decisions are necessary.

Bureaucracy and Conservative Approach: These enterprises are unable to take benefits of business opportunities, as they are not allowed to take risky ventures because of bureaucrats’ overly cautious and conservative approach.

Red Tapism: Centralization in departmental undertakings causes delays in decision-making. Decisions are also delayed as a result of red tape and strict adherence to rules and regulations. In day-to-day operations, there is red tapism, and no action can be taken until it passes through the correct channels of authority.

Undue Government Interference: There is lot of government interference. They had to take approval at every step. There is also political interference through ministry.

Insensitivity to Consumer’s Needs: Departmental officials rarely care about this important aspect of business and are typically insensitive to the interests of consumers. These organisations are frequently insensitive to customers ’ demands and fail to deliver adequate services.

Public Corporations: A public corporation is that form of public enterprise which is created as an autonomous unit, by a special Act of the Parliament or the State Legislature.

Since a public corporation is created by a Statute; it is also known as a statutory co.

Features of Public Corporation

Various features of public corporation are as discussed in points below:

Special Statute: The public corporations are formed by a special act of parliament or state legislature. Such act clearly defines the power, objectives, privileges, functions, management structure and relationship with government.

Separate legal entity: These public enterprises have a separate legal entity with perpetual succession and common seal. It is treated as an artificial person in eyes of law having existence which is independent of government. Public corporation can buy, hold or sell properties in its own name.

Funded by the government: Public corporation generally get its capital from government. Various financial institutions and agencies linked to government also contributes to capital of public corporation. However, the shares of such corporations cannot be purchased by individual investors.

Enjoys financial autonomy: These public enterprises have financial autonomy under which they themselves create their budget and have power to retain their earnings. Public corporations do not have any regulatory and prohibitory statutes which are applicable on utilization of public funds.

Managed by board of directors: The management of these corporations is in the hands of board of directors. These directors are nominated or appointed by the Government with no interference in day-to-day functioning of these corporations. They are expected to work efficiently on sound commercial principles which means that they can make profits but not at the consumer’s expense.

The merits of public corporation are well-explained as given below: –

Effective form of organization: Public corporation is one of the effective forms of business organization. It has a freedom like private organizations with power of government in hand. It follows middle course in between departmental organizations on one hand and privately owned companies on another hand.

Flexible in nature: These public enterprises enjoy full autonomy in taking decisions and managing its affairs. They are not under any rigid and persistent control of government. Pubic corporations can deal with its affairs with better flexibility and take initiates on their own.

Bold management: Public corporation have a bold system of management as it enjoys full autonomy with regard to its internal autonomy. It is not influence by government unlike other type of businesses and can take important decisions in a speedy manner.

Legislative council: The affairs of public corporation are scrutinized by committee of state legislature and parliament. Working of these enterprises are under watch of press. It enables in keeping a check over any malpractices within the corporation arising on part of management.

Free from red tapism: The statutory corporation are free from evils of red tapism like in case of departmental organization. Board of directors hold all power to take important decisions in a quick manner. Also, policies can be changes from time to time as per the business changes enabling to take prompt actions.

Not affected by political changes: These public bodies operate as a distinct legal entity and are not influenced much by political variations. They are able to maintain a consistency in their policies and operations.

The public corporations also suffer from many limitations which are as follows: –

Have limited autonomy: Public corporations have limited autonomy and flexibility in reality. Their autonomy is limited to some extent. In practice, public corporations are interfered a lot in their workings by government officers, ministers and other politicians.

Misuse of monopolistic power: These corporations may misuse the monopolistic power available to them with regard to their field of operations. Although they are indifferent to needs and issues of customers, yet they don’t hesitate in exploiting consumers.

Labor issues: Public corporations faces more difficulties in bridging the gap in between the labor and management. There are frequent demands for abnormal increase in wages by staff even if the corporation is operating at losses. These all losses are paid out of the funds of government.

Rigid constitution: Public corporation has a very rigid constitution which can be changed only by amending the statute of its formation. This reduces the flexibility of these corporations in doing its operations.

Clash of divergent interests: There may be conflicts among representatives of different groups in corporation’s board of directors. These clashes influence the efficient functioning of corporation and may hamper its growth.

Problem in passing a special act: A special act which need to be passed for creation of public corporation is a time consuming and quite difficult process. The scope of establishing these corporations is very restricted.

Government Companies: A government company is a company in which the Government or State Government holds 51% or more of the paid-up capital. Government Company, also called Public Enterprise, State Enterprise. It works as other companies registered under the Companies Act.

Features of Government Company

1. Separate Legal Entity: A Government Company has a separate legal entity independent of the Government. It means that the company can acquire property, enter into a contract, can sue another company by filing a suit against them in a court of law, or can be sued by other companies.

2. Incorporation: A Government Company is registered under the Companies Act, 2013 or any previous Company Law, and is governed by its provisions. It is formed by an executive decision, instead of a legislative decision.

3. Management: The Government nominates the Board of Directors who manage the company and its activities. Also, like any other Public Limited Company, a Government Company’s management is regulated by the provisions of the Companies Act, 2013.

4. Governed by Provisions of Memorandum and Articles of Association: The main documents of a Government Company includes the Memorandum of Association and Articles of Association. These documents contain information like rules and regulations of the company related to the appointment of employees, objects of the company, etc.

5. Accounting and Audit Procedures: Unlike Departmental Undertakings, a Government Company is free from audit, budgetary, and accounting controls. However, the auditor appointed by the Central Government has to present an Annual Report in front of the State Legislature or Parliament.

Merits of Government Company

Easy Formation: A Government Company can be easily established by just fulfilling the requirements of the Indian Companies Act. It means that one does not have to acquire separate legislation from the Parliament for the formation of a Government Company.

Operational Autonomy: There is no bureaucratic control and political interference of the Government in the management of the Government Company; therefore, a Government Company takes actions according to their own judgement and can manage its activities independently.

Independent Status: As a Government Company has a separate legal entity, independent of the Government, it can perform its activities just like any other Private Company.

Prevents Unhealthy Business Practices: As a Government Company exercises major control of Government on its management, the goods offered by these companies are of good quality and are sold at reasonable prices. This merit of a Government Company helps in controlling the market and reducing unhealthy business practices.

Demerits of Government Company

Freedom only in name: As at least 51% of the shares of a Government Company are held by the Government, therefore the control over the affairs of the company by the Government is more. Besides, the provisions of the Companies Act, 2013 do not have much relevance in this case.

2. Lack of Accountability: As the major part of the capital of a Government Company is financed by the Government, it should be held accountable to the Government only. However, because of the ineffective control of the Government, a Government Company is not directly answerable to the Parliament.

3. Defeats the main Purpose: Government exercises major control over the functions and management of a Government Company, as it is a major shareholder of the company. However, this feature of the Government Company defeats the whole purpose of registering and establishing it under the Companies Act.

Characteristics of public sector undertakings:-

The main characteristics of public sector undertakings are given below:

State Ownership:

Public undertakings are fully owned by the Government or some public authority. For example, Reserve Bank of India is owned by the Central Govern-ment while Delhi Transport Corporation is owned by the Government of Delhi State.

2. Government Control:

The ultimate control of a public sector undertaking lies with the Government.

3. Service Motive:

The primary objective of a public sector undertaking is to render service to the public at large. In order to serve the public, it may even incur loss. For example, the Food Corporation of India provides food grains to the public at subsidised prices.

State Financing:

The Government provides the capital and funds through appropria¬tions from its budget. The government may also provide loans from time to time from the State exchequer.

Bureaucratic Management:

The management of public sector undertakings is bureau¬cratic in the sense that their operations are governed by certain rules and regulations prescribed by the Government.

Objectives of public Sector undertaking:

To create an industrial base in the country.

To generate a better quality of employment.

To develop basic infrastructure in the country.

To provide resources to the government.

To promote exports and reduce imports.

Role of Public Sector Undertakings:

The major role of the Public sector can be explained below:

Role of Public Sector Undertakings:

The major role of the Public sector can be explained below:

Public sector & capital formation – This sector has been a major reason for the generation of capital in the Indian economy. A large amount of the capital comes from the Public sector Units in India

Creation of Employment opportunities – Public sector has brought about a major change in the employment sector in the country. They provide a lot of opportunities under various domains and thus helps in uplifting the Indian economy and society.

Development of Different Regions – The establishment of major factories and plants has boosted the socio-economic development of different regions across the country. Inhabitants of the region are impacted positively concerning the availability of facilities like electricity, water supply, township, etc.

Upliftment of Research and Development – Public sector units have been investing a lot to introduce advanced technology, automated equipment, and instruments. This investment would result in the overall cost of production.

Public Private Partnerships:

Public-private partnership (PPP) is a model where the government associates with private companies to accomplish infrastructure projects. This alliance between both the parties, ensure financing, designing, flourishing and maintaining of the infrastructural amenities within the country.

Features of Public-Private Partnership

To understand the PPP concept, we must know its fundamental characteristics. Some of these are discussed in detail below:

Service-Oriented: The PPP approach deals with the facilitation of long-term public services. It includes roads for transportation, dams for electricity and water supply and street lights for lighting.

Whole Life Costing: In the PPP model, the project’s total cost is computed at once for its entire life span. Thus, taking into consideration the initial capital expenditure, repair and maintenance expenses, modification expense and the eventual disposition cost.

Innovation: With the involvement of the private firms, the PPP approach also initiates the implications of creativity and new technology to the infrastructure projects.

Participants: The two parties involved in the public-private alliance are; the government and the respective private company.

Risk Allocation: Infrastructure projects involve high risk; thus, PPP helps the government to transfer this risk to private firms.

Long-term Relationship: These projects are usually for years; therefore, the government authority and the private entity remains associated for an extended period.

Co-operative organizations

A cooperative organisation is an association of persons, usually of limited means, who have vol¬untarily joined together to achieve a common eco¬nomic end through the formation of a democrati¬cally controlled organisation, making equitable dis¬tributions to the capital required, and accepting a fair share of risk and benefits of the undertaking.

Characteristics of Cooperative Organisation:

The following are the characteristic features of a cooperative organisation as a form of business organisation:

1. Voluntary Association:

A cooperative so¬ciety is a voluntary association of persons and not of capital. Any person can join a cooperative soci¬ety of his free will and can leave it at any time. When he leaves, he can withdraw his capital from the so¬ciety. He cannot transfer his share to another person.

2. Spirit of Cooperation:

The spirit of coop¬eration works under the motto, ‘each for all and all for each.’ This means that every member of a co¬operative organisation shall work in the general interest of the organisation as a whole and not for his self-interest. Under cooperation, service is of supreme importance and self-interest is of second¬ary importance.

3. Democratic Management:

An individual member is considered not as a capitalist but as a human being and under cooperation, economic equality is fully ensured by a general rule—one man one vote. Whether one contributes 50 rupees or 100 rupees as share capital, all enjoy equal rights and equal duties. A person having only one share can even become the president of cooperative society.

4. Capital:

Capital of a cooperative society is raised from members through share capital. Coop¬eratives are formed by relatively poorer sections of society; share capital is usually very limited. Since it is a part of govt. policy to encourage coopera-tives, a cooperative society can increase its capital by taking loans from the State and Central Coop¬erative Banks.

5. Fixed Return on Capital:

In a cooperative organisation, we do not have the dividend hunting element. In a consumers’ cooperative store, return on capital is fixed and it is usually not more than 12 p.c. per annum. The surplus profits are distrib¬uted in the form of bonus but it is directly connected with the amount of purchases by the member in one year.

6. Cash Sale:

In a cooperative organisation “cash and carry system” is a universal feature. In the absence of adequate capital, grant of credit is not possible. Cash sales also avoided risk of loss due to bad debts and it could also encourage the habit of thrift among the members.

Types of Cooperatives:

Cooperatives may be formed in all walks of life. Some of them are concerned with the moral and social uplift of a weak section of the people, while many of them combine some business activ¬ity with service to members

The principal types of business cooperatives are:

1. Cooperative Credit Societies:

Cooperative Credit Societies are voluntary associations of peo¬ple with moderate means formed with the object of extending short-term financial accommodation to them and developing the habit of thrift among them.

