Vision for Introducing this Course

Courses have been designed for the students willing to embark on to an illustrious journey to the World of Commerce. Subjects like Accountancy, Business Studies, Commerce & Economics have been explained by qualified professionals Academician.Optional subjects like mathematics and entrepreneurship are also taught by professionals

Subjects Offered: Compulsory Subjects : Accountancy, Economics, Commerce, English Optional Subjects : Mathematics and Business Studies.

  • Professional Faculty
  • Practical Approach
  • Dedicated App

  • Subjects Teachers
    Accountancy 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
    Commerce CMA Ajay Deep Wadhwa

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      I. Drama:

      The Tempest: William Shakespeare (Complete drama)

      II. Echoes:

      1. Salvatore – W. Somerset Maugham
      2. Fritz – Satyajit Ray
      3. Quality – John Galsworthy
      4. To Build a Fire – Jack London
      5. The Story of an Hour – Kate Chopin
      6. The Chinese Statue – Jeffrey Archer
      7. A Gorilla in the Guest Room – Gerald Durrell
      8. The Singing Lesson – Katherine Mansfield
      9. The Sound Machine – Roald Dahl
      10. B. Wordsworth – V.S. Naipaul


      1.Partnership Accounts
      A.Fundamentals of Partnership
      C.Reconstitution of Partnership
      2.Joint Stock Company Accounts
      A.Issue of Shares
      B.Issue of Debentures
      C.Redemption of Debentures
      D.Final Accounts of Companies


      3.Financial Statement Analysis
      Comparative Statements and Common Size Statements.
      4.Cash Flow Statement (Only for Manufacturing Companies)
      Meaning, importance and preparation of a Cash Flow Statement, etc.
      5. Ratio Analysis
      A.Liquidity Ratios
      B.Solvency Ratios
      C.Activity Ratios
      D.Profitability Ratios


      6. Accounting Application of Electronic SpreadSheet
      (i) Concept of Electronic Spreadsheet.
      (ii) Features offered by Electronic Spreadsheet.
      (iii) Application of spreadsheets in generating the following accounting information.
      7. Database Management System (DBMS)
      (i) Concept and Features of DBMS.
      (ii) DBMS in Business Application.

      1. Human Resource Management

      (i) Introduction to Human Resource Management.
      Meaning and definition of Human Resource Management; Characteristics of Human Resource Management: people oriented, comprehensive function, staff function, pervasive, challenging, continuous, individual oriented, development oriented, action oriented, future oriented, interdisciplinary, art as well as science, young discipline; Importance of human resource management.
      (ii) Job and Manpower planning.
      Meaning, relevance and difference between the following: Job Analysis, Job Specification, Job Description, Job Enrichment and Job Enlargement, Manpower Estimation.
      (iii) Staff Recruitment.
      Meaning, definition and characteristics of staff recruitment; sources of recruitment; internal sources (promotion, transfer, ex-employees, recommendation by employees); external sources (advertisements, campus recruitment, casual callers, gate hiring, employment exchanges, placement agencies, labour contractors).
      Differences between internal and external sources of recruitment, their merits and demerits; e-recruitment: concept, benefits and limitations; sources of e-recruitment: internet and intranet.
      (iv) Staff Selection.
      Meaning and definition of staff selection; selection procedures (preliminary screening, application blank, selection test, Group discussion, final interview, medical test, reference check, final approval, placement; brief explanation and importance of each step of the selection procedure); distinction between recruitment and selection.
      (v) Staff Training.
      Meaning and definition of training; distinction between training, education and development; types of training (induction, job, remedial, safety, promotional, refresher; brief explanation of each.); methods of training: on the job and off the job (vestibule, apprenticeship, internship, classroom); distinction between on the job and off the job training.
      Hindrances to training: brief explanation. Benefits and employees.of training to employer
      (vi) Staff Morale.
      Meaning, definition and characteristics of staff morale; Morale Productivity Matrix (brief explanation of the four situations); factors influencing morale (morale depressants and stimulants: an understanding of how the same factor may lower or boost morale); methods of raising morale; indicators of low and high morale; advantages of high morale; disadvantages of low morale.
      (vii) Staff Motivation.
      Meaning, definition and characteristics of staff motivation; difference between motivation and morale; importance of staff motivation; factors influencing motivation: monetary and non-monetary incentives; differences between monetary and non-monetary incentives; Maslow’s theory of the Hierarchy of Human Needs - explanation of the theory with the help of the pyramid, assumptions and criticism of the theory; Herzberg’s Two-factor Theory (Motivation and Hygiene Factors).
      Types of leaves (casual, medical/sick, earned / privilege, maternity/paternity, sabbatical/study, leave without pay: basic understanding only)
      (ix) Staff Leadership.
      Meaning and definition of staff leadership; distinction between Leadership and Management; leadership styles: Autocratic, Democratic, Laissez-Faire (brief explanation, advantages, disadvantages and comparison between each style); Leadership continuum (the concept of situational leadership to be explained briefly); Blake & Mouton Managerial Grid (brief explanation).
      (x) Staff Appraisal.
      Meaning and definition of Performance Appraisal and Potential Appraisal; distinction between the two; Objectives and importance of Performance Appraisal, Methods of Performance Appraisal - merit grading, appraisal by results, appraisal by superior staff: self-appraisal; 360° appraisal (brief explanation of each method and their respective advantages and disadvantages).
      (xi) Staff Promotion and Transfer.
      Staff Promotion - Meaning, definition, benefits and limitations of promotion; Open and Closed policy of promotion (meaning and differences); a brief understanding of the concept of Dry promotion and upgrading; requirements of a sound promotion policy; basis of promotion: seniority, merit, seniority-cum-merit (brief explanation of each and the advantages, disadvantages, comparison between seniority basis and merit basis.)
      Staff Transfer - Meaning, definition and need for transfer. Types of transfers: replacement, versatility, remedial, production (meaning and relevance of each type).
      (xii) Staff Separation.
      Meaning of Staff separation; means of staff attrition: Retirement (Compulsory and Voluntary), Lay off, Retrenchment, Resignation, Suspension, Dismissal: grounds for dismissal (Meaning and distinction only).
      Exit Interview - Meaning and importance.
      (xiii) Emerging trends in Human Resources.
      Flexible Hours, Permanent part time, Work from home, Retainership, Virtual teams, Self-managing teams (SMTs) - only meaning of the above terms.

      2. Business Communication and Correspondence

      (i) Business Communication
      Meaning and definition of communication; importance of communication in business, elements of the Communication Process, Methods of communication: Oral, Written, Gestural, Visual (Meaning, advantages and disadvantages of all these methods), Difference between oral and written communication, Types of communication: On the basis of area of operation (Internal and External), on the basis of relationship (Formal and Informal), on the basis of direction (Horizontal, Vertical and Diagonal, upwards and downwards), Meaning, Advantages and Disadvantages of each; distinction between - Internal and External; Formal and Informal; Horizontal and Vertical Communication; barriers to Communication (Semantic, Physical and Mechanical, Organisational, Socio-Psychological: meaning only, detailed explanation not required); overcoming the barriers to communication.
      (ii) Business Correspondence
      Need and functions of business correspondence.
      Business Letters
      Elements and contents of various business letters; types of letters: solicited and unsolicited letters of application for a job, along with drafting of biodata; Interview letter, Offer of Appointment, Letter of enquiry, Quotation letter, Order letter, Complaint letter, Reply to Complaint letter).
      Meaning and definition of Reports; types of reports: statutory, non- statutory, private, public, informational, interpretative, routine/periodic, special; brief explanation of each type of report; differences between statutory and nonstatutory, private and public, informational and interpretative, routine / periodic and special report. Format of report (report writing not required).
      (iii) Current trends in Business Communication: e-mail and video conferencing.
      Meaning and uses of e-mail and video conferencing.

      3.Business Size and Finance

      (i) Various business entities.
      Meaning, definition and distinction between sole proprietorship, partnership, private limited company and public limited company.
      (ii) Sources of business finance
      A basic understanding of the following: Equity and preference shares, debentures and bonds, retained profits, public deposits, loans, trade credit, discounting of bills of exchange, global depository receipt, Angel investors, venture capitalists, crowd funding, peer to peer funding, factoring.

      4.Globalisation and recent trends in Business

      (i) Globalisation.
      Meaning, nature, opportunities and threats of globalization for business; brief understanding of how globalization has been instrumental in transforming the manner in which Business is conducted.
      (ii) e-Business.
      Meaning, nature and importance of e-business to the buyer and to the seller.
      (iii) Outsourcing.
      Concept of outsourcing; parties involved - the outsourcer, the outsourced and the service provider - the respective advantages and disadvantages to each of the above.
      (iv) Types of Outsourcing.
      Business Process Outsourcing (BPO), Knowledge Process Outsourcing (KPO), and Business Legal Process Outsourcing (LPO).
      Basic understanding of the above.
      (v) Online means of conducting business.
      Business to Consumer (B2C), Consumer to Consumer (C2C), Business to Business (B2B), Intra Business (Intra B) and, Business to Government (B2G), Government to Business (G2B).
      Basic understanding of the above with a few examples.

      5.Business Regulators and Intermediaries

      (i) Regulators and Intermediaries.
      Meaning of the terms Regulators and Intermediaries.
      (ii) Role of Regulators and Intermediaries.
      a.Reserve Bank of India (RBI): Indian banks, foreign banks, Non-Banking Financial Companies (NBFC).
      b.Securities and Exchange Board of India (SEBI): stock exchanges, stock brokers, merchant bankers, depositories, mutual funds and credit rating agencies.
      c.Insurance Regulatory and Development Authority of India (IRDA): insurance companies, insurance agents and insurance brokers.
      d.Pension Fund Regulatory and Development Authority (PFRDA): pension funds and pension aggregators.
      e.Food Safety and Standards Authority of India (FSSAI): food processors, food packers.
      f.Bureau of Indian Standards (BIS): ISI mark given to industrial goods, consumer electrical goods, steel manufacturers.

      1.Business Environment

      Concept and importance of Business Environment.
      Dimensions of Business Environment– Micro (Internal and External factors) and Macro (Economic, social, technological, political and legal).
      S.W.O.T. Analysis - A basic understanding of S.W.O.T. Analysis.


      (i)Capital: Sources of finance for sole trader; partnership; joint stock company; financial planning.
      Importance of finance for business. Sources of finance for different types of business firms. Meaning of financial planning. Factors affecting capital structure. Fixed capital - meaning, factors affecting fixed capital. Working capital – meaning, types; factors affecting working capital.
      (ii)Sources of finance for a Joint Stock Company.
      Different types of shares ,Equity and Preference
      Bonus shares, rights issue, ESOP, Sweat Equity Shares, Retained earnings.Long-term sources of funds.
      Equity shares - features, advantages and disadvantages.Preference shares - features, types advantages and disadvantages; distinction between equity shares and preference shares.
      Bonus and rights issue, ESOP and Sweat Equity Shares - meaning.
      Retained earnings – meaning, merits and demerits.
      (b)Loan capital: debentures.
      Debentures – meaning; kinds of debentures; advantages and disadvantages of debentures. Distinction between shares and debentures.
      (c)Loans from commercial banks and Financial Institutions.
      Loans from commercial banks and Financial Institutions - meaning, advantages and disadvantages.
      (d)Short-term sources of funds.
      Short-term sources of funds - public deposits, Commercial Banks, trade credit, customer advances, factoring, Inter corporate deposits and installment credit. Advantages and disadvantages of various sources of funds.
      (iii)Banking - latest trends.
      Online services- transfer of funds through Real Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT), Immediate payment service(IMPS), issue of demand drafts online meaning and features.
      Online payments, E- Booking meaning, features, advantages and disadvantages.
      Mobile Banking- SMS alerts, transfer of funds, making paymentsadvantages and disadvantages.
      Debit Cards, Credit Cards, ATM meaning features and difference.


      (i)Management: Meaning, objectives and characteristics of management.
      Meaning of Management: as an activity; as a group; as a discipline; as a process. Objectives and characteristics of management.
      (ii)Nature of Management – Science, Art and Profession.
      Self explanatory.
      (iii)Importance of Management.
      Self explanatory.
      (iv)Principles of Management: nature of principles; need for principles. Nature of principles of Management; need for principles of management; Taylor’s 5 scientific principles of Management; Fayol’s 14 principles of Management; Relevance of the principles of Management in today’s business scenario. Comparison of Taylor's and Fayol’s principles.
      (v)Functions of Management: Planning; Organising; Staffing; Directing; Controlling and Coordinating.
      Meaning, steps, importance & limitation; Types of plans; Objectives, policy, procedures, method, role, budget, program.
      Meaning, importance, steps; Structure of organization - line, line and staff, functional and divisional; Formal and informal organization; Meaning and importance of delegation of authority; Decentralization v/s Centralization.
      (c) Staffing:
      Meaning and importance; Recruitment – Meaning and sources; Selection – Meaning and procedure; Training and development - Meaning and difference only.
      Meaning and importance; Supervision- Meaning, functions and span of control; Motivation - Meaning and Maslow’s theory; Leadership- Meaning and qualities of a good leader;
      Communication - Meaning, objectives and process. Barriers to communication and overcoming barriers to communication.
      Meaning, steps and importance; Relationship between Planning and Controlling; Management by Exception.
      Meaning of Coordination; Coordination as an essence of Management.