Germany is the birth place of credit coopera¬tion. Credit cooperation was born in the middle of the 19th century. Rural credit cooperative societies were started in the villages to solve the problem of agricultural finance.

2. Consumers’ Cooperative Societies:

28 Rochedale Pioneers in Manchester in UK laid the foundation for the Consumers’ Cooperative Move¬ment in 1844 and paved the way for a peaceful revo¬lution. The Rochedale Pioneers who were mainly weavers, set an example by collective purchasing and distribution of consumer goods at bazar rates and for cash price and by declaration of bonus at the end of the year on the purchase made.

3. Producers’ Cooperatives:

Producers’ Cooperatives, also known as indus¬trial cooperatives, are voluntary associations of small producers formed with the object of elimi¬nating the capitalist class from the system of in¬dustrial production. These societies produce goods for meeting the requirements of consumers. Some¬times their production may be sold to outsiders at a profit

4. Housing Cooperatives:

Housing coopera¬tives are formed by persons who are interested in making houses of their own. Such societies are formed mostly in urban areas. Through these soci¬eties persons who want to have their own houses secure financial assistance.

5. Cooperative Farming Societies:

The coop¬erative farming societies are basically agricultural cooperatives formed for the purpose of achieving the benefits of large scale farming and maximizing agricultural output. Such societies are encouraged in India to overcome the difficulties of subdivision and fragmentation of holdings in the country.

Advantages:

The cooperative form of organization offers the following advantages:

1. Easy to Form- A cooperative society is a voluntary association and may be formed with a minimum of ten adult members. Its registration is very simple and can be done without much legal formalities.

2. Open Membership- Membership in a cooperative organisation is open to all people having a common interest. A person can become a member at any time he likes and can leave the society at any time by returning his shares, without affecting its continuity.

3. Democratic Management- A cooperative society is managed in a democratic manner. It is based on the principle of ‘one man one vote’. All members have equal rights and can have a voice in its management.

4. Limited Liability- The liability of the members of a co-operative society is limited to the extent of capital contributed by them. They do not have to bear personal liability for the debts of the society.

5. Stability- A co-operative society has a separate legal existence. It is not affected by the death, insolvency, lunacy or permanent incapacity of any of its members. It has a fairly stable life and continues to exist for a long period.

6. Economical Operations- The operation of a cooperative society is quite economical due to elimination of middlemen and the voluntary services provided by its members.

Disadvantages of a Cooperative Society:

The disadvantages of a cooperative society have been defined below:

1. Limited Resources-The financial strength of cooperative societies is low due to limited supply of capital. The membership fee is less as most members belong to middle and low income groups. The face value of shares is also very nominal. In addition, the loan raising capacity from state cooperative banks is also limited. Thus, cooperative societies are incapable of striving for expansion due to shortage of funds.

2. Incapable Management-The managerial board of a cooperative society is elected by the members. These members may not possess adequate qualifications and skills to run a business organisation efficiently. This can prove to be a major drawback for the success of the cooperative society.

3. Lack of Motivation:

Honorary office bearers of the society may lack enthusiasm to perform their office duties as they get little or no incentive to work hard. Due to absence of link between efforts and material rewards, the members may lack the zest to serve the organisation to the best of their abilities. The results of such negatives are bound to show up in the functioning of the cooperative society.

4. Rigid Business Practices:

Cooperative societies follow conventional modes of sale. They cannot embrace new-age selling methods such as credit sale, home delivery, discount sales, etc. Therefore, their rigid business techniques fail them in competing with private business establishments.

5. Limited Consideration:

The cooperative societies are established for the purpose of serving their members. Profits earned by them are very low. As a result, the low return on investment is a factor which demotivates people from becoming the member of these enterprises.

6. High Interest Rate:

The cooperative societies enjoy the privilege of credit options from banks. Yet, the high rate of interest eats away a big chunk of their earnings. Thus, they are unable to save much as a large part of their income is spent on paying the high interest and principle amount to the financial institutions.

LESSON PLAN:-05

Concept and need for social responsibility.

Social Responsibility

i)Social responsibility is an ethical paradigm that implies that an entity, whether an organization or an individual, has a responsibility to behave in the best interests of society as a whole. Every individual has a responsibility to fulfil in order to maintain a balance between the economy and the ecosystems.

ii)Social responsibility encompasses more than a company's legal obligations. Compliance with the law may be sufficient to discharge legal responsibility

iii)But social responsibility entails a lot more. It is a company's recognition of social obligations that are not covered by legislation, as well as legal requirements.

iv)To put it another way, social responsibility entails a voluntary activity on the part of business people for the good of society.

Need for Social Responsibility

1) Improving Company’s Brand Image

Being socially responsible is of utmost importance to build company's image and brand.

By portraying a positive image, a firm can build a name for itself for not only being financially profitable, but socially responsible as well.

2. Engaging Customers

A company's social responsibility policy may impact customers' purchasing decisions.

Some buyers may pay a greater price for a product if they know a portion of the profit will be donated to a worthwhile cause.

3. Retaining Top Talent

Many employees desire to be a part of something bigger than themselves.

Employees with a sense of social responsibility can use the tools available to them at work to help others.

4. Helping Company Stand Out of Competition

Companies that are involved in the community set themselves apart from the competitors.

Improving the brand's image by cultivating relationships with customers and their communities.

Responsibility Towards Employees:

No Enterprise can succeed without the whole-hearted cooperation of the employees. Responsibility of business towards employees is in the form of training, promotion, proper selection, fair wages, safety, health, worker’s education, comfortable working conditions, participation management etc.

The employees should be taken into confidence while taking decisions affecting their interests. The workers should be offered incentives for raising their performance. Mental, physical, economic and cultural satisfaction of employees should be taken care of. If business looks after the welfare of employees then they will also work whole heartedly for the prosperity of business.

The committee that conducted ‘social audit’ of TISCO (Tata Iron and Steel Company) observes, “not only should the company carry out its various obligations to the employees as well as the larger community as a matter of principle, but this has also led to a higher degree of efficiency in TISCO works and an unparalleled performance in industrial peace and considerable team spirit and discipline which have all resulted in high productivity and utilisation of capacity.”Thus, by discharging its responsibility to employees the business advances its own interests.

‘TATAS’ have been the first to enforce certain laws in favour of employees. Similarly Godrej & Boyce, Shriram Industries and TVS groups are also good employers. Financial position of company and economic conditions of nation should be taken into consideration while spending on labour welfare during performance of responsibility towards employees.

Responsibility Towards Owners:

Business is accountable towards owners as well as managing business profitably, ensuring fair and regular return on capital employed, consolidating financial position of business, guaranteeing capital appreciation so as to enable the owners to withstand any business contingencies.

Responsibilities towards investors:

(1) Proper conduct of meetings : Whenever need arises, a company should call and organise meetings of investors to provide information about the business. Prior to meeting, proper notice and agenda should be sent well in advance. During the period of financial crisis, investors should be convinced and taken into confidence. Reasons for failure should be explained to the investors to gain their confidence.

(2) Return on Investment : Investors invest their money in the company by accepting risk. They are entitled by get fair returns on their investment at regular interval in the form of interest. Investors expect the following from the business organisations : (a) fair returns on their investment, (b) safety of their investment and (c) steady and gradual appreciation of the business.

Responsibility towards Consumers:

(i) Product:

Quality goods should be produced and supplied. Distribution system should make goods easily available to avoid artificial scarcities and after sales service should be prompt. Buying capacity and consumer preferences should be taken into consideration while deciding the manufacturing policies. The care must be exercised in supplying the goods of quality which has no adverse effect on the health of consumers.

(ii) Marketing:

To avoid being misled by wrong claims about products through improper advertisements or otherwise, the consumer should be provided full information about the products including their adverse effects, risks and care to be taken while using the products.

Consumers all over the world are, by and large, dissatisfied because the performance of businessman is far from satisfactory. Consumer is not the king in our country but a vehicle used by businessmen for driving towards the goal of profit maximisation.

As a result of which the concept of ‘consumerism’ has come up to protect the rights of consumers. Even the government is interfering in a big way to protect the interests of consumers.

Responsibility towards Government:

A number of legislatives are formed from time to time by the government for proper regulation and control of business. Businessmen should comply with all legal requirements, execute government contracts, pay taxes honestly and in time, make services of executives available for government, suggest measures and send proposals to enact new laws for the business.

A number of taxes are imposed on business for collecting revenue. Businessmen should pay various taxes in time and help government in collecting funds. They should not resort to tax evasions rather declare their incomes honestly and correctly.

But series of raids conducted on business houses clearly show that businessmen have failed to discharge their responsibility towards government.

Responsibility towards Community:

Responsibility of business towards community and society includes spending a part of profits towards civic and educational facilities. Every industrial undertaking should take steps to dispose of Industrial wastes in such a way that ecological balance is maintained and environmental pollution is prevented.

Rehabilitating the population displaced by business units should also De part of responsibly of business? Business houses should set up units at those places where sufficient space is available for housing colonies of workers. The promotion of small scale industries will help not only nation but will also help in building up a better society.

Responsibility towards Environment:

Business should protect the environment which has acquired great importance all over the world. Business can discharge the responsibility of protecting environment in following way:

(i) Preservation of Natural Resources:
Scarce natural resources should be used very carefully as these are depleting at a very fast rate. The alternative sources can also be found out to save natural resources like to save forests alternative to wood and pulp can be found, the use of coal can be reduced by alternative source of energy.

(ii) Pollution Control:

Appropriate steps should be taken to prevent environmental pollution and to preserve ecological balance. The industrial waste should be disposed off carefully or if possible can be recycled to minimise pollution. The toxic wastes, excessive noise, chemical pesticides, automobile exhaust etc. need to be checked from time to time.

Meaning and Importance of Business Ethics

The term ‘Business Ethics’ refers to the system of moral principles and rules of the conduct applied to business. Business being a social organ shall not be conducted in a way detrimental to the interests of the society and the business sector itself. Every profession or group frames certain do’s and do not’s for its members. The members are given a standard in which they are supposed to operate. These standards are influenced by the prevailing economic and social situations. The codes of conduct are periodically reviewed to suit the changing circumstances.

Importance of Business ethics

1. Corresponds to Basic Human Needs:

The basic need of every human being is that they want to be a part of the organisation which they can respect and be proud of, because they perceive it to be ethical. Everybody likes to be associated with an organisation which the society respects as a honest and socially responsible organisation. The HR managers have to fulfill this basic need of the employees as well as their own basic need that they want to direct an ethical organisation. The basic needs of the employees as well as the managers compel the organizations to be ethically oriented.

2. Credibility in the Public:

Ethical values of an organisation create credibility in the public eye. People will like to buy the product of a company if they believe that the company is honest and is offering value for money. The public issues of such companies are bound to be a success. Because of this reason only the cola companies are spending huge sums of money on the advertisements now-a-days to convince the public that their products are safe and free from pesticides of any kind.

3. Credibility with the Employees:

When employees are convinced of the ethical values of the organisation they are working for, they hold the organisation in high esteem. It creates common goals, values and language. The HR manager will have credibility with the employees just because the organisation has creditability in the eyes of the public. Perceived social uprightness and moral values can win the employees more than any other incentive plans.

4. Better Decision Making:

Respect for ethics will force a management to take various economic, social and ethical aspects into consideration while taking the decisions. Decision making will be better if the decisions are in the interest of the public, employees and company’s own long term good.

5. Profitability:

Being ethical does not mean not making any profits. Every organisation has a responsibility towards itself also i.e., to earn profits. Ethical companies are bound to be successful and more profitable in the long run though in the short run they can lose money.

6. Protection of Society:

Ethics can protect the society in a better way than even the legal system of the country. Where law fails, ethics always succeed. The government cannot regulate all the activities that are harmful to the society. A HR manager, who is ethically sound, can reach out to agitated employees, more effectively than the police.