      (i)Marketing: concept and functions.
      Meaning of markets and marketing. Concept of marketing: traditional v/s modern. Comparison between marketing and selling. Objectives of marketing.
      (ii)Marketing Mix.
      Product- goods and services, branding, labeling and packaging (meaning only).
      Price – meaning , factors determining price.
      Place – channel of distribution (direct and indirect: meaning only) and physical distribution (meaning only).
      Promotion – Meaning and elements.
      (iii)Consumer protection: rights of consumers, methods of consumer protection.
      Need for consumer protection; rights of consumers; methods of consumer protection – self help, legislative measures and consumer associations, Consumer Protection Act, 1986.

      1. Micro Economic Theory

      (i) Demand: meaning, factors affecting demand; Demand function; Law of Demand; derivation of demand curve; movement and shift of the demand curve; exceptions to the Law of Demand. Law of Diminishing Marginal Utility, Law of Equimarginal Utility, consumer’s equilibrium through utility approach (Cardinal) and indifference curve analysis (Ordinal).
      The concept of demand: meaning, types of demand. A demand function to be specified incorporating the determinants of demand. Diagrams should be used in explaining the Law of Demand, reasons for downward slope of demand curve, its derivation using demand schedule. Derivation of market demand curve from individual demand curve.
      (a) Cardinal Utility Analysis: meaning of utility, total utility, marginal utility, relationship of TU and MU, Law of Diminishing Marginal Utility (schedule and diagram, Only assumptions to be taught, criticisms not required), Consumer’s equilibrium – one commodity (schedule and diagram), Law of Equimarginal Utility (statement, schedule) and conditions of consumer’s equilibrium using marginal utility;
      (b) Ordinal Utility Analysis: Indifference Curve – its meaning and properties (including MRS and DMRS), indifference map, consumer’s budget line, Consumer’s equilibrium – condition (to be explained with the help of a diagram).
      (ii) Elasticity of demand: meaning, types of elasticity of demand, measurement of elasticity of demand; factors affecting elasticity of demand.
      Various methods of measurement of the elasticity of demand: point method - percentage method, expenditure method and geometric method. (Numericals required on percentage method only). The cross and income elasticity of demand must be explained. Degrees of elasticity of demand to be explained. Use diagrams wherever necessary.
      (iii) Supply: meaning; difference between stock and supply; determinants of supply; Law of Supply; movement and shift of the supply curve; elasticity of supply Difference between stock (intended supply) and supply (actual supply) with the help of relevant examples. A supply function should be specified and explained. Law of Supply: Meaning, supply schedule and supply curve. Derivation of market supply curve from individual supply curve. Movement and shift of the supply curve, exceptions to the Law of Supply. Elasticity of Supply: Meaning, degrees of elasticity of supply and measurement of elasticity of supply by percentage method and geometric method.
      (iv) Market Mechanism: Equilibrium and disequilibrium; Equilibrium price and effect of changes in demand and supply on the equilibrium price. Simple applications of tools of demand and supply. A basic understanding of the concept of equilibrium. The effects of changes in demand and supply - both along the curves and shift of the curves to be explained. Basic understanding of Price control, rationing, Price ceiling and Floor price with the help of demand and supply curves.
      (v) Concept of production and production function: (short run and long run production 2 function), returns to a factor, returns to scale (meaning only) total, average and marginal physical products; Law of Variable Proportions and its three stages. A production function (concept only). Law of Variable Proportions: statement, assumptions, schedule (for the purpose of understanding and not for testing), diagram and explanation to the three stages.
      (vi) Cost and revenue: Basic concepts of cost; fixed cost, variable cost, total cost, marginal cost and average cost – their relationships; opportunity cost; short run and long run cost curves. Revenue: meaning; average revenue, marginal revenue and total revenue and their relationships under perfect competition and imperfect competition, Producer’s equilibrium. Basic concepts – private cost, economic cost, social cost, money cost, real cost, explicit cost, implicit cost. Cost concepts – Fixed cost, variable cost, total cost, marginal cost, average cost with schedule and diagram; relationship between average cost, marginal cost, total cost (only concepts of long run and short run cost curves, derivations not required). Opportunity cost – meaning only. Difference between accounting cost and opportunity cost. Revenue – Average revenue, marginal revenue, total revenue – concepts and relationships under perfect competition and imperfect competition. Producer’s equilibrium (Profit maximization goal) – meaning; conditions: (a) TR and TC approach along with diagram (b) MR and MC approach along with diagram.
      (vii) Main market forms: perfect competition, monopolistic competition, oligopoly, monopoly, monopsony; characteristics of the various market forms; equilibrium of a firm in perfect competition under short run and long run. Features of perfect competition, monopolistic competition, oligopoly, monopoly and monopsony (meaning only). Equilibrium of a firm in perfect competition under short run (explanation and diagram, shut down point and break-even point) and long run (diagram not required)

      2.Theory of Income and Employment

      Basic concepts and determination of Income and Employment The concept of demand (exante) and effective (expost) demand. Aggregate demand and its components, propensity to consume and propensity to save (average and marginal), equilibrium output (aggregate demand and aggregate supply approach; and saving and investment approach); investment multiplier (its meaning and mechanism with the help of a diagram). Simple numerical based on the above. Meaning of full employment. Problems of excess demand and deficient demand; measures to correct them.

      3.Money and Banking

      (i) Money: meaning, functions of money, supply of money. Meaning, kinds of money, functions of money (primary, secondary and contingent) to be explained; supply of money (only meaning of M0, M1, M2, M3 & M4). Inflation: meaning, demand pull and cost push (diagrams not required)
      (ii) Banks: functions of commercial bank; high powered money, credit creation by commercial banks; Central Bank: functions. Basic understanding of the functions of commercial banks, credit creation process with limitation. The regulatory role of the Central Bank, its functions and the way it controls the flow of credit needs to be explained. A brief mention may be made of quantitative CRR, SLR, Bank Rate policy (repo rate and reverse repo rate) and Open Market Operations) and qualitative methods.

      4. Balance of Payment and Exchange Rate Balance of Payment

      – meaning, components; foreign exchange – meaning, determination of exchange rate (Flexible). Balance of Payment - Meaning and components; Causes of disequilibrium and how the disequilibrium can be corrected; Foreign Exchange Rate – meaning, meaning of fixed and flexible exchange rate, determination of exchange rate in a free market. Concepts of depreciation, appreciation, devaluation and revaluation (meaning only).

      5. Public Finance

      (i) Fiscal Policy: meaning and instruments of fiscal policy. Meaning and instruments of fiscal policy – Public Revenue: Meaning, taxes (Meaning and types), difference between direct and indirect taxes; Public Expenditure: Meaning and importance; Public Debt: Meaning and redemption; Deficit Financing: meaning.
      (ii) Government Budget: meaning, types and components. Meaning and types of Government budget – union, state; components – revenue and capital. Concept of deficit budget: revenue deficit, fiscal deficit, primary deficit – their meaning and implications.

      6. National Income

      (i) Circular flow of Income. A simple model explaining the circular flow of income with two, three and four sector models with leakages and injections.
      (ii) Concepts and definition of NY, GNP, GDP, NNP, private income, personal income, personal disposable income, National Disposable Income and per capita income; relationship between the income concepts. A brief understanding of the mentioned national income aggregates is needed. The concepts of GNP and NNP should be explained both at factor cost and market prices, real GDP and nominal GDP, National Disposable Income (Gross and Net), GDP and Welfare, GDP as an indicator of Economic welfare.
      (iii)Methods of measuring National Income: product or value-added method; income method and expenditure method with simple numericals based on them. Simple numericals based on all the methods to be covered for better understanding of the concept. Precautions and difficulties of measuring National Income for each method.


      1. Relations and Functions
      (i) Types of relations: reflexive, symmetric, transitive and equivalence relations. One to one and onto functions, inverse of a function.
      (ii) Inverse Trigonometric Functions
      Definition, domain, range, principal value branch. Elementary properties of inverse trigonometric functions.
      2. Algebra
      Matrices and Determinants
      (i) Matrices
      Concept, notation, order, equality, types of matrices, zero and identity matrix, transpose of a matrix, symmetric and skew symmetric matrices. Operation on matrices: Addition and multiplication and multiplication with a scalar. Simple properties of addition, multiplication and scalar multiplication. Noncommutativity of multiplication of matrices and existence of non-zero matrices whose product is the zero matrix (restrict to square matrices of order upto 3). Invertible matrices and proof of the uniqueness of inverse, if it exists (here all matrices will have real entries).
      (ii) Determinants
      Determinant of a square matrix (up to 3 x 3 matrices), properties of determinants, minors, co-factors and applications of determinants in finding the area of a triangle. Adjoint and inverse of a square matrix. Solving system of linear equations in two or three variables (having unique solution) using inverse of a matrix.
      3. Calculus
      (i) Continuity, Differentiability and Differentiation. Continuity and differentiability, derivative of composite functions, chain rule, derivatives of inverse trigonometric functions, derivative of implicit functions. Concept of exponential and logarithmic functions.
      Derivatives of logarithmic and exponential functions. Logarithmic differentiation, derivative of functions expressed in parametric forms. Second order derivatives.
      (ii) Applications of Derivatives
      Applications of derivatives: rate of change of bodies, increasing/decreasing functions, tangents and normals, maxima and minima (first derivative test motivated geometrically and second derivative test given as a provable tool). Simple problems (that illustrate basic principles and understanding of the subject as well as real-life situations).
      (iii) Integrals
      Integration as inverse process of differentiation. Integration of a variety of functions by substitution, by partial fractions and by parts, Evaluation of simple integrals of the following types and problems based on them.
      Fundamental Theorem of Calculus (without proof). Basic properties of definite integrals and evaluation of definite integrals.
      (iv) Differential Equations
      Definition, order and degree, general and particular solutions of a differential equation. Solution of differential equations by method of separation of variables solutions of homogeneous differential equations of first order and first degree. Solutions of linear differential equation of the type: dy/dx + py = q, where p and q are functions of x or constants. dx/dy + px = q, where p and q are functions of y or constants.
      4. Probability
      Conditional probability, multiplication theorem on probability, independent events, total probability, Bayes’ theorem, Random variable and its probability distribution, mean and variance of random variable.


      5. Vectors
      Vectors and scalars, magnitude and direction of a vector. Direction cosines and direction ratios of a vector. Types of vectors (equal, unit, zero, parallel and collinear vectors), position vector of a point, negative of a vector, components of a vector, addition of vectors, multiplication of a vector by a scalar, position vector of a point dividing a line segment in a given ratio. Definition, Geometrical Interpretation, properties and application of scalar (dot) product of vectors, vector (cross) product of vectors.
      6. Three – dimensional Geometry
      Direction cosines and direction ratios of a line joining two points. Cartesian equation and vector equation of a line. Cartesian and vector equation of a plane. Angle between (i) two lines, (ii) two planes, (iii) a line and a plane. Distance of a point from a plane.
      7. Application of Integrals
      Application in finding the area bounded by simple curves and coordinate axes. Area enclosed between two curves.


      8. Application of Calculus
      Application of Calculus in Commerce and Economics.
      9. Linear Regression
      – Lines of regression of x on y and y on x.
      – Scatter diagrams
      – The method of least squares.
      – Lines of best fit.
      – Regression coefficient of x on y and y on x.
      – bxy x byx = r2, 0 = bxy = byx = 1
      – Identification of regression equations
      – Properties of regression lines.
      – Estimation of the value of one variable using the value of other variable from appropriate line of regression.
      10. Linear Programming
      Introduction, related terminology such as constraints, objective function, optimization, different types of linear programming (L.P.) problems, mathematical formulation of L.P. problems, graphical method of solution for problems in two variables, feasible and infeasible regions (bounded and unbounded), feasible and infeasible solutions, optimal feasible solutions (up to three non-trivialconstraints).