LESSON PLAN:-06

E-Business

E-business refers to the buying and selling of goods and services through the internet along with conducting other important business functions over the internet. E-business is a broader term than e-commerce.

E-business includes the management functions of planning, organising, marketing and production conducted electronically. The other functions that are covered under e-business include inventory management, product development, human resource management and accounting and finance.

E-business scope can be explained with the following four directions.

i)B2B Commerce: In B2B Commerce, the two parties involved in business transactions are both business firms. For example in the manufacturing of automobiles, there is a requirement for a lot of components and these components can be provided by an organisation that is an ancillary of the automobile industry.

ii)B2C Commerce: B2C commerce implies that the interaction occurs between the business owner and customer. In this type of commerce, the goods and services provided by the business is directly consumed by the consumer

iii)C2C Commerce: This type of business originates from the customers and the end point of the business is customers only. This type of business is suitable for dealing with products or goods where there is no market mechanism involved.

iv)Intra B-Commerce: This type of business occurs within the organisation, where the requirement for a product is met within the divisions of the organisation.

There are actually innumerable advantages of e-Business, the most obvious one being the ease of doing business. Some of the major advantages of e-business are as follows :

i)Easy to Set Up: It is easy to set up an electronic business. You can set up an online business even by sitting at home if you have the required software, a device, and the internet.

ii)Cheaper than Traditional Business: Electronic business is much cheaper than traditional business. The cost taken to set up an e-business is much higher than the cost required to set up a traditional business. Also, the transaction cost is effectively less.

iii)No Geographical Boundaries: There are no geographical boundaries for e-business. Anyone can order anything from anywhere at any time. This is one of the benefits of e-business.

iv)Government Subsidies: Online businesses get benefits from the government as the government is trying to promote digitalization.

v)Flexible Business Hours: Since the internet is always available. E-business breaks down the time barriers that location-based businesses encounter. As long as someone has an Internet connection, you may be able to reach and sell your product or service to these visitors to your business website.

Successful implementation of e-business requires certain resources. The various resources required for the successful implementation-of e-business are:

1. Well- designed Website:

For the successful implementation of e-business, a business enterprise must develop a comprehensive website to communicate effectively with its customers, suppliers and business partners. The website should provide detailed information about the firm’s products and services. The data should be supported by suitable pictures, graphs, etc.

2. Clear Cyber Laws:

There should be clear cyber laws. Absence of Clear cyber laws is an impediment in the implementation of e-business.

3. Effective Telecommunication system:

E-business requires an effective telecommunication system in the form of telephone lines, optic fiber cables and internal technology to handle the traffic on the internet. E-business cannot be successful if telephone lines are getting frequently disconnected, and it is difficult to access the internet. The problem of Digital divide also must be solved to make e-business available to common man. It must be noted that the cost of hardware and the price of using the internet must be within the reach of low and middle income groups

4. Adequate Computer Hardware:
The business firm should have adequate computer hard ware. It must procure and install computers with necessary speed, memory and nodes to handle the expected volume of business. The firm should also provide the necessary Internet Service Provider and Application Service Provider Server and Portals, and e-mail facilities.

5. Security and Safety of Business Transactions:
Though e-business is supposed to be safe and secure because of its digital or electronic code system, it is subject to security and safety risks, such as brand hijacking, hacking, which destroys the data and information, viruses which can enter the system and clean up the data and information stored up by the computer, etc.

6. Technically Qualified and Responsive Workforce:

A Well trained work force, capable of working easily with the internet and computer networks, is essential for e-business. The staff must also be trained to handle sales enquiries, processing orders and ensuring prompt delivery.

Online transactions:

On line transaction means receiving information about goods, placing an order, Receiving delivery and making payment through medium of internet. Under this system, the sale purchase of every type of thing, information and service is possible.

Online transactions are those business transactions which are conducted electronically through the network of computer. Online transaction process can be understood through the given figure. The process of online shopping from the buyer's perspective is as follows.

Payment Mechanism:

Payment for the purchases through online shopping may be done in following ways:

1. Cash on delivery (COD) – Cash payment can be made at the time of physical delivery of goods.

2. Net-banking transfer – The customer can make electronic transfer of funds(EFT) to account of online vendor over the internet.

3. Credit or Debit cards – The customer can make payment for online transaction through debit or credit card by giving the number and name of bank of card.

Security and Safety of business transactions.

In order to ensure security and safety of e-commerce, the following points need to be strengthened :

(i) Authentication : The sender of a document must be identified precisely and without any possibility of fraud.

(ii) Confidentiality : The contents of a message may not be carried by unauthorised parties.

The following methods can be used to ensure security and safety of online transactions.

1. Confirming the details before the delivery of goods – The customer is required to furnish the details such as credit card no., card issuer and card validity online.

2. Anti VirusProgrammes – Installing and timely updating antivirus programmes provides protection to data files, folders and system from virus attacks.

3. Cyber crime cells – Govt. may setup special crime cells to look into the cases of hacking and take necessary action against the hackers.

Outsourcing

Outsourcing is the business practice of hiring a party outside a company to perform services or create goods that were traditionally performed in-house by the company's own employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-cutting measure.

BPO

It Stands for Business Processing Outsourcing . It provides services like customer care, technical support through voice processes, tele-marketing, sales, etc.

BPO is essential for following reasons:

1. Obtaining Good Quality services – If a company attempts to perform all the activities itself, there is every possibility of quality of services being affected adversely. In order to avoid this difficulty, the need for obtaining services from outside is felt.

2. Avoiding Fixed Investment in Services – If a company attempts to get these services from within the organization itself, it has to establish different departments for this purpose which involves huge investment. Therefore, it appears justified to get these services from outside the organization at a little cost.

3. Smooth running of business – outsourcing of services is needed in order to run the business smoothly. The attention of businessman gets distracted from various small things and will be focused on the main activity.

Scope of BPO

In modern business many outside services are used. Out of these services, the following are the important ones:

1. Financial Services -These services means those outside services which help the company in some way or other in the management of finance.

2. Advertising services – Advertisement is very necessary for increasing sales. If this service is obtained from outside agency, it will cost less and the quality of advertisement will also be good.

3. Courier services – These services means delivering goods, documents. parcels from company to customers and vice-versa.

4. Customer support service – These services means delivering goods to customers and to give after sale services also. Generally, the manufacturers of TV, Fridge, AC etc. use these services.

KPO

It Stands for Knowledge Processing Outsourcing. It provides in-depth knowledge, expertise and analysis on complex areas like Legal Services, Business and Market Research, etc.

Need of KPO

In today’s competitive environment focus is to concentrate on core specialization areas and outsources the rest of activities. Many companies have come to realise that by outsourcing the non case activities not only costs are minimized and efficiency improved but the total business improves because the focus shifts tokey growth areas of business.

Scope of KPO/Services covered KPO

1. Research and Technical analysis.

2. Business and Technical analysis.

3. Business and Market research.

4. Animation and Design.

Smart Cards.

A smart card is a small sized card which has a programmable microprocessor chip and is used for making payments and storing relevant information. The utility of smart card is as follow:

1. Mobile communication : Smart cards are being used in mobile communications extensively throughout the world. Thus, people can communicate from one place to another easily.

2. Pay phones : Smart cards may be used for pay phones. Instead of inserting coins in telephone instruments, smart cards may be used.

3. Retailing : Smart cards are used for purchasing products just like debit or credit cards.

LESSON PLAN:-07

Stock Exchange

A stock exchange is an important factor in the capital market. It is a secure place where trading is done in a systematic way. Here, the securities are bought and sold as per well-structured rules and regulations. Securities mentioned here includes debenture and share issued by a public company that is correctly listed at the stock exchange, debenture and bonds issued by the government bodies, municipal and public bodies.

Typically bonds are traded Over-the-Counter (OTC), but a few corporate bonds are sold in a stock exchange. It can enforce rules and regulation on the brokers and firms that are enrolled with them. In other words, a stock exchange is a forum where securities like bonds and stocks are purchased and traded. This can be both an online trading platform and offline (physical location).

Following are some of the most importance that are performed by stock exchange:

1.Role of an Economic Barometer: Stock exchange serves as an economic barometer that is indicative of the state of the economy. It records all the major and minor changes in the share prices. It is rightly said to be the pulse of the economy, which reflects the state of the economy.

2.Valuation of Securities: Stock market helps in the valuation of securities based on the factors of supply and demand. The securities offered by companies that are profitable and growth-oriented tend to be valued higher. Valuation of securities helps creditors, investors and government in performing their respective functions.

3.Transactional Safety: Transactional safety is ensured as the securities that are traded in the stock exchange are listed, and the listing of securities is done after verifying the company’s position. All companies listed have to adhere to the rules and regulations as laid out by the governing body.

4.Contributor to Economic Growth: Stock exchange offers a platform for trading of securities of the various companies. This process of trading involves continuous disinvestment and reinvestment, which offers opportunities for capital formation and subsequently, growth of the economy.

5.Making the public aware of equity investment: Stock exchange helps in providing information about investing in equity markets and by rolling out new issues to encourage people to invest in securities.

6.Offers scope for speculation: By permitting healthy speculation of the traded securities, the stock exchange ensures demand and supply of securities and liquidity.

7.Facilitates liquidity: The most important role of the stock exchange is in ensuring a ready platform for the sale and purchase of securities. This gives investors the confidence that the existing investments can be converted into cash, or in other words, stock exchange offers liquidity in terms of investment.

Followings functions are performed by Stock Exchange -

i)Anyone can sell and buy any industrial, financial, and Government securities. Stock Exchange is an organized ready market to do all this.

ii)Liquidity is provided by the stock exchange. Investors and speculators can buy and sell their securities at any time.

iii)Stock exchange provides collateral value to the securities that is helpful in borrowing from the bank on easy terms.

iv)Capital for the industrial growth is provided by the stock exchange that is helpful for the investor to participate in the industrial development.

v)Price list and reports are prepared and published in the newspapers and broadcasted through the TV channels by stock exchange. It is helpful in knowing the true value of the investments. With the help of this, an investor or speculator can get to know the fair market value of his securities as per the latest market trend.

vi)Listing of securities is encouraged by the stock exchange. Listing of securities means — “a permission to trade” that is given by the stock exchange only after fulfillment of the prescribed standards.

vii)Listed companies have to provide the financial statements, reports, and other statements time to time to stock exchange — necessary for the maintaining the record and deciding the value of securities.

viii)Anyone can sell and buy any industrial, financial, and Government securities. Stock Exchange is an organized ready market to do all this.

ix)Liquidity is provided by the stock exchange. Investors and speculators can buy and sell their securities at any time.

x)Stock exchange provides collateral value to the securities that is helpful in borrowing from the bank on easy terms.

xi)Capital for the industrial growth is provided by the stock exchange that is helpful for the investor to participate in the industrial development.

xii)Price list and reports are prepared and published in the newspapers and broadcasted through the TV channels by stock exchange. It is helpful in knowing the true value of the investments. With the help of this, an investor or speculator can get to know the fair market value of his securities as per the latest market trend.

xiii)Listing of securities is encouraged by the stock exchange. Listing of securities means — “a permission to trade” that is given by the stock exchange only after fulfillment of the prescribed standards.

xiv)Listed companies have to provide the financial statements, reports, and other statements time to time to stock exchange — necessary for the maintaining the record and deciding the value of securities.

A stock Exchange provides following services:

(a) It is one of the most important sources to raise money for companies. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market.

(b) It provides liquidity to investors to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate.

(c) It indicates the health of an economy as well as a particular company.

(d) Share prices affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behaviour of the stock market and, in general, on the smooth operation of financial system functions.

(e) Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction.

(f) It leads to economic growth and increased prosperity as lower costs and enterprise risks promote the production of goods and services as well as employment. Relation of the stock market to the modern financial system.

Major Stock Exchanges in India

Major Stock Exchanges in India

1. Bombay Stock Exchange Limited (BSE)

It is the first stock exchange in India, which is located at Dalal Street, Mumbai. It was established in 1875 and is said to be the world’s 10th largest Stock Exchange with a market capitalization of $2.2 trillion and has more than 5500 companies listed in it.