    Study Material

      LESSON PLAN:-01

      (i) Introduction to Human Resource Management.
      Meaning and definition of Human Resource Management:
      Human resource management (HRM or HR) is the practice of recruiting, hiring, deploying and managing an organization's employees. HRM is often referred to simply as human resources (HR).
      Characteristics of Human Resource Management:
      i)People oriented:- People-oriented leadership is a leadership style commonly used by organizations. The people-oriented style focuses on interpersonal relationships within organizations, attempting to improve such relationships in order to increase productivity and create a positive work environment.
      ii)Comprehensive function:- It is of broad scope or content; including all or much, and (of a car insurance policy) providing protection against most risks, including third-party liability, fire, theft, and damage, having the ability to understand.
      iii)Staff function:- A staff function supports the organization with specialized advisory and support functions. For example, human resources, accounting, public relations and the legal department are generally considered to be staff functions. Both terms originated in the military.
      iv)Pervasive:- Its a spreading through every part of something.
      v)Challenging:- It difficult in a way that is usually interesting or enjoyable.
      vi)Continuous:- It marked by uninterrupted extension in space, time, or sequence.
      vii)Individual oriented:- It concerned primarily with oneself and especially with one's own desires, needs, or interests.
      viii)Development oriented:- Development-oriented organizations have a strong emphasis on developing their employees and practices and are not afraid to shake their foundations when it's necessary.
      ix)Action oriented:- It is willing or likely to take practical action to deal with a problem or situation, Staff needed to become more creative, action-oriented, and efficient.
      x)Future oriented:-It is a time perspective that is focused on the future, especially on how to achieve one's desired goals.
      xi)Interdisciplinary: It is combining or involving two or more professions, technologies, departments, or the like, as in business or industry.
      xii)Art as well as science:- It is called an art because managing requires certain skills which are personal possessions of managers. Science provides knowledge & art deals with the application of knowledge and skills.
      xiii)Young discipline:- It is a branch of knowledge, typically one studied in higher education.
      Importance of human resource management:
      A human resource department is also in charge of keeping employees safe, healthy, and satisfied. With proper HR management, workplace policies keep up with necessary protective measures and implementation and provide solutions to issues between team members, avoiding risk for the company and its employees.
      Daily duties for an HR manager who specializes in employee relations may include:
      a)Creating workplace safety policies
      b)Ensuring the organization follows federal and state occupational laws
      c)Addressing employee concerns and complaints
      d)Preventing and dismantling harassment or discrimination in the workplace
      e)Managing employee relationships
      f)Facilitating communication between leadership and employees
      Job and Manpower planning.
      Manpower Planning which is also called as Human Resource Planning consists of putting right number of people, right kind of people at the right place, right time, doing the right things for which they are suited for the achievement of goals of the organization.
      Job Analysis:-
      Job analysis is the process of gathering and analyzing information about the content and the human requirements of jobs, as well as, the context in which jobs are performed. This process is used to determine placement of jobs.
      A job description usually lists out the job title, location, job summary, working environment, duties to be performed on the job, etc.
      A job specification lists out the qualifications, experience, training, skills, emotional attributes, mental capabilities of an individual to perform the job.
      A job description measures the tasks and responsibilities attached to the job.
      A job specification measures the capabilities that the job holder must possess to perform the job.
      A job description offers ample information about the job which helps the management in evaluating the job performance and defining the training needs of an employee.
      A job specification helps the candidates who are applying for a job to analyse whether they are eligible for a particular job or not.
      A job description statement helps the organisation to be clear about 'Who should do what'.
      A job specification statement helps the management to make decisions regarding promotion, bonuses, internal transfers, and salary increases.
      Manpower Estimation:-
      Estimating manpower requirement: Staffing process begins with the estimation of manpower requirement which means finding out number and type of employees needed by the organisation in near future.
      Staff Recruitment
      Recruitment refers to the process of identifying, attracting, interviewing, selecting, hiring and on boarding employees. In other words, it involves everything from the identification of a staffing need to filling it. Depending on the size of an organization, recruitment is the responsibility of a range of workers.
      Characteristics of staff recruitment:
      The following important points so far as the recruitment is concerned are:
      (1) Recruitment is an important process of attracting applicants with certain capabilities, skills, attitudes etc., to job vacancies in an organisation.
      (2) Recruitment helps to develop and maintain adequate manpower resources.
      (3) Recruitment helps to create a pool of applicants from which new employees can be selected.
      (4) Recruitment is a matching process.
      (5) Recruitment lays foundation for selection of employees.
      (6) Recruitment is a two-way process. It helps both i.e., a recruiter and a recruitee. A recruiter gets a choice as to whom to recruit from among the pool. While a recruitee also can decide whether he should apply for the job in the organisation considering his abilities, future prospects and his expectations.
      Sources of recruitment:
      1.Internal sources:-
      Promotion: Promotion refers to a variety of actions intended to raise greater awareness or advancement of an item. In terms of a career, promotion refers to advancing an employee's rank or position in a hierarchical structure.
      Transfer: A transfer involves the movement of assets, monetary funds, and/or ownership rights from one account to another. A transfer may require an exchange of funds when it involves a change in ownership, such as when an investor sells a real estate holding.
      Ex-employees: Former Employee means all individuals (including common law employees, independent contractors and individual consultants) who were employed or engaged by the Company in connection with the Business but who are no longer so employed or engaged on the date hereof.
      2.External sources:-
      Advertisements: The definition of advertising is an industry used to call the attention of the public to something, typically a product or service. The definition of advertisement is the means of communication in which a product, brand or service is promoted to a viewership in order to attract interest, engagement, and sales.
      Campus recruitment: Campus recruitment is a strategy for sourcing, engaging and hiring young talent for internship and entry-level positions. College recruiting is typically a tactic for medium- to large-sized companies with high-volume recruiting needs, but can range from small efforts (like working with university career centers to source potential candidates) to large-scale operations (like visiting a wide array of colleges and attending recruiting events throughout the spring and fall semester).
      Casual callers: Many business organisation keep a database of unsolicited applicants, i.e. casual callers in their files. This source of recruitment is generally resorted to by manufacturing organisations to fill up vacancies at the labour level. It is an inexpensive method of recruitment.
      Gate hiring: The concept of gate hiring is to select people who approach on their own for employment in the organisation. This happens mostly in the case of unskilled and semi-skilled workers.
      Employment exchanges: An Employment Exchange is an organisation that provides employment assistance on the basis of qualification and experience.
      Placement agencies: Placement agency means any agency or bureau or contractor or person(s) or association, whether registered or otherwise, engaged in the placement of domestic workers with prospective employers and includes such agency or person offering such services through any print, electronic or any form of communication.
      Labour contractors: They supply the required workers to the organisations especially engaged in manufacturing. They keep a close contact with labourers. Through these contractors, workers are appointed in factories at a very short notice.
      Merits of internal sources:-
      Internal recruitment or filling vacancies within the organization have the following advantages.
      1.Higher Motivation level: Internal recruitment may help the employees to boost their performance. Promotions at a higher level lead to a chain of promotions at the lower levels. This also increases their status and pay, and motivates the employees to improve their performance. This increases their motivation and commitment to the organization. The employees, thus remain loyal and satisfied with the organization.
      2.Simple Process: Internal recruitment makes the process of selection and placement simple. The working of the employees can be evaluated in a better way. This type of recruitment is better as the employees know about the organization well.
      3.Develops future managers: Transfer is a method through which employees are trained for higher jobs. The people who are transferred within the organization do not need induction or orientation training.
      4.No over or under staffing: Another benefit of transfers is that the organization can shift employees from one department to another where there is a shortage.
      5.Economical: The process of internal recruitment is cheaper in comparison with external sources.
      Demerits of Internal Sources
      The limitations of internal sources are as follows:
      1.Lack of fresh talent: The internal sources reduce the opportunity of getting fresh talents. Therefore, being completely dependent on internal sources can give rise to the danger of inbreeding by not letting new people join the organization.
      2.Decrease in enthusiasm level: The employees tend to become lazy because they know that they will be promoted.
      3.Low productivity: The productivity of the organization may get hampered due to the frequent transfer of employees.
      4.Lack of competition: The employees may lose their motivation and spirit of competition as there is no competition from the outside world.
      5.Limited choice: All the organizations cannot fill in all their vacancies through internal sources of recruitment, especially new organizations.
      Merits of External Sources
      Following are the advantages of the external sources of recruitment:
      1.Qualified Personnel: With the help of external sources of recruitment, the management can get skilled and trained candidates who are qualified for that particular job which is vacant in the organization.
      2.Wider Choice: When advertisements regarding vacancies are made widely, several applicants from outside the organization apply. Therefore, the management has a wide variety of choices.
      3.Fresh Talent: Sometimes, the present employees in the organization may not be enough or able to fulfil the requirements of the organization. Therefore, external sources are very useful in bringing new and fresh talents to the organization.
      4.Competitive Spirit: If an organization utilizes external sources, the existing employees will have to compete with outsiders. They will be motivated to work harder to perform better.
      Demerits of External Sources
      Following are the disadvantages of the external sources of recruitment:
      1.Dissatisfaction among existing staff: External recruitment may result in dissatisfaction and frustration among present employees. The employees may feel deprived of their chance to get a promotion.
      2.Lengthy process: Recruitment from external sources follow long procedures and thus, can be time-taking. The organizations have to evaluate and give notice about any vacancy available, and then wait for the applications to be processed.
      3.Costly process: The process of recruitment through external sources can be quite expensive. Advertisement and evaluation of applications for selection can be costly as a lot of money has to be spent.
      E-recruitment: E-recruitment, sometimes referred to as online recruitment, is a combination of methods, tools, and activities that in one way or the other use the internet to find, select, attract, hire, and onboard the job candidates.
      Benefits of E-recruitment:-
      1. Cost-effectiveness
      The traditional recruitment process requires quite a lot of expenses. You need to pay for advertisement, in some cases, there are travel expenses, or you might even have to pay a third-party recruiter to get the best results.
      When it comes to e-recruiting, all the costs are minimized. The advertisement is either free or very cheap, a lot of process automation makes sure there is less staff you need to pay to, and the flux of candidates makes the process much shorter, which saves funds as well.
      2. Better Chance of Finding the Best Candidate
      Firstly, online recruitment reaches a much bigger audience. With more applicants, there is a much better chance for you to find the right person for the job. Secondly, with the help of some HR software, you can create a detailed profile of an ideal candidate. Having that, you will know exactly what you’re looking for, thus you’ll be able to create the right job description and a job offer on the job board. The well-researched and measured approach will have a much better effect than simply posting about your position, both in terms of engaging with candidates and finding the right person for the job.
      3. Easier Recruitment Process Management
      The recruitment process often means managing an unhealthy number of documents and processes. With even more applicants, you gain more resumes, cover letters, recommendation letters from previous jobs, and other documents.
      With the help of HR software, all of this becomes much easier to manage. You can sort the documents by a specific parameter, access them whenever needed, and delete the undesirable ones. It saves a lot of time for you to work on things that actually matter, pay attention to the candidates, and communicate with them more effectively.
      4. Better Control of the Employer Brand
      Employer brand matters a lot for the recruitment of the best talent, and it is even more important for electronic recruitment. In most cases, the first thing each candidate will know about your company is what they can find on the web. Through e-recruitment tools, you will be able to control that image.
      On your social media pages, you can effectively highlight the most important aspects of your employer brand, such as your corporate culture, values, goals you work to achieve, strategies you use to do that. You can strengthen that image further by personalizing your interactions with potential candidates in your personal messages.
      Disadvantages of e-recruitment
      1. A Lot of Unsuitable Candidates
      Having a large number of applicants has its upsides, but it has its downsides as well. Some of the candidates you will review will not be qualified enough to take the position, as people often apply just to check if they have any chance of getting the job.
      What’s worse is that you may encounter fraudulent applicant that purposefully apply to the position they will never get. Sometimes it is done to gain more information about the company and its security weak spots, sometimes the attacks are aimed directly at the HR specialist. Either way, it’s a problem you can’t avoid with e-recruitment.
      2. Impersonal and Informal
      Another big downside of e recruiting is that it is based on online interaction, which, while efficient, often seem impersonal, especially compared to face-to-face interviews. The closest thing that you can do is video chat.
      One other persistent belief about online interactions is that they are more informal. That’s why the applicants for higher job positions are often interviewed in-person so that the company seems more esteemed. In the wake of the COVID-19 pandemic, this belief begins to shed, as forced in-person interactions are associated with companies’ disregard for the health and safety of their employees and the applicants
      Sources of e-recruitment:
      Two sources of e-recruitment are :
      1. Resume Scanners:- A resume keyword scanner is software job hiring sites use to look for specified keywords in resumes and then sort those applications into groups based on the results. It then matches qualified applicants to jobs for a hiring manager to review.
      2. Job portals:- A job portal, also known as a career portal, is a modem name for an online job board that helps applicants find jobs and aids employers in their quest to locate ideal candidates. Some government agencies, non-profit organizations, universities and private businesses have their own job portals that applicants can access on the organization’s website.
      A global system of interconnected computers, using a standardised Internet Protocol suite for communication and sharing information is called the Internet.
      Staff Selection.
      Staff selection is the process of interviewing and evaluating the candidates for a specific job and selecting an individual for employment based on certain criteria (qualifications, skills and experience).
      Selection procedures
      Preliminary screening:- This is a very general and basic interview conducted so as to eliminate the candidates who are completely unfit to work in the organisation. This leaves the organisation with a pool of potentially fit employees to fill their vacancies.
      Importance of Preliminary screening:-
      Right from application review to making final hiring decisions, pre-employment testing gives a sense of confidence that you have selected the most suitable candidate for the position. This eliminates the risk of bad hires, unnecessary expenses and wasted time.
      Application blank:- An application blank is a highly structured interview in which the questions have been standardized and determined in advance. Generally the information requested on an application blank is concerned with what might be called personal history.
      Importance of Application blank:-
      This serves as a personal record of the candidate bearing personal history profile, detailed personal activities, skills and accomplishments.
      Selection test:- Before an organisation decides a suitable job for any individual, they have to gauge their talents and skills. This is done through various employment tests like intelligence tests, aptitude tests, proficiency tests, personality tests etc.
      Importance of Selection test:-
      Selection tests that help assess a candidate's ability to perform specific tasks are often called 'work sample' tests. These types of tests aim to replicate actual job tasks or situations to assess if the candidate has the skills, experience or qualifications to carry out the work.
      Group discussion:- A group discussion typically forms a part of the selection process used by organisations and educational institutions. The candidates talk about the given topic to present facts, opinions and conclusions. Employers use this technique to screen candidates and assess their soft skills.
      Importance of Group discussion:-
      It improves your thinking, listening and speaking skills. It also promotes your confidence level. It is an effective tool in problem solving, decision making and personality assessment. GD skills may ensure academic success, popularity and good admission or job offer.
      Final interview:- A final interview is generally the last interview you will encounter before learning whether a company has decided to make you an offer of employment. At this stage, you've likely had several other types of interviews, such as with a hiring manager or about your technical skills.
      Importance of Final interview:-
      If done effectively, the interview enables the employer to determine if an applicant's skills, experience and personality meet the job's requirements. It also helps the employer assess whether an applicant would likely fit in with the corporate culture.
      Medical test:- The medical exam is also a very important step in the selection process. Medical exams help the employers know if any of the potential candidates are physically and mentally fit to perform their duties in their jobs.
      Importance of Medical test:-
      The medical exam is also a very important step in the selection process. Medical exams help the employers know if any of the potential candidates are physically and mentally fit to perform their duties in their jobs.
      Reference check:- Reference check refers to a recruiting process method used by hiring managers/recruiters to get more information about a candidate by contacting his/her previous employers, schools etc.
      Importance of Reference check:-
      One of the most important benefits of reference checking is that it can help you verify facts on the applicant's resume and job application. Don't hesitate to ask the reference to verify some of this information, such as job title, job duties, workplace responsibilities, training and skill sets.
      Final approval:- This is the final step in the selection process. After the candidate has successfully passed all written tests, interviews and medical examination, the employee is sent or emailed an appointment letter, confirming his selection to the job.
      Importance of Final approval:-
      After a candidate has cleared all the hurdles in the selection procedure, he is formally appointed by issuing him an appointment letter or by making a service agreement with him. No selection procedure is fool proof and the best way to judge a person is by observing him working on the job.
      Placement:- When the candidate is selected for a particular post and when he reports to duty, the organization has to place him or her in the job for which he or she is selected which is being done through placement. Placement is the act of offering the job to a finally selected candidate.
      Importance of Placement:-
      1. If the employees are properly placed, they will enjoy their work and organisation will not have to suffer the problem of employee turnover.
      2. If employees don’t like their work, they start making excuses from the job and remain absent. Effective placement will keep the absenteeism rate low.
      Staff Training
      Meaning and definition of training:
      Staff training is a program that is designed to equip employees with the knowledge and skills that they need to perform their jobs and improve their performance. It often occurs when new staff join an organization (also known as the on boarding process) but can also be part of a commitment to ongoing training and development that many organizations offer their employees.
      Types of training:-
      Induction:- Induction training is a term professionals in the Human Resources field use for employee training. It is a form of introduction that allows employees and new hires “learn the ropes” of their new job or position and get started easily.
      Job:- Job training means any type of instruction to an individual who is impoverished that enables him to acquire vocational skills so that he can become employable or able to seek a higher grade of employment.
      Remedial:- Remedial Training shall mean that training designed to correct the behavior of personnel who have failed to perform their duties with the skill, knowledge and/or ability expected and/or required of them, or have otherwise demonstrated a need for additional training.
      Safety:- Safety training describes the set of activities aimed at providing workers with the knowledge and skills to perform their duties safely and effectively.
      Promotional:- The Promotional Training means preparing the potential candidate to handle more duties and responsibilities, thereby making him/her eligible for promotion to higher jobs in the organization. Simply, training given to the efficient workers of an organization who are likely get promoted in the near future.
      Refresher:- Refresher training is an aspect of retraining taken by a person already qualified or previously assessed as competent in a field with the intention of updating skills and/or knowledge to a changed standard, or providing the opportunity to ensure that no important skills or knowledge have been lost due to lack of use.
      Methods of training:
      Training methods are used for upgrading and enhance the skill and knowledge of an employee to best perform an assigned job within the organization. The selection or a Training Methods are based on the nature of Job, types and the number of the workers in an organization and the cost involved for choosing a particular Training Method.
      On the job and off the job:-
      Vestibule: Vestibule means an entrance hall through which main hall is entered. Vestibule training is provided in a separate hall or room in which actual work environment is created. Machines and equipments are installed; files and other required materials are kept ready in the training place in which actual work takes place.
      Apprenticeship:- This method of training is in vogue in those trades, crafts and technical fields in which a long period is required for gaining proficiency. Apprenticeship training aims at providing necessary background practical knowledge and necessary experience to the worker. Its purpose is to prepare employees for skilled occupations, like carpentry, plumbing, etc. It combines classroom instructions, demonstrations and on the job training.
      Internship:- Generally theoretical and practical training is provided to the students of various colleges before they actually start their actual career in corporate world. Most of the time after completions of internship the company offers the student to join them as a employee.
      Classroom:- Classroom training means instruction conducted in person by an instructor to students in an organized manner utilizing a lesson plan.
      Hindrances to training:-
      1.Program Focus vs Organizational Focus- Typically, your employees' attention is on the program or project delivery, not on organizational improvement. Employees put their energy and time into delivering assigned projects and programs.
      2.Limited Resources- The phrase limited resources means that the quantities of productive resources available to the economy are finite. The economy has a finite amount of labor, capital, land, and entrepreneurship that it can use for production. It might have a lot of those resources, but the quantities are NOT infinite.
      3.Resistance to Change- Resistance to change is unwillingness to adapt to new circumstances or ways of doing things. It can happen with individuals, relationships, or within organizations. There are many reasons for resistance, but at its heart, resistance is rooted in fear of the unknown.
      4.Lack of Leadership- Some common signs of bad leadership include passive aggressive communication, failure to own up to mistakes, not listening to concerns, or creating an intimidating work environment.
      5.Non-Learning Culture- “An organization that has a culture that, in effect, closes off communication as well as stifles honest feedback and reflection does not allow for organizational learning to occur.”
      The benefits of training are as follows:
      1.Increased productivity and performance of employees.
      2.Improved organisational structure
      3.Reduced supervision required
      4.Uniformity in the work processes
      5.Improved knowledge of organisational goals and objectives
      Staff Morale:-
      Staff morale is about how employees feel at work, how they find drive for themselves and influence others to do their best.
      Characteristics of Staff morale:-
      (1) Morale is related to the state of mental health which is closely associated with loyalty, egoism, enthusiasm etc.
      (2) Morale is an identification of group interest and that of the interest of the enterprise, fellow workers and the job.
      (3) Morale is the subjective feeling of the employees. Morale is said to be high when there is satisfaction.
      (4) Morale cannot be measured directly but is reflected in productivity, discipline, turnover etc.
      Morale Productivity Matrix
      i) High Morale – High Productivity — High morale will lead to High Productivity if proper leadership is provided. This situation is likely to occur when employees are motivated to achieve high performance standards.
      ii) High Morale – Low Productivity — The situation arises when employees spend their time and energy in satisfying their personal objectives unrelated to the company’s goals. Faulty machinery, lack of training, ineffective supervision and restrictive norms of informal groups can also lead to low productivity.
      iii)Low Morale – High Productivity — Low morale cannot result in high productivity for a long period. This situation occurs for a temporary period due to fear of loss of job, exceptionally good supervision and machine paced Work.
      iv)Low Morale – Low productivity — If a person has low morale it will positively lead to low productivity. It is a normal relationship.
      Factors influencing morale
      Following are the factors which Influence Morale:-
      i) Nature of Work :- Meaningful and satisfying job helps to improve employees morale. Morale tends to be low when the job provides no challenge and satisfaction.
      ii) Working condition :- Physical work environment, Job security, wages Influence the employees morale. When the wages are fair, job is secure and the opportunities for career growth is there then the morale is likely to be high
      iii) Supervision :- Competent, dependable and fair minded leadership can build high morale and win the confidence of employees ,through friendly and sympathetic behavior.
      iv) Interpersonal relation :- The confidence of an employee in his co-workers influence morale. A feeling of togetherness and common goals helps to increase employees morale.
      Methods of raising morale:-
      The following are the methods of Increasing morale of employees:
      1. Expert Approach method: The basic feature of this approach is the use of an expert in making a spot survey. He tours the plant, talks to the key people and writes a report to the management in which he gives advice about the measures to boost the morale.
      2. Industrial Spy Approach method: Under this method, an expert whose true identity is unknown to the employees is given a job in a plant under the guise of a worker. He should mingle with the fellow workers and thus acquire intimate knowledge of the group and its complaints. Then his findings are passed on to the top management. This approach is an age old method. However, this method, is now primarily of historical interest only.
      3. Industrial Counselor Method: Under this method, an industrial counselor is appointed in the personnel department. He acts as a communication channel between employees, listen their problems and pass on the information to the management. He is also helpful in promoting group co-operation.
      4. Employees Problem Approach method: It is considered as the most promising method in the process of increasing the morale. This approach is basically a form of role playing. Under this method, a group meeting is called and pressing problems are presented to the employees by the discussion leader. The group leader must be well trained in the art of conducting democratic meetings. He should encourage free and frank discussion and should also assure that their views will be considered by the management. When the group reaches a decision, it will be conveyed to the top management. These four methods of increasing employees morale differ in terms of the degree to which they have been used by industry. However, the employees problem method is widely used than the other three methods. Since this method attempts to put democracy to work, this deserves serious consideration.
      Indicators of Low Morale:- and high morale:-
      1. High turnover
      A high turnover rate, or employees leaving your organization, can signify low morale among employees. Workers don’t usually quit their jobs if they’ve had a positive experience and the benefits and compensation are better than the competition. If your employees are starting to leave in greater numbers than before, chances are they’ve experienced burnout, they aren’t connecting with their co workers, the benefits don’t outweigh the stress or employee experience, or they feel their projects have turned into menial tasks.
      2. Low or reduced productivity
      Another tell-tale sign of low morale is dwindling productivity in the workplace. When employees aren’t engaged in their work, they’ll stop doing their regular tasks or produce subpar results. This can happen if employees feel unappreciated, disconnected from their coworkers, or micromanaged. It’s also a common sign of employees losing interest or meaning in their work.
      3. Lack of attendance
      When employees stop showing up for work or begin to take more sick days, they’re likely experiencing burnout and low morale. Employees who have lost the motivation to continue with their projects or no longer see any meaning behind their work will begin to disengage from your organization as they prepare to find a new job.
      4. A negative attitude
      While frustration, stress, and discouragement are normal emotions in the workplace from time to time, a persistent negative attitude from an employee who was once positive can be a sign of low morale.
      Indicators of high morale:-
      Following are some of the significant signs of high morale of a group:
      1. A tendency for the group to hold together not merely as a result of external pressures but rather through internal cohesiveness.
      2. A lack of tendency of its members to divide into sub¬groups.
      3. An ability of the group to adapt itself to changing circumstances and to handle internal conflicts.
      4. A feeling of belongingness and togetherness among the members of the group.
      5. A commonness of goals among the members of the group.
      Advantages of high morale:-
      1. High employee morale results in increased teamwork — With high employee morale comes heightened levels of job satisfaction and general feelings of wellbeing. As a result, individuals are more inclined to work together and collaborate as a well-functioning, cohesive unit. Employees with good levels of morale have a better outlook regarding their work. They also feel more secure in their role and invested in your company, making them motivated to work hard and accomplish more as a team.
      2. Companies with high levels of employee morale have better retention — Happy employees want to remain at your company for the long haul. This is why companies with high levels of morale find their retention levels are greater. Retaining employees is important to your bottom line. The cost of high turnover can be overwhelming for a growing business — especially when you’re constantly trying to replace employees with particular and desirable skill sets. Employee satisfaction and retention rates are key performance indicators for business success. So it is worth your while to prioritize employee morale and keep hold of valued members of your team.
      3. Good morale improves office relationships — When morale is high, employees tend to exhibit fewer negative behaviors and experience less workplace stress. This high morale ultimately results in improved workplace relationships between employees and with management. When employees have a better relationship with their managers, they feel more confident to ask for training and clarification on their goals and organizational objectives. This relationship can make all the difference in terms of engagement, performance, and productivity.
      4. The higher the morale, the more productive the team — Unsurprisingly, when employees are positive about their work and enjoy their environment, they are much more productive and willing to put in discretionary effort. This fact is backed up by a huge body of research. According to a 2014 University of Warwick study, when people experience happiness-inducing activities their productivity spikes. In 2004, researchers Rath and Clifton found that employees were far more productive when they had more positive than negative exchanges at work. Furthermore, a Wharton Business School study confirmed a long-term link between happy companies and shareholder returns.
      5. Happier companies struggle less with absenteeism — Unsurprisingly, not all sick days are due to an actual legitimate illness. The truth is, sometimes employees decide to take a mental health day or call in sick because they can’t find the enthusiasm to turn up. They do this because they are unhappy with their role, the company, and what they do.
      6. Greater morale results in greater attention to detail — Understandably, low morale often causes employees to stop caring about their jobs, which leads to more mistakes. This fact is true in every field but is especially obvious in medicine. According to research, doctors who are in a good mood make diagnoses quicker and more accurately than their unhappy colleagues.