The history of this stock exchange is worth knowing as it is very interesting. In the 1850s which is more than 160 years ago, there were an informal group of 22 stockbrokers who met under a Banyan tree in front of Mumbai Town Hall. Now, the Horniman circle is situated there.

They began trading there with just an investment of Rs.1 per broker, and it started flourishing as more and more people joined them. It was in 1861 when the American Civil War broke when it succeeded immensely and had around 250 brokers. Then these brokers created a group named The Native Share and Stockbrokers Association.

Later, this group was organized formally in 1875 and was named the Bombay Stock Exchange (BSE). They worked there for a lot of years; it was in 1930 that they shifted to the now BSE building on Dalal Street. Their main leader was Premchand Roychand, and it was under his supervision that the codes and rules were framed.

The government of India acknowledged BSE as the first National Stock Exchange under the Securities Contracts Act in 1956. Since then, it has promoted the growth of the Indian Corporate Sector by giving it a capital-raising platform.

2. National Stock Exchange of India (NSE)

This is also established in Mumbai and is the leading stock exchange of India. It was established in 1992, but the trading started in 1994. It desisted the monopoly of BSE and became the first demutualized electronic exchange in the country and had a fully-automated screen-based electronic trading system.

The purpose it was established was because there was a member of BSE who was exposed illegally manipulating the market. Plus, BSE was very slow in responding to the calls, and; there were a few fraudulent activities were happening the government of India planned to open rival stock exchange.

It totally modified the way the country bought and sold shares. The significant impact that it brought was that people from every part of the world could trade from anywhere. Stock price information was available for everyone and was not just confined to a few people.

3. Ahmadabad Stock Exchange

It was the second oldest stock exchange in India, which means after BSE, Ahmadabad Stock Exchange was opened. It operated under the old heritage building for 90 years and that was till 1996. This building is now named as “Old Stock Exchange.”

After 1996 they shifted to a new building that was entirely electronic and advanced. But, after some time SEBI planned to shut down all the units which have a turnover of less than 1000 crore and their net worth is less than 100 crore. It ultimately closed in April 2018.

4.Delhi Stock Exchange

It was the 5th stock exchanged opened in India. It was authorized on June 25, 1947, and SEBI allowed DSE to exit the stock exchange business in January 2017. It played a significant role in the development of the economy by facilitating investments in various sectors.

It was a big stock exchange with over 3000 companies listed, and the best thing was that it was connected well with major cities. Since its inception, it has always helped the companies around in aspects of creating capital ad net-worth. Also, it has helped in spreading financial literacy among people.

Types of operators

1. Bear in the Stock Market

A bear type of dealer always expects the price to fall. A bear type of dealer is most likely to sell shares without having them in his Demat and buys the share when the price of the security falls. This is known as short selling.

2. Bull in the Stock Market

A bull type of dealer always expects the price of the share to increase. A bull type of dealer is most likely to buy shares at a low price and sell stocks at a high price, popularly known as a long position.

3. Jobber in the Share Market

A jobber is a type of independent dealer in shares who buys stocks only to resell them at profit very quickly.

4. Broker in stock Market

A broker is a person or a brokerage firm that executes transactions of buying and selling on behalf of another party. A broker generally charges a negligible amount as brokerage to execute the orders.

All brokers i.e. depository participants have to get themselves registered with either NSDL or CDSL.

Terms used in Stock Exchange –

i) Ex-Dividend:

It means without dividend. When shares are sold ex-dividend, the right to receive the dividend shall remain with the seller.

Suppose, X sells (ex-dividend) 100 shares of a company to Y at Rs 100 per share on 30th March, 1989 on 30th April the company pays a dividend of Rs 3000 on these shares. X has the right to receive this amount of dividend.

ii) Cum dividend:

It means with dividend when shares are sold cum-dividend, the right to receive dividend passes to the buyer. Suppose, X sells 100 shares of a company cum-dividend to Y at Rs 100 per share on 30th March, 1989 on 30th April the company pays a dividend of Rs. 3000 on these shares.

iii)Spot delivery:

Spot delivery means the securities sold by a member on the stock ex¬change will be delivered on the spot or immediately after the transaction is made. In a spot delivery contract, settlement is done on the same day or on the next day.

The seller delivers the security and the buyers make the payment on the date the contract is made or on the next day.

iv) Forward delivery:
A forward delivery contract is one which has to be settled on the fixed settlement date. Settlements in such contracts are usually made once a month. Such contracts are allowed only in cleared securities which are settled through the clearing house.

SEBI (Securities and Exchange Board of India)

Functions of (SEBI)

To meet the three objectives SEBI performs the three main functions; namely, Protective Functions, Developmental Functions, and Regulatory Functions.

1. Protective Functions

The functions performed by SEBI to protect the interest of investors and provide safety of investment are protective functions. The functions performed by SEBI as protective functions are as follows:

i) Check a Price Rigging

Manipulation of price of securities to inflate or depress the market price of securities is known as Price Rigging. SEBI through protective functions prohibits these kinds of practices as it can cheat and defraud the investors.

ii) Prohibits Insider Trading

Any person who is connected with the company such as promoters, directors, etc., is an insider. They have all the sensitive information about the company which can affect the price of the securities. However, this sensitive information is not available to the people at large, and if the insiders use this privileged information to make profit, it is known as Insider Trading. SEBI to protect the interest of investors, keep a strict check on the insiders when they buy securities of the company and takes strict actions against them on insider trading.

For example, the directors of a company know that the company will be issuing Bonus Shares to the shareholders at the end of the financial year and they use this information to make profit by purchasing shares from the market. This purchase of shares by the directors will be considered insider trading.

iii) SEBI prohibits fraudulent and unfair trade practices
SEBI does not allow the companies to make any statement that can mislead the people and induce the sale or purchase of securities by any other person.

iv) Educate Investors
SEBI undertakes various steps to educate the investors so that they can easily evaluate the securities of different companies and select the most profitable security.

2. Developmental Functions

SEBI performs developmental functions to promote and develop the activities in stock exchange and to increase the business in stock exchange. The functions performed by SEBI under developmental functions are as follows:

i) It promotes the training of intermediaries of the securities market.

ii) It tries to promote the activities of the stock exchange. To do so, it adopts a flexible and adaptable approach in the following ways:

SEBI has given permission for internet trading through registered stock brokers.

In order to reduce the cost of issue, SEBI has also made underwriting optional.

Lastly, it has permitted initial public offer of primary market through stock exchange.

3. Regulatory Functions

i)SEBI performs regulatory functions to regulate the business in stock exchange. The functions performed by SEBI under regulatory functions are as follows:

ii)To regulate the intermediaries like underwriters, brokers, etc., SEBI has framed a set of rules and regulations and a code of conduct.

iii)It also conducts inquiries and audits of stock exchanges.

iv)SEBI registers and regulates the working of mutual funds, etc.

v)SEBI has brought the intermediaries under the regulatory purview and has made private placement more restrictive.

vi)SEBI regulates the takeover of companies.

vii)Ultimately, it registers and regulates the working of stock brokers, share transfer agents, sub-brokers, merchant brokers, trustees, and everyone who is associated with the stock exchange in any manner.

Objective of SEBI

i)The main objective of SEBI is protection of the interest of investors, promotion of the development of stock exchange, and regulation the activities of stock market. The objectives of SEBI are as follows:

ii)Regulation of the activities of stock market.

iii)Protection of the rights of investors and ensuring safety of their investment.

iv)Prevention of fraudulent and malpractices by having a balance between self-regulation of business and its statutory regulations.

v)Regulation and development of a code of conduct for the intermediaries like underwriters, brokers, etc.

LESSON PLAN:-08

Wholesalers:

A wholesaler is a company or individual that purchases great quantities of products from manufacturers, farmers, other producers, and vendors. Wholesalers store them in warehouses and sell them on to retailers (shops and stores) and businesses.

Wholesalers are the merchant middlemen who sell mainly to retailers, other merchants, commercial, industrial, or institutional users. They buy principally for resale or business use.

The wholesaler’s business model is based on being the intermediary – the go-between. They operate between a product’s manufacturer and other businesses that want to sell that product.

Services of Wholesaler to Retailers

i)Financial Support: Wholesalers provide financial assistance to retailers by selling goods on credit and providing discount facilities. The retailers need not invest large working capital.

ii)Specialised knowledge to the Retailers: Wholesalers provide advice to retailers regarding quantity, price, and sale of goods. It allows them to purchase goods from the wholesalers accordingly, so that they do not face loss or risk due to changes in any factor affecting the sales or demand of the goods. The wholesalers’ specialization in one line of the product gives a huge benefit to the retailers.

iii)Warehousing and Transport: Wholesaler provides storage facility for goods as well as transport facility to retailers. This saves warehouse costs and transportation costs of the retailers. The retailers do not have to store goods in bulk quantities and can purchase the goods as and when required.

iv)Regular Supplies: Wholesalers keep large stocks of goods and assure the regular supply to the retailers. In other words, the wholesalers ensure the availability of goods to the retailers and relieve them from the tension of collecting different goods from the different producers.

v)Publicity: Wholesalers advertise goods on a large scale to create demand. This increases retailers’ sales of goods without spending money on advertisements.

vi)Introduction of a New Product: Wholesalers introduce new product and their uses to the retailers. It helps the retailers to easily sell goods in the market as they can also share the knowledge with the customers and easily attract them towards the goods.

vii)Risk Sharing: As wholesalers purchase goods in bulk quantities and sell them to the retailers in small quantities, it allows the retailers to avoid any risk possible because of storage, fire, theft, spoilage, pilferage, etc. In this way, the wholesalers share the risk with the retailers.

Services of Wholesaler to Manufactures or Producers

1. Economies of Large Scale:

A wholesaler buys the goods in large quantities which enable the producers to manufacture goods on a large scale. Economies of Large scale bring down the average cost of production. In other words, production on a big scale helps in reducing the cost of production per unit.

2. Facilitate Distribution of Goods:

Presence of wholesalers in the distribution channel relieves the producers from the hassle of finding out the customers for their products. A wholesaler facilitates the producers to reach out to their target market by buying goods in bulk from the producer for distribution and making them accessible to the consumers via the retailers located in different areas.

3. Warehousing and Marketing:

There is a time lag between production and consumption. The wholesalers purchase the goods from the producers instantly after production and store the goods in their private warehousing facility. Thus, the producers are absolved from the burden of storing their produce. The wholesalers do the grading and packing of goods for further selling to retailers.

4. Financial Assistance:

A wholesaler places bulk orders for the producer’s goods. He either pays for the goods in advance or makes the settlement within a short period of time after making the purchase. Once the goods are produced, the wholesaler promptly buys them from the producer. In this way, the manufacturer does not have to block his working capital in maintaining a huge stock, and thus, can carry out production activities on a regular basis.

5. Risk Bearer:

As the wholesaler places advance orders for the goods, the producer gets a ready market for their produce. The wholesaler relieves the producer from the risk of loss due to the variations in demand and storage of goods; also cutting down risk by matching seasonal demand and supply.

6. Forecasting of Demand:

The wholesalers provide helpful information to the manufacturers regarding the needs and wants of the consumers. They collect the information from the retailers about the nature and scope of demand and share it with the producers. Thus, the wholesaler assists the producers to manufacture the goods which are in tune with the fashion, taste and needs of the market.

Services of Wholesaler to Customer

1. Ready Supply:

The wholesalers enable the consumer to buy the desired quantity and quality of goods at the convenient time and place because they supply goods regularly to the retailers. Hence, the consumer does not have to wait for the stock to arrive at the retailer’s shop.

2. Fair-Priced Goods:

Since the Wholesaler buys the goods from manufacturers in bulk and allows him to reap the benefit of economies of large scale production thereby bringing down the cost per unit, which ultimately benefits the customers.

3. Stabilisation of Price:

The wholesaler is in a better position to stabilise prices of the products by adjusting demand and supply. The consumers are benefited to a great extent due to the stabilisation of prices.

4. Matching Consumer Demand:

The wholesalers supply the goods as per the requirement and demands of the consumers. Thus, consumers get to choose from a diverse range in accordance to their demand.

5. Advertising the Goods:

Wholesalers advertise their goods extensively to enlighten the consumer about its uses, types and qualities and availability. The consumers get knowledge about the goods and are in a better position to make their buying decisions.

6. Market Research:

Some wholesalers carry out market research frequently to identify any improvement areas in the existing products and scope for development of new products. Further, they help the producers to stay updated with the dynamic market trends and consumer tastes by sharing useful information gathered through their market research. Consequently, the consumer gets quality products at a reasonable rate. Thus, the wholesaler is a valuable link between the producer (manufacturer), the retailer and the consumer in the channels of distribution.

Retail trade

Retail Trade refers to sale of goods in small lots to the final consumers. Retailing includes selling goods of different varieties door to door, on television, on telephone or on the internet and so on. Its main features are given below :

i)Retailer is the last link in the distribution chain.

ii)In retail trade goods are sold directly to the final users.

iii)Retailer buys and sells a small quantity of goods.

iv)Retailer acts as a middleman between wholesalers and customers.

Types of retail trade

Departmental store: It is a retail establishment that sells a wide variety of goods. These usually include ready-to-wear apparel and accessories for adults and children, yard goods and household textiles, small household wares, furniture, electrical appliances and accessories, and, often, food.

Features of Departmental store:

(i) Departmental stores are large-scale retail establishments.

(ii) They have a number of departments organised under one roof.

(iii) Each department specialises in a particular kind of trade.

(iv) Their basic principle is that it is easier to sell more goods to the same customers by providing a large variety of goods than to sell the same kind of goods to many customers. Hence, they provide a large variety of merchandise from a pin to an aeroplane, and act as universal suppliers.

(v) Their aim is to provide quality goods and services to the customers. Restaurants, telephone facilities, recreational facilities, reading rooms etc. are also provided by them.

Merits of Departmental Store:

(i) Shopping convenience:
A departmental store enables the customers to purchase all their requirement under one roof and the customers need not go from one shop to another for making purchases. This provides great convenience to the customers and also saves their time and labour.

(ii) Wide Choice:

The departmental store keeps a large variety of products and hence offers an opportunity to the customers to select goods of their liking from a large stock of goods of different qualities, brands, designs, colours, styles, etc.

(iii) Economies of large scale:

Departmental stores, being large-scale establishments, enjoy all the economies and benefits of large-scale organisations. This reduces their costs and increases the profits.

(iv) Liberal services:

They provide many unique services to their customers like free home delivery, accepting telephone orders, restaurants, recreational facilities, reading rooms, after-sale service, etc. Some of the stores even offer credit facilities to their customers.

(v) Central Location:

A departmental store is generally located in the important central place of a city. It is, therefore, easily accessible to the customers.

(vi) Economy and Advertising:

The advertisement of one department is the advertisement of the other departments also. A customer who enters a departmental store to purchase some goods is induced to buy some other goods also displayed in the store. Hence, one department advertises for the other. Moreover, a departmental store pan advertises on a large scale thus saving in advertising costs.

Demerits of Departmental Store:

(i) Distance:

As the departmental stores are generally located in the central places, people living at a distance cannot take advantage of the departmental stores.

(ii) High Cost of Operation:

The cost of doing business is very high in case of departmental stores as they have to pay high rents, salaries to staff and spend much on various facilities provided to the customers.

(iii) Higher Prices:

Due to high costs of operation and establishment, the prices of commodities in departmental stores are comparatively high. Thus, only the rich people can afford to take advantage of the departmental stores.

(iv) Difficult to Establish:

The departmental stores require a large amount of initial capital investment and a number of specialised persons for their establishment.

(v) Absence of Personal Contact:

The owners of the departmental stores cannot make personal contact with the customers. The sales are made by the employees who may not care for the customers’ satisfaction.

(vi)Lack of Co-ordination:

There is a tendency of developing unhealthy competition between the departments. The control and effective supervision of various departments is also difficult to exercise.

Chain store

A chain store is a group of similar retail shops that sell the same type of goods. All these shops or branches are under the control of the head office. Branches are opened in different parts of the city or even in different parts of the country.

Characteristics of Chain Store:

(i) Multiple shops specialise in one line of product and the range of articles is restricted.

(ii) They are horizontally integrated under centralised control.

(iii) They deal on cash-and-carry principle and do not sell on credit.

(iv) Purchases of multiple shops are centralised and so is its management and control.

(v) The prices are fixed and no bargaining is necessary on the part of buyers.

(vi) Selling is decentralised and each unit is a full-fledged retail store in itself.

(vii) They emphasize on large and quick turnover.

Merits of Chain Stores:

1. Chain stores specialize in a particular product.

2. Such stores can cater to the needs of people in different localities.

3. Central location and luxurious premises are not required for chain stores.

4. There is economy in advertising. It is not necessary to advertise for each branch.

5. It is easy for the head office to identify an unprofitable branch and shift it to some other place. If it is not feasible it may even be closed down.

6. Chain stores work only on cash basis. Bad debts, therefore, are totally eliminated.

Demerits of Chain Stores:

1. As chain stores deal only in a particular item, they may not attract many customers.

2. The head office may find it difficult to exercise control over a number of retail outlets/branches established throughout the city/country.

3. The central office also has to maintain the relevant accounts in respect of every shop and this again is a tedious process.

4. The product quality, price etc., are decided by the controlling office. The retail shops have to sell what is supplied to them.

5. The retail outlets also have to be in touch with central office to get the stocks replenished. There is also scope for delay.

Automatic vending machines

Automatic vending machines are coin operated vending machines which work like an ATM. It is useful in selling hot beverages milk chocolates newspaper platform ticket etc.

Features of Automatic Vending Machines:

Touchpads and touchless screens to browse the menu, see the product details, add multiple products to the cart, place an order, etc.

Fast secure transactions: Smart Vending Machines have digital payment options like UPI, e-Wallet, Debit/Credit Cards, Net Banking, Sodexo, etc.

Contactless Ordering: It was introduced after Covid to provide safer buying options to consumers. It uses wireless communication via a mobile app that Daalchini offers. The transactions are all contactless which has become an important factor post-Covid.

Automated Refunds: In case of failed or canceled orders, the refunds are processed automatically.

Remote monitoring: Retailers can operate the business from anywhere and save money while increasing customer satisfaction. Therefore it increases efficiency.

AI-Driven approach: To sense and deliver personalized experiences, smart vending machines use artificial intelligence and analytics to analyze device data. They can provide the seller with vital customer information.

Merits of Automatic Vending Machines:

1. LOW OVERHEAD COSTS

Vending machines are a convenient way to feed a large staff with minimal overhead. They require a fraction of the budget to run a concession stand or cafeteria. Modern vending machines are built to conserve energy and only require a small amount of electricity to run 24 hours a day.

2. EASY MAINTENANCE & MANAGEMENT

By partnering with an industry-leading vending company like American Food & Vending, you can save time and money on food maintenance and management. Our experienced technicians and vending attendants will stock and maintain your machines to keep your employees satisfied. We’ll handle everything, so you can enjoy fast and reliable access to your favorite foods and beverages from clean, fully-functioning vending machines.

3. KEEPS EMPLOYEES HAPPY

When you go long periods without eating, your blood sugar drops, signaling your body to release hormones that can make you feel angry and stressed. Who wants stressed and angry employees? Vending machines will help keep your team fed and happy, so they have positive interactions with their coworkers and clients. It also shows that you care about their well-being, so they feel noticed and appreciated.

4. EMPLOYEES STAY ON-SITE

Vending machines give employees access to quick meals and snacks on-site, so they can avoid leaving the building. Your staff will appreciate the convenience of grabbing a quick bite on busy days when they’d rather relax and recharge than get in the car to pick up food somewhere else. Restful lunch breaks are crucial to your teams’ productivity.
By providing access to meals in the workplace, your staff is more likely to collaborate on projects and build stronger relationships during their lunch break. Studies show that workplace meals lead to higher productivity and better job performance.

Demerits of Automatic Vending Machine:

1) No scope for bargaining in vending machines :

Vending machines offer several drawbacks for both the owner and the user. They do not allow for negotiating; therefore, set pricing may apply, which may be unfavourable to both the customer and the owner. At retail stores, people can ask for a discount, and in exchange, the attendant can offer a discount, keeping margins in the owner’s favour. While vending machines do not offer this since there is no role for humans.

2) Destruction, Fraud, and Vandalism of Vending machine:

Customers who devise ways of hacking into the system of the machine to distribute the items commit fraud in this type of company. The substantial taxation charged on the sites of location may discourage this capital-intensive venture. The investor suffers significant losses in the event of equipment damage or erroneous programming, such as the continual dispensing of goods owing to technical problems. Vending machines are displayed in public places and can be vandalised by unruly groups or jealous competitors

3) Costly Investment & Fixed Costs for Vending machine business:

A vending machine’s price varies from ? 1 to There is a fixed cost to set up the vending machine. There is also a fixed cost to maintain, repair, and manage the vending machine. Inventory is the basis of vending machines, so it is important to have good inventory control.

4) Technical Error in Vending machine :

By any technical error, the machine may dispense a specific item in a continuous manner, which will impact the sales of the same vending machine. The owner of the vending machine has to incur losses for this.

5) 24*7 Electricity and Internet Connection required for vending machine :

The vending machine needs 24*7 electricity and an Internet connection so that it can run for 24 hours a day and also collect the transactions in the database.

6) Limited Quantity of items in vending machine :

A Vending Machine offers a limited quantity of items. Even a specific vending machine may not be able to deliver a huge number of items. Assume I need 100 bottles of soft drink for my home party then vending machines cannot deliver that many soft-drink bottles. It is also important to consider the demand for the items you want to sell.

Documents used in home trade

In the process of buying and selling, some documents are created and exchanged between the buyer and seller. These documents support the trade legally. These serve as evidence. The following are the main documents used in home trade: -

1.Enquiry Letter

It is the first step in which the buyer writes and sends a letter of enquiry to the seller, asking about the quality, quantity, price and other conditions of trade. This is the letter which contains full questions in regard of goods and terms and conditions of trade..

2.Order Letter

After receiving quotation letter from different sellers, the buyer analyses them carefully and selects the most favourable one. Then the buyer sends purchase order through a letter which is called order letter. Since, it is the ordering for the purchase of goods, it should be written very carefully.

3.Invoice

After making the goods ready for delivery, a bill is prepared to give details about the unit price, total price, qualities, and quantities of goods being dispatched and other information like discount which is called invoice. So, an invoice is a bill of goods prepared by the seller and sent along with sold goods. It is generally prepared by four copies – 1 copy for the buyer, 2 copies for the transport company and 1 copy is kept by the seller himself.

4.Quotation:

A quotation is a document that a seller provides to a buyer to offer goods or services at a stated price under specified conditions. Also known as quotes, sales quotes, or sales quotations, quotations are used to let a potential buyer know how much goods or services will cost before committing to the purchase.

5.Catalogues:

A catalogue is a book or magazine containing details and pictures of items currently being offered for sale, especially as used by companies that do much of their business by mail order.

6.Debit note:

A debit note, or a debit memo, is a document issued by a seller to a buyer to notify them of current debt obligations. You'll commonly come across these notes in business-to-business transactions — for example, one business may supply another with goods or services before an official invoice is sent.

7.Credit note:

A credit note is a document issued by a seller to a buyer to notify that credit is being applied to their account. You might notice these referred to as credit memos, too.

Price quotations

A price quotation is a commercial document that lays out for the customer what the fixed cost would be in exchange for the goods or services provided. A quotation will only be valid for a limited period.

Cash discount:

It a discount granted in consideration of immediate payment or payment within a prescribed time.

Trade discount:

It is referred to as the discount that is offered by a seller to the buyer of the product in the form of reduction in the price of the item.