      Disadvantages of low morale:-
      Poor communication with management and team.
      Frequent absenteeism.
      Excessive complaining over small matters.
      Increased employee conflicts or fighting amongst staff.
      Poor work quality.
      Increased customer complaints.
      Staff Motivation:
      Employee motivation is the enthusiasm, energy level, commitment, and amount of creativity that an employee brings to the organization on a daily basis.
      Characteristics of staff motivation:
      1. Interaction between the individual and the situation:
      Motivation is not a personal trait but an interaction between the individual and the situation.
      2. Goal-directed behaviour:
      Motivation leads to an action that is goal oriented. Motivation leads to accomplishment of organizational goals and satisfaction of personal needs.
      3. Systems oriented:
      Motivation is influenced by two forces:
      a. Internal forces:
      These forces are internal to the individual, i.e., their needs, wants and nature.
      b. External forces:
      These forces are external to the individual, which may be organizational related such as management philosophy, organizational structure, and superior-subordinate relationship, and also the forces found in the external environment such as culture, customs, religion and values.
      4. Positive or negative:
      Positive motivation or the carrot approach offers positive incentives such as appreciation, promotion, status and incentives. Negative motivation or stick approach emphasizes penalties, fines and punishments.
      5. Dynamic and complex in nature:
      Human behaviour is highly complex, and it becomes extremely difficult to understand people at work. Motivation is a dynamic and complex process.
      Importance of staff motivation:-
      1. Improves Performance Level: Motivated employees have the ability and willing¬ness to work and improve their performance level by obtaining relevant education and training. For example, a highly educated employee with experience of working in abroad is employed because this employee has new learning from her/his experiences to share, implement and improve performance levels of themselves and her/his colleagues.
      2. Indifferent Attitudes can be Changed: Motivated employees attempt to change indifferent or negative attitudes of employees by engaging in supporting conversations without resorting to belittling and complaining comments, speaking up with a dismissive employee and addressing an employee’s inability to work in a team situation. Motivated employees could also privately discuss negative attitudes, recognise HR policies and procedures and involve HR, to make them listen their problems and support them. With such high morale building exercises the possibility of conflicts and industrial disputes could be minimal.
      3. Reduction in Resistance to Change: Changes can be uncomfortable and require employees to think and/or act differently. Changes in a business may seem as a sign of uncertainty that may further lead to anxiety among employees. Accordingly, employees should be motivated in an organisation to embrace changes (if any) positively by developing transparency and trust during the process of change in an organisation. This motivation can be created by the management along with their employees by collectively, identifying and recognising the benefits of possible changes.
      4. Reduction of Employee Turnover and Absenteeism: Employee turnover is a measurement of the term or number of years an employee stays and/or replaced in the company. Highly motivated employees are considered to be the most reliable and valuable assets to the organisation. They are more loyal, punctual and regular in their work schedule and stay on-job for a longer period of time in the organisation. In case of poor working conditions, lack of recognition and poor relations with colleagues and superiors absenteeism could increase as these conditions demotivate employees to work harder.
      5. Healthy Corporate Image: Motivation also helps organisations in improving their image due to efficient performance, maintenance of self-discipline and productive internal environment. It creates a good impression and enhanced image among people outside the organisation.
      Factors influencing motivation: monetary and non-monetary incentives:
      13 factors of motivation
      Leadership style.
      Recognition and appreciation.
      Meaning and purpose.
      Positive company culture.
      Professional development opportunities.
      Job advancement opportunities.
      Financial benefits.
      Flexible work schedules.
      Monetary Factors:
      Monetary factors are extrinsic to work, such as the following:
      1. Salary or wages: This is one of the most important motivational factors in an organization. Sala¬ries and wages should be fixed reasonably and paid on time.
      2. Bonus: Bonus is an extra payment over and above salary, and it acts as an incentive to perform better. It is linked to the profitability and productivity of the organization.
      3. Financial incentives: The organization provides additional incentives to their employees such as medical allowance, travelling allowance, house rent allowance, hard duty allowance and children educational allowance.
      4. Promotion (monetary part): Promotion is attached with increase in pay, and this motivates the employee to perform better.
      5. Profit sharing: This is an arrangement by which organizations distribute compensation based on some established formula designed around the company’s profitability.
      6. Stock option: This is a system by which the employee receives shares on a preferential basis which results in financial benefits to the employees.
      Non-monetary Factors:
      Non-monetary factors are rewards intrinsic to work, such as the following:
      1. Status: An employee is motivated by better status and designation. Organizations should offer job titles that convey the importance of the position.
      2. Appreciation and recognition: Employees must be appreciated and reasonably compensated for all their achievements and contributions.
      3. Work-life balance: Employees should be in a position to balance the two important segments of their life—work and life. This balance makes them ensure the quality of work and life. A balanced employee is a motivated employee.
      4. Delegation: Delegation of authority promotes dedication and commitment among employees. Employees are satisfied that their employer has faith in them and this motivates them to perform better.
      5. Working conditions: Healthy working conditions such as proper ventilation, proper lighting and proper sanitation improve the work performance of employees.
      Maslow’s theory of the Hierarchy of Human Needs - explanation of the theory with the help of the pyramid
      Maslow's theory presents his hierarchy of needs in a pyramid shape, with basic needs at the bottom of the pyramid and more high-level, intangible needs at the top. A person can only move on to addressing the higher-level needs when their basic needs are adequately fulfilled.
      1.Physiological needs: The first of the id-driven lower needs on Maslow's hierarchy are physiological needs. These most basic human survival needs include food and water, sufficient rest, clothing and shelter, overall health, and reproduction. Maslow states that these basic physiological needs must be addressed before humans move on to the next level of fulfillment.
      2.Safety needs: Next among the lower-level needs is safety. Safety needs include protection from violence and theft, emotional stability and well-being, health security, and financial security.
      3. Love and belonging needs: The social needs on the third level of Maslow’s hierarchy relate to human interaction and are the last of the so-called lower needs. Among these needs are friendships and family bonds—both with biological family (parents, siblings, children) and chosen family (spouses and partners). Physical and emotional intimacy ranging from sexual relationships to intimate emotional bonds are important to achieving a feeling of elevated kinship. Additionally, membership in social groups contributes to meeting this need, from belonging to a team of coworkers to forging an identity in a union, club, or group of hobbyists.
      4.Esteem needs: The higher needs, beginning with esteem, are ego-driven needs. The primary elements of esteem are self-respect (the belief that you are valuable and deserving of dignity) and self-esteem (confidence in your potential for personal growth and accomplishments). Maslow specifically notes that self-esteem can be broken into two types: esteem which is based on respect and acknowledgment from others, and esteem which is based on your own self-assessment. Self-confidence and independence stem from this latter type of self-esteem.
      5.Self-actualization needs: Self-actualization describes the fulfillment of your full potential as a person. Sometimes called self-fulfillment needs, self-actualization needs occupy the highest spot on Maslow's pyramid. Self-actualization needs include education, skill development—the refining of talents in areas such as music, athletics, design, cooking, and gardening—caring for others, and broader goals like learning a new language, traveling to new places, and winning awards.
      Assumptions and Criticism of the theory:-
      Three assumptions are:
      1.When the lower need is satisfied, a person moves to the next higher level need.
      2.Human needs form an hierarchy starting from basic needs to higher level needs.
      3.Human behaviour is based on needs. Such satisfaction influences behaviour.
      One of the most common criticisms of Maslow's conception of self-actualization is that it appears to be limited to those who have had good fortune in their lives
      Herzberg’s Two-factor Theory (Motivation and Hygiene Factors).
      Hygiene factors
      Hygiene factors are the elements of a job that satisfy basic needs: security, pay, fairness, and working conditions. When these needs are met, employees feel comfortable and satisfied with their roles. Here are some examples of hygiene factors:
      Salary and benefits: How well an employee's basic needs are met, such as pay and insurance
      Job security: The amount of control the employer has over keeping the position filled
      Work environment: The amount of stress and travel required, as well as the office environment (temperature, cleanliness, basic hygiene)
      Job policies: How an employee's day-to-day activities are controlled
      Supervisory practices: How well the employees are managed
      Company policies and administration: The way policies are set up in the organization
      Company reputation: The reputation of an organization outside of the company walls, such as with suppliers and business partners
      Herzberg motivators
      Motivational factors are the key job elements that motivate people to stay and grow in a role. When these needs are not fulfilled, the project team may become dissatisfied with their jobs. They may want more challenging roles that allow them to grow professionally, learn new skills, or manage greater responsibilities. Here are a few examples of motivators as per Herzberg’s two-factor theory:
      Achievement: The sense of accomplishment at the end of a project or task
      Recognition for accomplishments: Being acknowledged for their work or contributions to the organization that go above and beyond their job duties, whether that’s through a raise, promotion, or important assignment
      Advancement: The opportunity to be promoted within the organization
      Creativity: The ability to think outside the box to solve problems or come up with new ideas
      Variety: A change in work assignments, projects, or duties
      Independence: The ability to make their own decisions
      Interesting work: Tasks are stimulating and keep them interested
      Responsibility: The opportunity to take on bigger project roles, more duties, and higher levels of confidentiality
      Accomplishment: The ability to accomplish a given task within the set deadline
      Personal development: The opportunity to upskill by learning new skills, improving existing ones, and attaining certifications
      Interpersonal relationships: The ability to interact with other employees or clients positively and build long-term relationships
      Status: Being seen as a leader in the organization, giving orders, and seeing those orders carried out
      Staff Remuneration
      Remuneration is the total compensation received by an employee. It includes not only base salary but any bonuses, commission payments, overtime pay, or other financial benefits that an employee receives from an employer.
      A job perk may or may not be a component of employee remuneration. An on-site gym or a generous vacation plan are perks but they aren't money in an employee's pocket. Remuneration may include direct payment of money or taxable fringe benefits such as personal use of a company car.
      Methods of wage payment –
      i) Time Rate:- When wages are decided on a time rate basis, the quantity of goods produced by a worker is not considered but he is paid wages on the basis of time spent by him in the factory. The time rate of wages can be determined per hour, per week or per month. This system of wages is prevalent in most of the industries.
      Merits of Time Rate:-
      Advantages of Time Rate System of Wage Payment
      The calculation of earnings is very easy and requires less clerical work.
      The calculation of earnings does not create any suspicion in the minds of the worker.
      A worker is assured of wages as per the specified time spent by him/her in the production area.
      Demerits of Time Rate:-
      This system does not encourage efficient workers.
      There is no recognition of the efficiency of workers.
      Both, efficient and inefficient workers are treating equally by the management.
      It develops idleness on the part of workers.
      Suitability of Time Rate:-
      Time wage system is suitable under following situations:
      (1) When productivity of an employee cannot be measured precisely.
      (2) Where quality of products is more important than the quantity produced.
      (3) Where individual employees do not have any control over production.
      (4) Where close supervision of work is possible.
      ii) Piece Rate System:- Piece rate pay occurs when workers are paid by the unit performed (e.g. the number of tee shirts or bricks produced) instead of being paid on the basis of time spent on the job).
      Merits of Piece Rate System:-
      1. Direct connection between effort and reward gives incentive to produce more.
      2. It is simple and easy to understand.
      3. It is fair in its rewards, since earnings are directly proportional to output.
      4. Cost accounting and control by management is facilitated as labour cost is constant for output easy estimate of labour cost and control over unit cost of labour. Under time wage, we have fluctuating output for the same wage.
      5. Specialised industry with huge capital investment expects maximum output. Piece wage system is the best method to maximise output.
      Demerits of Piece Rate System:-
      1. Danger of overwork in temptation to earn more. This leads to excessive fatigue, ill health and risk of accident.
      2. If quality is given top preference, it is an ineffective method.
      3. In the absence of mutual confidence, fixation of piece wage rate is difficult.
      4. Under piece wage system we require a lot of supervision to maintain the quality and standard of work. Workers are tempted to ignore quality.
      With all the drawbacks, a well regulated piece wage system (with guaranteed minimum base rate of compensation) is undoubtedly superior to the pure time wage system.
      Suitability of Piece of Rate System
      Piece-rate system is suitable when:
      Where production quantity is more important than the quality of the product.
      When the work is of repetitive nature.
      When the mass manufacturing system of production is followed and the work is standardised, it is suitable for continuous manufacturing.
      When it is possible to measure the production/output of workers separately.
      When strict supervision is not required and/or it is difficult.
      Difference Between Time Rate and Piece Rate system:-
      Following are the main differences between piece rate system and time rate system.
      1. Meaning
      Piece rate system is a method of wage payment to workers based on the quantity of output they have produced. Time rate system is a method of wage payment to workers based on time spent by them for the production of output.
      2. Nature Of Payment
      Piece rate system pays the workers according to the units of output produced. Time rate system pays the workers according to the time spent in the factory.
      3. Emphasis
      Piece rate system gives emphasis on larger quantity of output. Time rate system emphasis on better quality of output.
      4. Discrimination
      Piece rate system discriminates the workers and pays more wages to efficient and skilled workers. Time rate system does not discriminate the workers and pays the same wages to efficient and inefficient workers.
      5. Supervision
      Piece rate system requires strict supervision to get the required quality output. Time rate system requires strict supervision to get required quantity of output.
      Pay Slip
      Pay Slip a piece of paper given to someone who is employed to show how much money they have earned and how much tax has been taken off.
      It might also refer to the amount of money the employer pays its workers. We often use the term when we are talking about the process of calculating workers' pay and taxes. For example, an accountant may say the following to her husband: “I will be home late tonight. I am doing payroll.”
      A Pay Slip is a document issued to an employee that lists each component of earnings and deductions, and the net amount paid to an employee for a given pay period.
      Payroll can be defined as the process of paying a company's employees. It includes collecting the list of employees to be paid, tracking the hours worked, calculating the employee's pay, distributing the salary on time, and recording the payroll expense
      Components of payslip
      i)Basic salary. It is the basic element of your salary, constituting up to 50% of your total pay.
      ii)Dearness Allowance (DA)
      iii)House Rent Allowance (HRA)
      iv)Conveyance Allowance (CA)
      Medical Allowance.
      v)Leave Travel Allowance (LTA)
      vi)Special Allowance (SA)
      vii)Professional tax.
      There are four major components in the Payroll Management System in India.
      i)Gross salary.
      ii)Net salary.
      Ad-hoc pay.
      Deductions paid to the government:
      PF: A saving tool for employees, available in companies that employ more than 12/20 people.
      Specimens of both.
      Various staff benefits:
      Employee Provident Fund:- It is a retirement benefits scheme where both an employer and employee contribute equally to this scheme. Both must contribute around 12% of the basic salary to this fund. At the time of retirement, the employee gets a lump sum and interest on it.
      National Pension System:- National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens.
      Group Insurance (medical and life):- Group Insurance covers a defined group of people, for example members of a professional association, or a society or employees of an organization. Group Insurance may offer life cover, health cover, and/or other types of personal insurance.
      Encashment of Leave:- Leave encashment is the amount of money an employee receives from an employer for their unutilised leaves.
      Gratuity :- Gratuity refers to the amount that an employer pays his employee, in return for services offered by him to the company. However, only those employees who have been employed by the company for five years or more are given the gratuity amount. It is governed by the Payment of Gratuity Act, 1972.
      Types of leaves:-
      Casual- Casual leave is the type of leave granted to the employees in India by the employer. The term 'casual' defines an event or situation that occurs by chance and without any plan. Casual leave is paid leave and can be typically availed after the probation period of the employee ends.
      Medical/sick- Any person covered under the Act can avail sick leave of not less than one-eighteenth of the service period at half the wages. This leave gets sanctioned only when medical certificate is presented. Except for the workers covered under the Acts mentioned above, casual leaves are available as per the company policy.
      Earned / privilege- Privilege leaves are earned leaves credited to employees by the company. These leaves can be used for vacation, as rest-time, marriage leaves or in case of medical emergencies. Since these leaves are long-term, you will have to apply for a minimum of 3 days vacation, 7-14 days in advance
      Maternity/paternity- It may be paid, unpaid, or paid in part. The purpose of maternity leave is to give new mothers adequate time to give birth, recover, care for, and bond with their new baby before returning to work. During this time, the employer has a legal obligation to hold the employee's job.
      Sabbatical/study:- It is a period of time that school students are given to be off from school in order to study for their exams.
      Leave without pay: Leave without pay means leave or time off from work for the employee's personal reasons granted by the appointing authority for which period the employee receives no pay.
      Staff Leadership:-
      Leadership in the workplace refers to the ability of an individual to manage and supervise a company and its fellow employees. It also refers to the ability to positively influence others to perform their jobs to the best of their ability. This will result in success for the company as a whole.
      Leadership styles:
      In this type of leadership, leader takes decision without considering the view points of other member. Here group members are not the part of decision making and they just have to follow the steps to accomplish the target. Here leader is completely responsible for the good or bad result obtained. This type of leadership is rarely seen in any organisation.
      Advantages: Since only leader takes the decision, hence no communication gap. In this type less time is required to take decision. Any sudden crisis or difficult situation can be handled more effectively.
      Disadvantages: This type of leadership is rarely effective. Since group member are not the part of decision making, this may leads to decrease in employee morale. Chances of lack of trust between leader and group can be more.
      In this style of leadership, group member are also considered as the part of decision making. Ideas are exchanged freely and at last discussion is done to make the final decision. Whole team member is guided by the leader. This type of leadership can be applied to any organisation. This style of leadership is highly flexible. Leader has the authority to take the final decision.
      Advantages: Different ideas are shared easily among one another. This type of leadership is highly effective and productive. Interest and morale of the employee towards the work increases.
      Disadvantages: Difficult to maintain the co-ordination among the group. Agree and disagree on particular topic may leads to communication gap. Chances of getting poor ideas from unskilled member.
      Laissez-Faire is a French term which means “Let them do”. So in this type of leadership members are allowed to take their own decisions. This type of leadership increases the employee morale but sometimes may leads a inappropriate result. This type of leaderships are mostly seen at homes where children are allowed to take their own decisions. Another example of this kind is students in Kindergarten school are allowed to do according to their own will.
      Advantages: Members of the group feel free to explore themselves. Good co-ordination and interaction is maintained between the members.
      Disadvantages: If the member of the group is not capable, probability of getting inappropriate result increases.
      Autocratic vs Democratic vs Laissez Faire
      Autocratic leadership involves leaders being authoritarian in decision-making. They take all the major decisions. Also, there’s little or no input from their people. They demand compliance, and inevitably team members often feel they don’t get consulted.
      The other extreme is laissez faire leadership. Here, the leader focuses on the overall plan but lets their team work das they like.
      The danger here is that there isn’t enough coaching, mentoring or encouragement for people to grow. So, new leaders aren’t nurtured and the business suffers.
      Democratic leadership means the leader has the final decision, based on the team members’ input. Employees get the flexibility to work together to reach these goals, and they accept the resulting decisions more readily because they’ve contributed. This is the ‘democratic’ part: people know they can influence the business.
      Leadership continuum:-
      The leadership continuum theory places all leadership styles along a continuum based on the balance of authority and freedom that exists between the leader and subordinates. Successful leaders will match their leadership style with the needs of their team.
      Situational Leadership means “choosing the right leadership style for the right people,” according to Blanchard and Hersey. It also depends on the competence and maturity of the followers. This is a time in history when leaders look less like bosses and more like partners.
      Blake & Mouton Managerial Grid
      The Blake Mouton Grid plots a manager's or leader's degree of task-centeredness versus their person-centeredness, and identifies five different combinations of the two and the leadership styles they produce. It's also known as the Managerial Grid, or Leadership Grid, and was developed in the early 1960s by management theorists Robert Blake and Jane Mouton.
      The model is based on two behavioral dimensions:
      Concern for People: this is the degree to which a leader considers team members' needs, interests and areas of personal development when deciding how best to accomplish a task.
      Concern for Results: this is the degree to which a leader emphasizes concrete objectives, organizational efficiency and high productivity when deciding how best to accomplish a task.
      Staff Appraisal:-
      A performance appraisal is a systematic and periodic process of measuring an individual's work performance against the established requirements of the job. It's a subjective evaluation of the employee's strengths and weaknesses, relative worth to the organization, and future development potential.
      Potential Appraisal:-
      Potential appraisal is a future – oriented appraisal whose main objective is to identify and evaluate the potential of the employees to assume higher positions and responsibilities in the organizational hierarchy. Many organisations consider and use potential appraisal as a part of the performance appraisal processes.
      Objectives :-
      Performance Appraisal can be done with following objectives in mind:
      1.To maintain records in order to determine compensation packages, wage structure, salaries raises, etc.
      2.To identify the strengths and weaknesses of employees to place right men on right job.
      3.To maintain and assess the potential in a person for growth and development.
      4.To provide a feedback to employees regarding their performance and related status.
      5.It serves as a basis for influencing working habits of the employees.
      6.To review and retain the promotional and other training programmes
      Importance of Performance Appraisal:-
      i. It is a sound basis for promotion, demotion transfer or transmis¬sion of employees.
      ii. Better persons are selected for promotions, it helps management in avoiding snap judgments about personnel and instead helps in taking sound personnel decisions.
      iii. It helps in distinguishing between efficient and inefficient em¬ployees.
      iv. It reveals defects in the selection procedure.
      v. Performance rating helps in guiding the employees. They come to know where they stand and consequently they try to improve their performance.’
      vi. Performance appraisal helps superior to evaluate the performance and know the potentials of their subordinates systematically.
      vii. It also helps them to assign work to individuals for which they are best suited.
      Methods of Performance Appraisal
      i)Merit grading:- Merit rating is the performance evaluation or performance appraisal of employee. Point method is when points are assigned to each job and the total of all points is taken as the score of the employee. Ranking procedure Is the oldest form in this employees are ranked on the basis of their performance. Under Grading method employees are given grades under various areas like cooperativeness, dependability, job knowledge etc.
      The following are the advantages of Merit Rating:
      (1) It provides a scientific basis for judging the capability of employees who will try to improve their performance if it is not up to their satisfaction. Hence it helps in making comparisons.
      (2) It provides a sound basis for the purpose of promotion, demotion, transfer or termination of employees. Better persons are selected for promotion. The systematic evaluation remains as a part of permanent record.
      (3) It helps in distinguishing efficient and inefficient workers. In this way it reveals the defects in the selection procedure if any. Those employees who are misfit may be spotted and appropriate action initiated against them.
      (4) Workers may be given increase in pay or incentives if their performance is good. It helps the management in avoiding spot judgements and replacing it by advance decisions.
      (5) It develops confidence among the workers since the methods of evaluation are systematic and impartial. Among the workers, a sense of competition develops resulting into increased output hence improved productivity.
      The following are the Dis-advantages of Merit Rating:
      1. There is a tendency to rate employee on the basis of one factor only. It is also know as ‘blending tendency’ If the rater finds that the man is good in one field he will rate him good in all other concerned fields.
      2. Each rater may apply his own standards with the result the final ratings simply cannot be compared. For example, a rater may think that ‘satisfactory’ rating is better than ‘excellent’. So clarity in standards in missing.
      3. Lenient raters give, high ratings where as strict rater always give low ratings. Hence there is a big difference of ratings between two raters. It is another limitation of merit rating.
      4. Generally the raters evaluate employee by keeping them in the average category though some may be falling in the extreme ends of the scale i.e. excellent or worst. So this central tendency is another drawback of this technique.
      5. Usually there is a tendency to give high rating to a person who is doing the higher paid job. Merit rating has nothing to do with the job so it is its limitation.
      Appraisal by Results:- Results methods are focused on employee accomplishments, such as whether or not employees met a quota. Within the categories of performance appraisals, there are two main aspects to appraisal methods.
      Advantages of Appraisal by result:
      1. Performance improvement:
      Appraisal systems always aim at improving the performance of employees. It helps to analyse and evaluate opportunity factors such as technology and social process.
      2. Development of employees:
      Appraisal systems determine which employee needs more train¬ing and becomes primary source of information regarding the strengths and potentialities of the employees.
      3. Corrective actions:
      Any deficiency of employees can be detected and corrective steps can be taken through appraisal system.
      4. Career planning:
      Performance appraisal serves as a valuable tool in the case of career planning to the employees, since it helps in preparing SWOT analysis of every employee.
      5. Promotions:
      Performance appraisal also helps the management in deciding about the promotions, transfers and rewards of the employee.
      6. Motivation:
      It is a tool for motivating employees towards higher performance.
      7. Other benefits:
      a. Performance appraisal plans help the management provide systematic judgments to back up salary increases, transfers, promotions, and demotions regarding the employees.
      b. Superiors can guide the subordinates by making them aware of ‘where they stand’.
      c. Performance appraisal becomes the bare for coaching and counselling of individual employees by the superiors.
      Disadvantages of Appraisal by result:
      1. The Halo effect:
      Halo effect is defined as the ‘influence of a rater’s general impression on ratings of specific rate qualities’. It tends to occur when an evaluation rates an employee high on all jobs criteria, even if he has performed well only in one area.
      2. Contrast error:
      The rating is always based on performance standards. The contrast error occurs when employee is rated without taking into account the performance standard. This can also occur if a rater compares an employee’s present performance with their past performance.
      3. Rater bias:
      The rater’s prejudices and biasness can also influence rating. For example, a supervi¬sor can underrate an employee based on race, sex, religion, appearance and favouritism.
      4. Central tendency error:
      When the supervisor rates all the employees within a narrow range, thinking all employees are of average level, this type of error occurs.
      5. Leniency or severity:
      Performance appraisal demands that the rater should objectively draw a conclusion about employee’s performance.
      6. Sampling error:
      If the rater uses a very small sample of the employee’s work, it may be subject to sampling error.
      i)Appraisal by superior staff:- Self-appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superior's appraisal forms the traditional part of the 360 degree appraisal where the employees' responsibilities and actual performance is rated by the superior.
      Advantages of Appraisal by result:
      1. Performance improvement:
      Appraisal systems always aim at improving the performance of employees. It helps to analyse and evaluate opportunity factors such as technology and social process.
      2. Development of employees:
      Appraisal systems determine which employee needs more train¬ing and becomes primary source of information regarding the strengths and potentialities of the employees.
      3. Corrective actions:
      Any deficiency of employees can be detected and corrective steps can be taken through appraisal system.
      4. Career planning:
      Performance appraisal serves as a valuable tool in the case of career planning to the employees, since it helps in preparing SWOT analysis of every employee.
      5. Promotions:
      Performance appraisal also helps the management in deciding about the promotions, transfers and rewards of the employee.
      6. Motivation:
      It is a tool for motivating employees towards higher performance.
      7. Other benefits:
      a. Performance appraisal plans help the management provide systematic judgments to back up salary increases, transfers, promotions, and demotions regarding the employees.
      b. Superiors can guide the subordinates by making them aware of ‘where they stand’.
      c. Performance appraisal becomes the bare for coaching and counselling of individual employees by the superiors.
      Disadvantages of Appraisal by result:
      1. The Halo effect:
      Halo effect is defined as the ‘influence of a rater’s general impression on ratings of specific rate qualities’. It tends to occur when an evaluation rates an employee high on all jobs criteria, even if he has performed well only in one area.
      2. Contrast error:
      The rating is always based on performance standards. The contrast error occurs when employee is rated without taking into account the performance standard. This can also occur if a rater compares an employee’s present performance with their past performance.
      3. Rater bias:
      The rater’s prejudices and biasness can also influence rating. For example, a supervi¬sor can underrate an employee based on race, sex, religion, appearance and favouritism.
      4. Central tendency error:
      When the supervisor rates all the employees within a narrow range, thinking all employees are of average level, this type of error occurs.
      5. Leniency or severity:
      Performance appraisal demands that the rater should objectively draw a conclusion about employee’s performance.
      6. Sampling error:
      If the rater uses a very small sample of the employee’s work, it may be subject to sampling error.
      Appraisal by superior staff:- Self-appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superior's appraisal forms the traditional part of the 360 degree appraisal where the employees' responsibilities and actual performance is rated by the superior.
      Staff Promotion and Transfer:-
      An employee promotion is a recognition for that person's contribution to your company. Employee promotions can come in many forms, but typically will involve some combination of:-
      Higher salary
      More senior job title
      More and higher-level responsibilities.
      Being promoted at work comes with an abundance of benefits; particularly if the offer falls in line with how you want your career to develop. Just a few of the positives that could come from accepting a promotion offer include:
      i)Salary increase - Money can’t buy you happiness, but it can help you live a more comfortable lifestyle. In addition to a higher wage, some roles may also include annual bonuses.