LESSON PLAN:-09

Foreign Trade

Foreign Trade is the exchange of goods and services between two countries in the international market. It helps in the availability of raw material/finished product in a country that either does not have it or has it in scarcity.

Internal and External Trade

Internal trade is the trade that is conducted between parties within the political and geographical boundaries of a nation, while external trade is the trade that is conducted between two parties that are outside the nation's borders or between two countries.

International trade

International trade is referred to as the exchange or trade of goods and services between different nations. This kind of trade contributes and increases the world economy. The most commonly traded commodities are television sets, clothes, machinery, capital goods, food, raw material, etc.

Characteristics of International Trade:

(i) Separation of Buyers and Producers:

In inland trade producers and buyers are from the same country but in foreign trade they belong to different countries.

(ii) Foreign Currency:

Foreign trade involves payments in foreign currency. Different foreign currencies are involved while trading with other countries.

(iii) Restrictions:

Imports and exports involve a number of restrictions but by different countries. Normally, imports face many import duties and restrictions imposed by importing country. Similarly, various rules and regulations are to be followed while sending goods outside the country.

(iv) Need for Middlemen:

The rules, regulations and procedures involved in foreign trade are so complicated that there is a need to take the help of middle men. They render their services for smooth conduct of trade.

(v) Risk Element:

The risk involved in foreign trade is much higher since the goods are taken to long distances and even cross the oceans.

Problems of international trade

1. Distance:

Due to long distance between different countries, it is difficult to establish quick and close trade contacts between traders. Buyers and sellers rarely meet one another and personal contact is rarely possible.
There is a great time lag between placement of order and receipt of goods from foreign countries. Distance creates higher costs of transportation and greater risks.

2. Different languages:

Different languages are spoken and written in different countries. Price lists and catalogs are prepared in foreign languages. Advertisements and correspondence also are to be done in foreign languages.
A trader wishing to buy or sell goods abroad must know the foreign language or employ somebody who knows that language.

3. Difficulty in transportation and communication:

Dispatch and receipt of goods takes a longer time and involves considerable expenses. During the war and natural calamities, transpor¬tation of goods becomes even more difficult. Similarly, the costs of sending or receiving informa¬tion are very high.

4. Risk in transit:

Foreign trade involves much greater risk than home trade. Goods have to be transported over long distances and they are exposed to perils of the sea. Many of these risks can be covered through marine insurance but increases the cost of goods.

5. Lack of information about foreign businessmen:

In the absence of direct and close relationship between buyers and sellers, special steps are necessary to verify the creditworthiness of foreign buyers. It is difficult to obtain reliable information concerning the financial position and business standing of the foreign traders. Therefore, credit risk is high.

6. Import and export restrictions:

Every country charges customs duties on imports to protect its home industries. Similarly, tariff rates are put on exports of raw materials. Importers and exporters have to face tariff restrictions.

Advantages of International Trade:

(i) Optimal use of natural resources:

International trade helps each country to make optimum use of its natural resources. Each country can concentrate on production of those goods for which its resources are best suited. Wastage of resources is avoided.

(ii) Availability of all types of goods:

It enables a country to obtain goods which it cannot produce or which it is not producing due to higher costs, by importing from other countries at lower costs.

(iii) Specialisation:

Foreign trade leads to specialisation and encourages production of different goods in different countries. Goods can be produced at a comparatively low cost due to advantages of division of labour.

(iv) Advantages of large-scale production:

Due to international trade, goods are produced not only for home consumption but for export to other countries also. Nations of the world can dispose of goods which they have in surplus in the international markets. This leads to production at large scale and the advantages of large scale production can be obtained by all the countries of the world.

(v) Stability in prices:

International trade irons out wild fluctuations in prices. It equalizes the prices of goods throughout the world (ignoring cost of transportation, etc.)

Disadvantages of International Trade:-

Though foreign trade has many advantages, its dangers or disadvantages should not be ignored.

(i) Impediment in the Development of Home Industries:

International trade has an adverse effect on the development of home industries. It poses a threat to the survival of infant industries at home. Due to foreign competition and unrestricted imports, the upcoming industries in the country may collapse.

(ii) Economic Dependence:

The underdeveloped countries have to depend upon the developed ones for their economic development. Such reliance often leads to economic exploitation. For instance, most of the underdeveloped countries in Africa and Asia have been exploited by European countries.

(iii) Political Dependence:

International trade often encourages subjugation and slavery. It impairs economic independence which endangers political dependence. For example, the Britishers came to India as traders and ultimately ruled over India for a very long time.

(iv) Mis-utilisation of Natural Resources:

Excessive exports may exhaust the natural resources of a country in a shorter span of time than it would have been otherwise. This will cause economic downfall of the country in the long run.

(v) Import of Harmful Goods:

Import of spurious drugs, luxury articles, etc. adversely affects the economy and well-being of the people.

(vi) Storage of Goods:

Sometimes the essential commodities required in a country and in short supply are also exported to earn foreign exchange. This results in shortage of these goods at home and causes inflation. For example, India has been exporting sugar to earn foreign trade exchange; hence the exalting prices of sugar in the country.

Export trade

Exports are explained as the goods and services manufactured in one country and acquired by citizens of another country. The export of good or service can be anything. This trade can be done through shipping, e-mail, transmitted in private luggage on a plane.

Objectives of Export Trade

(1) Sale of Surplus Production

A country may produce more than it requires.

Then, in that case, the surplus may be sold to foreign countries.

(2) Optimum Utilization of Domestic Resources

Every country has some natural resources in plenty.

These resources can be utilized to increase the production and sell to those countries where these are in shortage.

(3) Employment Opportunities

International business helps the business enterprises to focus on more production which requires more manpower that means more employment opportunities.

(4) Earning of Foreign Exchange

A country with surplus production may earn foreign exchange by selling goods and services to other countries.

(5) Increase the National Income

Earning of foreign exchange due to exports add to the national income of a country.

This help in improving the standard of living of people.

Procedure of Export Trade

Step 1. Receipt of an Order The exporter of goods is required to register with various authorities such as the income tax department and Reserve Bank of India (RBI). In addition to this, the exporter has to appoint agents who can collect orders from foreign customers (importer). The Indian exporter receives orders either directly from the importer or through indent houses.

Step 2. Obtaining License and Quota After getting the order from the importer, the Indian exporter is required to secure an export license from the Government of India, for which the exporter has to apply to the Export Trade Control Authority and get a valid license. You can get a license from here too. The quota is referred to as the permitted total quantity of goods that can be exported.

Step 3. Letter of Credit The exporter of the goods generally ask the importer for the letter of credit, or sometimes the importer himself sends the letter of credit along with the order.

Step 4. Fixing the Exchange Rate Foreign exchange rate signifies the rate at which the home currency can be exchanged with the foreign currency i.e. the rate of the Indian rupee against the American Dollar. The foreign exchange rate fluctuates from time to time. Thus, the importer and exporter fix the exchange rate mutually.

Step 5. Foreign Exchange Formalities An Indian exporter has to comply with certain foreign exchange formalities under exchange control regulations. As per the Foreign Exchange Regulation Act of India (FERA), every exporter of the goods is required to furnish a declaration in the form prescribed in a manner. The declaration states:-

I.The foreign exchange earned by the exporter on exports is required to be disposed of in the manner specified by RBI and within the specified period.

II.Shipping documents and negotiations are required to be done through authorised dealers in foreign exchange.

III.The payment against the goods exported will be collected through only approved methods.

Step 6. Preparation for Executing the Order The exporter should make required arrangements for executing the order:

I.Marking and packing of the goods to be exported as per the importer’s specifications.

II.Getting the inspection certificate from the Export Inspection Agency by arranging the pre-shipment inspection.

III.Obtaining insurance policy from the Export Credit Guarantee Corporation (ECGC) to get protection against the credit risks.

IV.Obtaining a marine insurance policy as required.

V.Appointing a forwarding agent (also known as custom house agent) for handling the customs and other related matters.

Step 7. Formalities by a Forwarding Agent The formalities to be performed by the agent include –

I.For exporting the goods, the forwarding agent first obtains a permit from the customs department.

II.He must disclose all the required details of the goods to be exported such as nature, quantity, and weight to the shipping company.

III.The forwarding agent has to prepare a shipping bill/order.

IV.The forwarding agent is required to make two copies of the port challans and pays the dues.

V.The master of the ship is responsible for the loading of the goods on the ship. The loading is to be done on the basis of the shipping order in the presence of customs officers.

VI.Once the goods are loaded on the ship, the master of the ship issues a receipt for the same.

Step 8. Bill of Lading The Indian exporter of the goods approaches the shipping company and presents the receipt copy issued by the master of the ship and in return gets the Bill of Lading. Bill of lading is an official receipt which provides the full description of the goods loaded on the ship and the name of the port of destination.

Step 9. Shipment Advise to the Importer The Indian exporter sends shipment advice to the importer of the goods so that the importer gets informed about the dispatch of the goods. The exporter sends a copy of the packing list, a non-negotiable copy of the Bill of Lading, and commercial invoice along with the advice note.

Step 10. Presentation of Documents to the Bank The Indian exporter confirms that he possesses all necessary shipping documents namely; Marine Insurance Policy The Consular Invoice Certificate of Origin The Commercial Invoice The Bill of Lading Then the exporter draws a Bill of Exchange on the basis of the commercial invoice. The Bill of Exchange along with these documents is called Documentary Bill of Exchange. The exporter then hands over the same to his bank.

Step 11. The Realisation of Export Proceeds In order to realise the proceeds of the export, the exporter of the goods has to undergo specific banking formalities. On submission of the bill of exchange, these formalities are initiated. Generally, the exporter receives payment in foreign exchange.

Import Trade

Import trade is the process of importing goods and services from another country. A country import good in following situations. They can't manufacture/ produce goods. They have a deficit of raw material to produce. The technology/process is inefficient and costly.

Functions of import trade:-

Objectives of Import trade:

The main objectives of import trade are as follows:

(i) To speed up industrialization:

Developing countries import scarce raw materials and capital goods and advanced technology required for rapid industrial development.

(ii) To meet consumer demand:

The goods which are in demand but arc not available in the country are imported. Goods in short supply arc also imported to make up the deficiency. For example, India imports petroleum products to meet demand.

(iii) To improve standard of living:

Imports enable consumers in the home country to enjoy a wide variedly of products of high quality. Their standard of living can be improved.

(iv) To overcome famine:

During famine a country imports food grains and other essential commodities to prevent starvation. Drought, flood, earthquake and other natural calami¬ties might create famine.

(v) To ensure national defense:

Countries like India import defence equipment for its armed forces – army, air force and navy. Such imports enable the country to ensure its sover¬eignty and territorial integrity.

Import Trade Procedure

Import trade procedure differs from country to country depending upon the foreign trade policy of a country.

The procedure of importing goods into India is guided by the rules and regulations lay down by the Government of India. Generally the procedure for importing goods in India involves the following stages.

Stage 1 -» Obtaining import License
The government of India announces from time to time a list of goods which can be imported by obtaining a general permission under the system of a Open General License (OGL).

For the imports mentioned in the OGL list licenses are issued freely. Other goods not mentioned in OGL list can be imported under specific licenses such as Import Replenishment License, ‘Supplemen¬tary license’ and ‘Additional License’.

When an importer wants to import an item for which import license is required he must first of all obtain an import license.

For this purpose the intending importer submits an application in the prescribed form to the licensing authority. He must submit the following documents along with the application.

(a) Treasury receipt for import license fee paid.

(b) Income tax verification certificate from income tax authorities.

(c) Certificate of the value of goods imported, if any, in the previous year.

The licensing authority scrutinizes the documents. If it is satisfied by the claim of the applicant, an import licence in duplicate is issued.

The first copy of the license is to be submitted to the customs authorities at the time of clearance of goods. The second copy is used to obtain foreign exchange from the Reserve Bank of India.

When an item for which no import license is required is to be imported, the intending importer is also required to obtain import-export code (IEC) number from the licensing authority.

In case of established importers, a Quota certificate is issued which specifies the quantity and volume of goods which the importer can import during the year.

The quota is fixed on the basis of the importer’s past imports duly certified by a chartered accountant.

Stage 2 -> Making trade enquiry and receiving quotation/perform invoice

After obtaining import license, the intending importer makes trade enquiry from foreign exporters or their agents. In the enquiry the importer makes a written request to supply the following information.

(a) Specifications of goods such as size, quality, design, etc.

(b) Quantity of goods available

(c) Price per unit

(d) Terms of shipment (FOB, C & F, CIF)

(e) Terms of payment (Letter of credit, D/P, D/A)

(f) Delivery schedule

(g) The date upto which the offer is valid

In response to his enquiry the importer receives quotations/performs invoices from different suppliers. After scrutinizing and comparing the quotations, he selects the supplier from whom the goods are to be imported.

Stage 3 -> Obtaining foreign exchange

The payment for imports has to be made in foreign currency. The RBI exercises control over foreign exchange under the Foreign Exchange Management Act (FEMA).

Therefore, the intend¬ing importer makes an application in the prescribed form to the Exchange Control Department of RBI (Reserve Bank of India) through his exchange bank. A copy of the import licence has to be submitted along with the application.

The RBI scrutinizes the application and sanctions release of the amount of foreign ex¬change to the importer through a bank. The foreign exchange is released only for a specific transaction for which the order has been placed.

Stage 4 -> Placing an Indent

Now the importer places an indent either directly or through indent houses. An indent means an order sent abroad for the import of goods. An indent house is an import agent which imports goods and behalf of importers.

The indent contains instruction as to the quantity, quality, prices of goods, mode of shipment, mode of payment, nature of packing, date of delivery, etc.

Stage 5 -> Opening letter of credit

Where the importer is required to arrange a letter of credit, the importer instructs his bank to issue a letter of credit in favour of the exporter.

A letter of credit is a document under which the issuing bank undertakes to make payment on behalf of the importer to or to the order of the exporter in exchange of the specified documents.

The importer’s bank issues the letter of credit as per the instructions of the importer.

The issuing bank may seek the help of the exporter’s bank, (negotiating bank) which submits documents to the issuing bank, takes letter of credit from it and makes payment to the exporter.

Stage 6 -> Receiving shipping documents

The importer receives shipping documents along with advice of shipment of goods from the exporter.

When goods arrive at the port in the importer’s country, captain of the ship informs the dock authorities on a document called Import General Manifest. The customs authorities then inform the importer about the arrival of goods.

Stage 7 -> Appointing Clearing agent

In order to obtain goods from customs authorities, several formalities have to be completed. Generally, it is not possible or convenient for the importer to complete these formalities himself.

Therefore, he appoints a clearing agent. Clearing agent are expert middlemen who perform customs formalities on behalf of importers for a commission. The importer also sends all the documents to the clearing agent to enable him to take delivery of goods.

Stage 8 -> Formalities by clearing agent

The clearing agent usually performs the following activities.

(a) Getting endorsement for delivery:

The clearing agent will approach the shipping com¬pany and present the bill of lading. If the freight has not been paid by the exporter, he will pay the freight.

The shipping company will make endorsement on the bill of lading authorising the agent to take delivery of the goods. Sometimes, the shipping company instead of endorsing the bill of lading, issues a separate delivery order to the importer.

(b) Paying dock dues:

The clearing agent will submit two copies of the ‘Application to import’ duly filled in to the Landing and Shipping Dues Office. This office levies a charge on all imported goods for services rendered by the dock authorities in connection with landing of goods.

The clearing agent fills up a form called ‘Dock Challen’ for payment of dock charges. After paying the necessary dock charges, the agent will receive back one stamped copy of the applica¬tion to import as a receipt called, ‘Port Trust Dues Receipt’.

(c) Preparing bill of entry:>

In order to pay the customs duty, the clearing agent will fill in three copies of a form called Bill of Entry.

The bill of entry contains particulars regarding the name and address of the importer, the name of the ship, full description of the goods, number of packages, import licence number, the name of the exporting country and customs duty payable.
Bill of entry forms are printed in three different colours-black, blue and violet. The black form is used for free (non dutiable) goods, the blue form is used for goods to be sold within the country and the violet form is used for goods meant for re-export. Custom authorities calculate and charge import duty on the basis of information given in the bill of entry.

1. We hereby declare the particulars given above to be true.

2. This Bill of Entry is presented under and subject to the collector’s notice dated. For the purpose of Sec. 3

(d) Obtaining customs clearance:

The clearing agent submits the Bill of Entry and other required documents to the customs authorities. He makes payment of the import duty (in case of dutiable goods). The agent now gets the release order from the customs authorities.

(e) Getting delivery from the dock:

The agent takes delivery of the goods from the dock after submitting Port Trust Dues Receipt, Bill of Entry and Bill of Lading. If the goods are imported for export the clearing agent will deposit them with a bonded warehouse and will receive a Dock Warrant.

(f) Dispatching goods to the importer:

Now the agent dispatches the imported consignment to the importer by rail or by road. He gets Railway Receipt or Lorry Receipt from the transporter.

(g) Sending advice to the importer:

After dispatching the goods, the agent, informs the importer about the dispatch of goods. He also sends Railway Receipt/Lorry Receipt along with a statement, showing his expenses and commission, to the importer.

Stage 9 -» Taking Delivery of goods from railway/Carrier

After receiving advice and Railway Receipt/Lorry Receipt from the clearing agent, the importer takes delivery of the goods from railway/carrier.

Stage 10 -> Making payment

The importer may make payment in either of the following ways depending upon the terms of payment agreed upon with the exporter:

(a) In case of letter of credit, the importer gets the shipping documents after payment.

(b) In case of Documents against Payment (D/P) bill of exchange the importer gets the shipping, documents on making payment of the bill of exchange.

(c) In case of Documents against Acceptance (D/A) bill of exchange, the importer gets the shipping documents after accepting the bill of exchange.

Objectives of Import Trade

(1) To speed up industrialisation

Developing countries import scarce raw materials, capital goods, and advanced technology required for rapid industrial development.

(2) To meet domestic demand
The goods that are in demand but are not available in the country are imported.

(3) To overcome natural disasters

During drought, flood, earthquake, and other natural calamities, countries import food grains and other essential commodities to prevent starvation.

(4) To improve standard of living

Imports enable consumers in the home country to enjoy a wide variety of products of high quality.

It helps in improving the standard of living of the masses.

(5) To ensure national defence

The importer must get the receipt of credit from his concerned bank and send it to the foreign supplier.

LESSON PLAN:-10

Documents Involved in international trade:

i) Indent:

Products that are shipped from overseas which have lead times and cannot be cancelled or reduced once an order confirmation is generated.

ii) letter of credit:

A letter of credit is essentially a financial contract between a bank, a bank's customer and a beneficiary. Generally issued by an importer's bank, the letter of credit guarantees the beneficiary will be paid once the conditions of the letter of credit have been met.

iii) Shipping order:

A Shipping Order (SO) is a document issued by the carrier that confirms a shipment's booking on a vessel. An SO will contain the location of the empty container for pickup, and may also contain booking details like the vessel number and sailing time.

iv) Shipping bill:

A shipping bill is an important document that an exporter needs to obtain from the customs department before getting his products ready to ship from India.

v) Mate’s receipt:

A mate receipt is a receipt issued by the commanding officer of the ship when the cargo is loaded on board, and contains the information about the name of the vessel, berth, date of shipment, description of packages, marks and numbers, condition of the cargo at the time of receipt on board the ship.

vi) Bill of lading:

A bill of lading is a document accompanying freight that states the agreement between the shipper and the carrier and governs their relationship when goods are transported. It details the cargo in the shipment and gives title or ownership of that shipment to the receiving party specified on the document.

vii) Certificate of origin:

A Certificate of Origin (CO) is an important international trade document that certifies that goods in a particular export shipment are wholly obtained, produced, manufactured or processed in a particular country.

viii) Consular invoice:

Describes the shipment of goods and shows information such as the consignor, consignee, and value of the shipment. Certified by the consular official of the foreign country, it is used by the country's customs officials to verify the value, quantity, and nature of the shipment.

ix) Documentary bill of exchange (DA/DP):

DA in payment term of international trade means, Documents against Acceptance. DP in payment term of imports and exports means Documents against Payments.

Documents involved in import trade:

i) Import license:

Import licensing can be defined as administrative procedures requiring the submission of an application or other documentation (other than those required for customs purposes) to the relevant administrative body as a prior condition for importation of goods.

ii) Indent:

Products that are shipped from overseas which have lead times and cannot be cancelled or reduced once an order confirmation is generated.

iii) letter of credit:

A letter of credit is essentially a financial contract between a bank, a bank's customer and a beneficiary. Generally issued by an importer's bank, the letter of credit guarantees the beneficiary will be paid once the conditions of the letter of credit have been met

iv) Documentary bill of exchange:

DA in payment term of international trade means, Documents against Acceptance. DP in payment term of imports and exports means Documents against Payments

v) Bill of entry:

A bill of entry is a legal document that is filed by importers or customs clearance agents on or before the arrival of imported goods. It's submitted to the Customs department as a part of the customs clearance procedure. Once this is done, the importer will be able to claim ITC on the goods.

vi) Bill of sight:

It is a document that a person importing goods, who cannot fully describe them, gives to the customs authorities, allowing them to examine the goods when they arrive.

vii) Port trust dues receipt:

The 'Landing and Shipping DuesOffice' levies a charge for services of dock authorities which has to be borne by the importer. After payment of dock charges, the importer is given back one copy of the application as a receipt. This receipt is is known as 'port trust dues receipt'.

viii) Application to import:

To convert a file into the format required by the application being used. Many applications are capable of importing a variety of popular formats, converting them into the native format of the application for display, printing or editing.

ix) Advice note:

It is a document that is sent to a customer to tell them that their goods have been sent: Customers who have selected a different delivery address to their billing address will receive an advice note with their order

x) Bill of lading:

A bill of lading is a document accompanying freight that states the agreement between the shipper and the carrier and governs their relationship when goods are transported. It details the cargo in the shipment and gives title or ownership of that shipment to the receiving party specified on the document.

World Trade Organisation

WTO – World Trade Organisation, was established in 1995 as the heir organisation to the GATT (General Agreement on Trade and Tariff). GATT was founded in 1948 with 23 nations as the global (international) trade organisation to serve all multilateral trade agreements by giving fair chances to all nations in the international exchange for trading prospects. WTO is required to build a rule-based trading government in which countries cannot place unreasonable constraints on trade. In addition, its mission is to increase stock and trade of services, to assure maximum utilisation of world resources and to preserve the environment. The WTO deals include trade in commodities as well as services to promote international trade (bilateral and multilateral) through the elimination of the tax as well as non-tariff obstacles and implementing greater marketplace access to all member nations. As an influential member of WTO, India is at the lead of building fair global laws, statutes and shields and supporting the concerns of the developing system. India has fulfilled its promises towards the liberalisation of trade, made in the WTO, by eliminating quantitative limitations on imports and decreasing tariff charges.

Objectives of WTO

To set and execute rules for international trade

To present a panel for negotiating and controlling additional trade liberalization

To solve trade conflicts

To improve the clarity of decision-making methods

LESSON PLAN:-11

Insurance

Insurance is a contract in which an insurer indemnifies another against losses from specific contingencies or perils. It helps to protect the insured person or their family against financial loss. There are many types of insurance policies. Life, health, homeowners, and auto are the most common forms of insurance.