      ii)Job security - The more specialised your position becomes in a company, the higher the job security. This can reduce stress levels and give you more confidence to approach a project a little differently to how you may have if your job security was lower.
      iii)Increased confidence - Being offered career elevation is hugely flattering. It shows that your employers believe in you and your ability to move on to the next stage of your career.
      iv)Additional input - A higher role often opens further opportunities for you to add your opinion. Having your voice heard can help you feel even more valued and make you care about the business even more than you did before.
      What are the disadvantages of promotion?
      While there are many potential benefits to accepting a promotion offer, there are also disadvantages. These include:
      Diverting away from your dream - Everyone has a vision of where they want their career to end up. Some career advancement offers may lead you down a different path, away from the role you have been heading towards.
      Poor timing - A promotion may come at a particularly stressful time in your personal life. While you may love the job and industry you operate in, if elevation is going to put additional strain on an already stressful home-situation, now might not be the time to leap.
      You are content with the way things are - It’s drilled into us at a very early age that we should want to climb the career ladder. However, going as high as you can isn’t for everybody. If you have found a position that you enjoy and feel like a promotion will not be as fulfilling as your current role, you will be doing yourself a disservice if you take it.
      Not all employers will offer a salary increase - If you are being asked to take on more responsibility without any incentive, that says a lot about what your company thinks about their employees. Even if you have the best job in the world, remember that it is still a business transaction and you should be fairly compensated for the service you provide.
      Open and Closed policy of promotion:-
      Open Promotion is a situation wherein every individual of an organization is eligible for the position. Closed Promotion is a situation wherein only selected team members are eligible for a promotion.
      Differences between Open and Closed policy of promotion:-
      Open Promotion System: A promotion system in which available jobs and their requirements are posted on an employee bulletin board and in which all qualified employees are free to apply for the available positions.
      Closed Promotion System: A promotion system in which managers decide which workers will be considered for a promotion.
      Concept of Dry promotion
      This is the type of promotion with the worst reputation. An employee that has had an increase in their duties and responsibilities without their benefits having been positively affected is considered as having gone through a “dry” promotion.
      Upgrading means the employee's position remains same but the situation of the job condition got improved. For example, higher pay for the same work. While promotion refers to the process of shifting an employee to a higher position. For example, when a clerk is given an accountant position, it is known as promotion.
      Requirements of a sound promotion policy:-
      Essentials of a Sound Promotion Policy
      It is necessary on the part of every organization to have a well formulated promotion policy so that it can be executed properly whenever any vacancy arises. Following are the essentials of a sound promotion policy.
      1. Management’s policy regarding filling up of better posts through promotion should be specifically stated and truly adopted.
      2. Proper Merit Rating methods should be followed to evaluate the performance of workers which will help the management to decide on promotion.
      3. Various jobs within the organization should be well defined and rated. There should be an orderly arrangement of various jobs according to its ratings so that the order of promotion can be made well known to all.
      4. Promotion should be made on the combined basis of merit and seniority. Hence, promotion policy to be sound should give due weightage to merit as well as seniority as the basis of promotion.
      5. Proper training methods should be formulated with a view to prepare employees for promotion to better jobs.
      Basis of promotion:-
      1. Seniority:
      Seniority of an employee refers to the relative length of service in an organization. When seniority is considered as the basis of promotion, the rule is to promote the employee having the longest length of service, irrespective of the employee is competent to occupy a higher post or not.
      The reason behind seniority as the basis of promotions is that there is a positive correlation between the length of service in the same job and the amount of knowledge and the level of skill acquired by an employee in an organization.
      This practice of promoting employees is followed in unionized industrial establishments, government-owned undertakings and sometimes in private corporate and educational institutions.
      This basis of promotion has the following advantages and disadvantages:
      a. Seniority being quantifiable provides an objective means of identifying the personnel eligible for promotion.
      b. It is easy to measure the length of service and administer the rule.
      c. There is less scope for subjectivity or arbitrariness in fixing seniority.
      d. It gives a sense of certainty of getting promotion to every employee and their turn of promotion.
      e. It is also considered that seniority and experience go hand in hand. Hence it is right to have promotions on this basis.
      f. Subordinates are interested to work under a senior and experienced boss.
      g. As promotion is predictable under this system, it generally reduces employee turnover.
      a. Seniority always does not indicate competence.
      b. The idea that employees learn more with length of service is not valid.
      c. Employees learn up to a particular stage. After that grasping power diminishes.
      d. This basis of promotion de-motivates the young and competent employees.
      e. It kills the zeal and interest to learn and develop.
      f. It does not guarantee quality staffing of promotional vacancies as merit or ability is altogether ignored.
      g. Judging seniority practically is a difficult task.
      h. It discourages creativity and innovation in the organization.
      2. Competence/Merit:
      In this case an employee is promoted on the basis of excellent and superior performance in the current job. This is known through performance appraisal done by the organization. Merit indicates an employee’s knowledge, skills, abilities and efficiency measured from the employee’s educational qualifications, experience, job performance and training records.
      To get promotion on the basis of merit requires hard work and sincerity on the part of the employee. In non- unionized organizations promotions are made on the basis of merit. In unionized organizations merit is the basis of promotion for non-productive employees. Seniority should be considered as the basis of promotion, when there are more than one employees of equal merit.
      According to Peter and Hull (1969) the members of an organization where promotion is based on achievement, success, and merit will eventually be promoted beyond their level of ability. Employees tend to be given increasing responsibility and authority until they cannot continue to work competently. This is commonly known as Peter Principle.
      The principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their level of incompetence), and there they remain, being unable to earn further promotions and thus reach their careers’ ceiling in the organization.
      This basis of promotion has the following advantages and disadvantages:
      a. It motivates the employees to work hard, improve their knowledge, acquire new skills and become a part of increasing organizational efficiency and effectiveness.
      b. Efficiency is encouraged, recognized and rewarded.
      c. Competent employees are retained.
      d. It motivates the competent employees to exert all their resources and contribute them to the organizational efficiency and effectiveness.
      a. This creates unhappiness among the senior employees.
      b.Many senior and experienced employees leave the organization.
      c.This basis of promotion leads to favouritism and jealousy.
      d.It is not easy to measure merit. Personal prejudices, biases and union pressures usually come in the way of promoting the best performer.
      e.Loyalty and length of service are not rewarded.
      Managements mostly prefer merit as the basis of promotion as they are interested in enriching organizational effectiveness by enriching its human resources. But trade unions favour seniority as the sole basis for promotion in order to satisfy the interests of majority of their members. Both seniority and merit as the bases of promotions have their advantages and disadvantages. Hence it is necessary for the organizations to give due weightage to both seniority and merit while promoting their employees. A combination of both seniority and merit can be considered as the basis of promotions, there by satisfying the management for organizational effectiveness and the employees and trade unions for respecting the length of service.
      Comparison between seniority basis and merit basis:-
      Merit should be given primary importance but together with merit due weightage should be given to seniority of the employees also. Seniority should be considered only where the merit of competing employees is substantially equal. But, when the qualifications are different, only efficient one should be promoted.
      Staff Transfer:-
      It is a form of internal mobility, in which the employee is shifted from one job to another usually at a different location, department, or unit. Transfer can either be temporary or permanent depending on the decision of the organization, and it is initiated by any of the two, i.e. employer or employee.
      Need for Transfer:-
      The need for making transfer is left for various reasons as listed below:
      1. To Meet Organisational Needs: Changes in technology, volume of production, production schedule, product line, quality of products, organisational structure, etc. necessitate an organisation to reassign jobs among employees so that right employee is placed on the right job.
      2. To Satisfy Employee Needs: Employees may request for transfer in order to satisfy their desire to work in a particular department, place and under some superior. Personal problems of employee like health, family circumstances, and interpersonal conflicts may also necessitate transfer.
      3. To Better Utilize Employee: When an employee is not performing satisfactorily on one job and management thinks that his/her capabilities would be utilized better elsewhere, he/she may be transferred to other job.
      4. To Make the Employee More Versatile: In some organisations like banks, employees after working on a job for a specified period are transferred to other job with a view to widen their knowledge and skill and also reduce monotony. This is also called ‘job rotation.
      5. To Adjust the Workforce: Work force can be transferred from the departments / plants where there is less work to the departments/plants where more work is.
      Types of transfers:
      Replacement:- An employee with a long service may be transferred in some other department to replace a person with a shorter service.
      Versatility:- The versatility transfers are made for the purpose of preparing the employees for production and replacement transfer. An employee is trained on different jobs so as adjust him on a different job when there is no work at his seat or job.
      Remedial:- In case an employee does not feel comfortable on his job, he may be transferred to some other job. His initial placement might be faulty; his health might have gone down; he may not be getting along with his supervisor or workers i.e., he might have developed personal friction with his boss or fellow employees.
      Production:- In order to stabilise the employment in the company and avoidance of lay off, an employee may be transferred from one department to another department. Such a transfer is known as production transfer.
      Staff Separation:-
      Employee Separation is the process of ensuring that an employee who quits the company is exited in a structured and orderly manner. The process of employee separation is taken quite seriously by many firms and there is a dedicated department to handle employee exits from the company.
      Staff attrition
      Staff attrition refers to the loss of employees through a natural process, such as retirement, resignation, elimination of a position, personal health, or other similar reasons. With attrition, an employer will not fill the vacancy left by the former employee.
      Can reduce costs when an organization may be facing financial distress
      Usually considered more of an amicable or cordial departure from the organization
      Reduction in size or strength of workforce
      Remaining job duties can increase the work load for remaining employees
      Compulsory Retirement:-
      The appropriate authority has the absolute right to retire, if it is. necessary to do so in public interest, any Government employee as per. provisions of Rules as under:- FR 56 (j)
      Voluntary Retirement:-
      Voluntary retirement is used as a way to reduce the total workforce of a company. Therefore, the company cannot hire new people in the place of the old employees who retire. The employees who opt for voluntary retirement cannot take up a job with the same company, its management, or a sister concern.
      Lay off
      A layoff is the temporary or permanent termination of employment by an employer for reasons unrelated to the employee's performance. Employees may be laid off when companies aim to cut costs, due to a decline in demand for their products or services, seasonal closure, or during an economic downturn.
      Retrenchment is a form of dismissal due to no fault of the employee, it is a process whereby the employer reviews its business needs in order to increase profits or limit losses, which leads to reducing its employees.
      Resignation is the formal act of leaving or quitting one's office or position. A resignation can occur when a person holding a position gained by election or appointment steps down, but leaving a position upon the expiration of a term, or choosing not to seek an additional term, is not considered resignation.
      A suspension is defined as a heterogeneous mixture in which the solid particles are spread throughout the liquid without dissolving in it. A suspension is defined as a homogenous mixture of particles with a diameter greater than 1000 nm such that the particles are visible to naked eyes.
      There was a time when an employer in India could fire you without stating why.
      Under Indian law, there are two major types of dismissal: Ordinary and dismissal for cause. Let's take a look at each of these.
      Grounds for dismissal
      i)Ordinary Dismissal
      An employer can technically terminate an employee for any reason. This may be the letter of the law, but legislative and judicial interventions have softened this hard stance. We'll see how this has evolved in the procedure section below. However, there are still reasons why an employer would terminate an employee. Ordinary dismissal can include the following: an end of a contract; closing of a department/unit; poor work performance; or violations of company privacy. Note that these reasons are not considered gross misconduct; that is, actions that jeopardize the employer or are illegal.
      ii)Dismissal with Cause
      Dismissing an employee for cause is a nice way of saying that the employee did something very bad. Examples of these actions include the following: Theft of property Substance abuse while at work Conducting illegal activity at work Using company property (e.g., computers) for illegal activity Just cause is conduct that is bad enough that it does not warrant a second chance; once the company determines the employee can be terminated for just cause, termination is immediate.
      Exit Interview
      An exit interview is a discussion that allows a departing employee and their organization to exchange information, usually on that employee's last day of work.
      Importance of Exit Interview:-
      1.Departing employees are generally more forthcoming than those still in their jobs
      2.You will learn the reason for an employee’s departure (it may be different than you think!)
      3.The exit interview allows the employee to provide constructive feedback and leave on a positive note
      4.That last touchpoint provides you with an opportunity to review continuing obligations with the employee (e.g., non-competes, intellectual property agreements, etc.)
      5.It provides the opportunity to ask if there are any open issues of which you need to be aware. This can help reduce risk and identify matters that may require immediate attention.
      6.You will get a candid assessment of your organization’s environment and culture
      7.Insight into recruiting, on-boarding, and training needs may be revealed
      Emerging trends in Human Resources.
      Flexible Hours:- Flexible working hours refers to the schedule which allows employees to start and finish their workday when they want. This means that employees can come to work earlier or later than the set time.
      Permanent part time:- Permanent Part-Time means an employee who works less than full time either daily, weekly or monthly, but reports for work on a regularly scheduled basis. Temporary means a full-time or part-time position filled by an employee assigned for a specified period of time not to exceed twelve (12) months. The period of time may be extended by mutual agreement between the Union and the Employer.
      Work From Home(WFH):- WFH means an employee is working from their house, apartment, or place of residence, rather than working from the office. Many companies have a WFH policy, or remote work policy, that allows their employees to work from home either full-time or when it's most convenient for them.
      Retainership:- A retainership is a legal agreement between an attorney and client in which the attorney agrees to provide future legal services to the client.
      Virtual teams:- A virtual team (also known as a remote team) is a group of people who collaborate and share information from geographically dispersed locations by using technology, such as video conferencing and audio conferencing.
      Self-managing teams (SMTs):- A self-managed team, also called a self-managing team, is a group of employees within an organization who share the responsibility of planning and executing their work, without the supervision of a manager. Under this model, team members take ownership of their workflow, processes, schedules, roles, and more.