Objectives of Insurance

i)Granting Security To People:

Insurance primarily serves the purpose of granting security against losses and damages to people. It is an agreement enters into by two parties in which one promises to protect other from losses in return for premium paid by other party. One party is insurance company and other one is insured. Insurance companies guarantee the insured of compensation in case of any unfavourable contingency. Insured need to pay premium to insurance companies in return for guarantee of compensation.

ii) Minimisation Of Losses:

Insurance aims at minimisation of losses arising from future risks and uncertainties. It adds certainty of payments to people for happening of uncertain events. Insurance assures the individuals for compensation of losses. It minimises the risk through proper planning and administration. Insurance companies suggest people for taking safety measures like installation of fire detection devices, alarm and cameras system etc. They also join hands with various organisations like fire brigade, health and various organisations which work for reducing losses and damages. This way insurance works toward minimising the happening of various losses.

iii) Diversifying The Risk:

Insurance works towards diversifying the risk among large number of people. It aims at reducing the adverse effects of any future contingency by spreading the overall risk associated with it. It is medium through which people share their risk with others. Insurance companies compensate the insured for losses out of premium they charged from their different policy holders. The loss incurred by single individual is diversified among large peoples by insurance companies by utilising the collected premium amount for paying compensations.

iv) Reduces The Anxiety And Fear:

Insurance policies relieves the individuals of any tension and fear regarding the future risks and uncertainties. It guarantees them of compensation in occurrence of any unfavourable contingencies. Assurance of compensation is the most relieving factor for tensed and worried people. They are certain of payment on occurrence of various uncertain events. It makes them confident and they focus on their activities with full attention.

v) Mobilises The Saving:

Mobilisation of savings is another important objective of insurance. It attracts people for investments by presenting them with numerous insurance policies guarantying of compensation for losses. Large number of people takes this insurance policy in order to insure them against losses and damages. Insurance companies are able to generate large amount of funds in the form of premium that they charged from their policy holders regularly. These funds are then invested by these companies into securities and stock in market and earn incomes. Ideal lying resources with public are employed by insurance companies towards income generating sources.

vi) Generation Of Capital:

Insurance companies leads to capital generation by collecting large amount of funds from public. They regularly charges premium from their large customers for providing them protection against losses. These funds are invested for industrial development by subscribing to shares of companies. Companies are able to get their required capital through insurance industry as this invests in companies for earning dividends and other incomes. This boosts the industry performance and economic growth of country. Also, bigger investments lead to creation of various employment opportunities.

Purpose of Insurance

1.Insurance plans will help you pay for medical emergencies, hospitalization, contraction of any illnesses and treatment, and medical care required in the future.

2.The financial loss to the family due to the unfortunate death of the sole earner can be covered by insurance plans. The family can also repay any debts like home loans or other debts which the person insured may have incurred in his/her lifetime.

3.Insurance plans will help your family maintain their standard of living in case you are not around in the future. This will help them cover the costs of running the household through the insurance lump sum payout. The insurance money will give your family some much-needed breathing space along with coverage for all expenditure in case of death/accident/medical emergency of the policyholder.

4.Insurance plans will help in protecting the future of your child in terms of his/her education. They will make sure that your children are financially secured while pursuing their dreams and ambitions without any compromises, even when you are not around.

5.Many insurance plans come with savings and investment schemes along with regular coverage. These help in building wealth/savings for the future through regular investments. You pay premiums regularly and a portion of the same goes towards life coverage while the other portion goes towards either a savings plan or investment plan, whichever you choose based on your future goals and needs.

Concept of re-insurance and double insurance.

Re-insurance:

Reinsurance implies an arrangement, wherein the insurer transfer a part of risk, by insuring it with another insurance company.

Double insurance:

Double insurance refers to a situation in which the same risk and subject matter, is insured more than once.

Risks in business

I)Insurable:- A risk that conforms to the norms and specifications of the insurance policy in such a way that the criterion for insurance is fulfilled is called insurable risk.

The most common examples are key property damage risks, such as floods, fires, earthquakes, and hurricanes. Litigation is the most common example of pure risk in liability. These risks are generally insurable

There are ideally six characteristics of an insurable risk:

There must be a large number of exposure units.

The loss must be accidental and unintentional.

The loss must be determinable and measurable.

The loss should not be catastrophic.

The chance of loss must be calculable.

The premium must be economically feasible.

Non-insurable:- Uninsurable risk is a condition that poses an unknowable or unacceptable risk of loss for an insurance company to cover. An uninsurable risk could include a situation in which insurance is against the law, such as coverage for criminal penalties.

Principles of insurance

i) Insurable Interest

The right to insure arising out of a financial relationship, between the insured to the insured and legally recognized.

ii)Utmost good faith

An action to disclose accurately and completely, all facts material (material fact) about something that will be insured is requested or not. The meaning is: the insurer must honestly explain everything clearly about the extent of the terms / conditions of the insurer and the insured must also provide a clear and correct for objects or interests of the insured.

iii) proximate cause

It is an active cause, efficient cause that chain of events that lead to a result without the intervention of the start and working actively from a new and independent.

iv) Indemnity

One mechanism by which the insurer provides financial compensation to place the insured in a financial position that he had prior to the loss (Commercial code article 252, 253 and affirmed in section 278).

v) Subrogation

Right transfer request from the insured to the insurer after a claim is paid.

vi)Contribution

While the insurer the right to invite any other person equally bear, but do not have the same obligations to the insured to participate in providing indemnity.

vii) Mitigation of loss:

Mitigation means reducing risk of loss from the occurrence of any undesirable event. This is an important element for any insurance business so as to avoid unnecessary losses. Description: In general, mitigation means to minimize degree of any loss or harm.

Types of insurance

i)Life Insurance:

Life Insurance can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period.

Importance of life insurance:

1. Secure your family's financial future

Life insurance is all about securing you and your family financially. All parents want their children to be taken care of even when they are not around. Life insurance makes sure your loved ones won't suffer financially in your absence.

2. Accomplish your financial goals

We all have some goals in life, for which money needs to be saved. Life insurance plans help you achieve those goals by helping you build a financial corpus with the protection of a life cover. Life insurance plans inculcate a habit of disciplined saving. Paying a little amount as an insurance premium each month will help you accumulate funds. What's even better is that this small monthly amount only keeps growing. So years from now, you'll have enough wealth accumulated to accomplish your more substantial and long-term financial goals.

3. Brings peace of mind

Having life insurance will give you peace of mind. Life is uncertain, and life insurance can offer financial assistance to your family when you are no longer around. You can also plan your retirement by taking a retirement plan where you will receive a monthly income.

4. Save tax

Generally, you can claim an income tax deduction on your life insurance premiums under Section 80Cof the Income Tax Act, 1961**. Pay-outs for death claims are tax-free under Section 10(10D) of the Income Tax Act, 1961**.

ii) Health insurance: Health insurance is a contract between a company and a consumer. The company agrees to pay all or some of the insured person's healthcare costs in return for payment of a monthly premium.

The contract is usually a one-year agreement, during which the insurer will be responsible for paying specific expenses related to illness, injury, pregnancy, or preventative care.

iii)Fire Insurance: Fire Insurance covers the risk of fire.

In the absence of fire insurance, the fire waste will increase not only to the individual but to the society as well.

With the help of fire insurance, the losses arising due to fire are compensated and the society is not losing much.

The individual is preferred from such losses and his property or business or industry will remain approximately in the same position in which it was before the loss.

The fire insurance does not protect only losses but it provides certain consequential losses also war risk, turmoil, riots, etc. can be insured under this insurance, too.

Importance of fire insurance

i)Role in Trade and Commerce: For increasing business and trade fire insurance make vital rules. Business man may be fall in loss because of the fire. To maintain or fulfill that losses businessman have to do the fire insurance. Because of the fire insurance businessman can continue his business after any losses are occurred for the reason of fire by collecting the money of fire insurance.

ii) Role in the Field of Industry: By the fire small or big industry can be fallen. This kind of industry can be protecting by the fire insurance by taking the damage from the insurance company. Fire insurance is also important in industrial sector. If any losses occurred by the reason of fire the insurance company fulfill the losses.

iii)Distribution of Risk and Remedies: Insurance Company takes many insurance contracts from various businessmen for fire insurance but they have to give the demurrage only few businesses where the fire damages the organization. The losses which are occurred by fire are distributed among all the contract of the insurance company. The risk is distributed among all.

iv)Rehabilitation: Fire insurance rehabilitates the person or businessmen who are hampered by the fire. They fulfill their damages by get the money from the insurer. That is why they get the change to carry their business.

v)Protection of National resources and reconstruction: For protection of national resources and reconstruction fire insurance take an important rule. The assets which are damage by the fire can be restored or rebuild by taking the money from the insurance company.

iv) Marine Insurance: Marine insurance provides protection against the loss of marine perils.

The marine perils are; collision with a rock or ship, attacks by enemies, fire, and captured by pirates, etc. these perils cause damage, destruction or disappearance of the ship and cargo and non-payment of freight. So, marine insurance insures ship (Hull), cargo and freight.

Importance of Marine insurance

i)Be it a small boats or large luxury motor cruisers, for most mariners, their boat is not only their pride and joy but also the second largest investment they will make in life, not only the initial purchase but the ongoing investment in new equipment and maintenance.

ii)Insuring yourselves against loss of this asset and against injury or damage to third party persons or property, is therefore a must, not only for peace of mind but also to comply with local requirements of the harbour authority.

iii)All vessels using harbour facilities, slipways, or moorings are required to carry a minimum of £2,000,000 third party liability.

iv)Marine insurance is the oldest form of insurance, and was how the insurance market place giant Lloyds of London started in 1686, in a coffee shop of the same name, where cargo carriers, merchants and vessel owners used to accumulate to discuss current shipping affairs.

v)As primarily an indemnity cover, policies will put you back into the position you were immediately prior to the loss. i.e. if your engine is 5 years old, insurers will only pay for repairs or if replacement is required for an engine of the same age, as such it is important that you regularly review your sums insured to reflect the age of your vessel and items.

vi)CIB can offer cover with some of the most recognised insurers both locally and in the UK be that comprehensive cover or Third party liability cover only.

v) Motor Insurance: Motor insurance is a unique insurance policy meant for vehicle owners to protect them from incurring any financial losses that may arise due to damage or theft of the vehicle. Whether you have a private car, a commercial vehicle, or a two-wheeler, you can purchase a motor insurance policy.

Importance of Motor insurance

i)Offers a financial cushion in the event of a mishap

ii)Motor insurance offers you a financial cushion in case your vehicle is damaged due to accident, earthquake, lightning, floods, etc. Note that getting your vehicle in shape post these events can cost a lot of money. However, things are different with a motor insurance plan.

iii)Also, vehicle insurance reimburses expenses incurred in case you suffer bodily injuries because of an accident. In other words, it compensates for hospitalisation expenses due to an accident involving your vehicle.

iv)Takes care of third-party liability

v)This is another reason as to why vehicle insurance is important. It takes care of third-party liability arising due to damages suffered by a third party involving your vehicle.

vi)To put it otherwise, your insurer pays for the treatment incurred by a third-party, thus protecting you from legal litigations.

vii)Mandatory by law

viii)Any vehicle running on Indian roads has to have motor insurance, especially third-party liability cover. Not having insurance cover can led to a severe penalty. On the other hand, having a motor insurance gives you the peace of mind as you know you have a back up in case your vehicle sustains damages of any kind.

ix)Coverage in case of death

x)Death is perhaps the worst possible outcome after an accident. In case you are the sole breadwinner of your family, your untimely demise can throw your family in a financial insecurity. However, the pay-out from a motor insurance policy can help your family stay financially independent and take care of its day-to-day expenses.

vi) Social Insurance: The social insurance is to provide protection to the weaker sections of the society who are unable to pay the premium for adequate insurance. Pension plans, disability benefits, unemployment benefits, sickness insurance, and industrial insurance are the various forms of social insurance. Insurance can be classified into 4 categories from the risk point of view.
Social Insurance, public insurance program that provides protection against various economic risks (e.g., loss of income due to sickness, old age, or unemployment) and in which participation is compulsory.

v) Fidelity Insurance: Fidelity insurance or fidelity bond insurance is a business insurance product that provides protection against business losses caused due to employee dishonesty, theft or fraud. The policy compensates such losses to business owners within the limitations of the policy.

Fidelity insurance or fidelity bond insurance is a business insurance product that provides protection against business losses caused due to employee dishonesty, theft or fraud. The policy compensates such losses to business owners within the limitations of the policy.

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