      LESSON PLAN:-02

      (i) Business Communication
      Meaning and definition of communication: Communication is a process that involves sending and receiving of messages through a verbal and non-verbal method. The sender sends a message, the receiver receives a message and sends it back with the feedback to the sender again.
      The methods of communication involve oral and speech communication, written and graphical representations. Additionally, it includes the cultural sphere, a tool utilized to communicate, location, etc. Though it looks simple, communication is generally a very complicated subject.
      In other words, communication is a two-way means of communicating information in the form of thoughts, opinions, and ideas between two or more individuals with the purpose of building an understanding.
      Importance of communication in business:
      1.Acts as a basis of coordination and cooperation
      2.Increases managerial efficiency
      3.Helps in smooth working of an enterprise
      4.Promotes cooperation and industrial peace
      5.Effective leadership .
      6.Helps in the process of motivation and morale
      7.Acts as basis of decision-making
      Elements of the Communication Process:
      1.Sender The person who conveys the message, is known as the sender or communicator.
      2.Massage It is the subject matter of communication. It may consist of facts, information, ideas, opinions, etc.
      3.Encoding The sender translates the message into words, gestures or other symbols, which he feels will make the receiver understand the message.
      4.Channel or media The encoded message is transmitted through some medium, which is known as the communication.
      5.Decoding It means process of conversion of symbols in to the message by the receiver.
      6.Receiver The person, who receives the massage is called the receiver.
      7.Feedback The receiver sends his response to the sender of the message such response is known as feedback.
      8.Noise It means an obstruction or hinderance in communication process.
      Methods of communication:
      Oral: Oral communication is the ability to transmit ideas from your brain to either one person or a group of people. Good use of verbal skills means presenting an idea clearly while each thought is articulated in a cohesive manner. It has everything to do with the language that we choose to use.
      Advantages of Oral Communication
      1.There is high level of understanding and transparency in oral communication as it is interpersonal.
      2.There is no element of rigidity in oral communication. There is flexibility for allowing changes in the decisions previously taken.
      3.The feedback is spontaneous in case of oral communication. Thus, decisions can be made quickly without any delay.
      4.Oral communication is not only time saving, but it also saves upon money and efforts.
      5.Oral communication is best in case of problem resolution. The conflicts, disputes and many issues/differences can be put to an end by talking them over.
      6.Oral communication is an essential for teamwork and group energy.
      7.Oral communication promotes a receptive and encouraging morale among organizational employees.
      8.Oral communication can be best used to transfer private and confidential information/matter.
      Disadvantages/Limitations of Oral Communication
      1.Relying only on oral communication may not be sufficient as business communication is formal and very organized.
      2.Oral communication is less authentic than written communication as they are informal and not as organized as written communication.
      3.Oral communication is time-saving as far as daily interactions are concerned, but in case of meetings, long speeches consume lot of time and are unproductive at times.
      4.Oral communications are not easy to maintain and thus they are unsteady.
      5.There may be misunderstandings as the information is not complete and may lack essentials.
      6.It requires attentiveness and great receptivity on part of the receivers/audience.
      Written: Written communication is any written message that two or more people exchange. Written communication is typically more formal but less efficient than oral communication. Examples of written communication include: Emails. Text messages.
      Advantages of written communication
      1) Easy to Preserve:
      One of the main advantages of written communication is that the documents are easy to preserve if they are in written form. Oral and Non-verbal communication is not preserved. Though it can be recorded, it is not convenient to record it every time. Written communication serves as a means of collecting important information from the previously preserved data.
      2)Clarity and Clear Understanding:-
      Another advantage of written communication is it provides a clear and comprehensive knowledge of the message to be conveyed. Written communication provides us a facility to read the message many times until the recipient fully comprehends it. Furthermore, there are lower chances that any information in the communication is missing or not being conveyed. As a result, the recipient receives and comprehends the exact meaning that the sender wants to convey. Oral or non-verbal communication can be forgotten easily, and sometimes the recipient is not much focussed while listening. This is not the case with written communication.
      3) Permanent Record:-
      Another important advantage of written communication is that the documents of written communication act as a permanent record. Furthermore, an organization’s records are usually in the written format, which can be very worthy for future references.
      For Example:- Previous instructions and decisions might serve as guides for future decisions and other references. It will save time and effort in the future if it is in written form.
      4)Makes Presentation Easy:-
      Written communication provides us the advantage of representing any complex matter or information easily and more attractively. For business organizations, the executives can present the information more accurately and clearly through written communication. It provides a direction to describe the facts in the simplest way.
      Disadvantages of Written Communication
      1) Expensive:-
      One of the disadvantages of written communication is being costlier than other communications. For written communication, paper, pen, ink, typewriters, printing machines, and maintaining such equipment and machinery, a computer and a large number of employees are necessary for its execution. Also, it is expensive as a group of individuals to prepare and distribute the organization’s letters which is quite costly for any organization. Hence it is expensive.
      2) Time Consuming:-
      Written communication is not only expensive but also very time-consuming. Drafting and forming a message in written form takes much more time than conveying orally. A written message can take two or three days to reach its intended recipient, but an oral communication message can be conveyed in a matter of seconds over the phone. Furthermore, Written communication is also time-consuming as the feedback is not immediate. Also, It requires a lot of time to encode and send a message.
      3) Lack of confidentiality:-
      Keeping the information confidential is not always possible in written communication which serves as one of the biggest disadvantages of written communication. Since written communication is forwarded to every person who is concerned with the information or particular matter, there is a possibility of leakage of information by any employees, which is likely to have negative effects on the organization and may also lead to losses.
      4) Delay in response and decision making:-
      If the recipient of the message lives far at a distance and has any doubt which is required to be clear, the response is not spontaneous as there is a lack of immediate response, which eventually leads to a delay in further decision making.
      Gestural: A gesture is a form of non-verbal communication or non-vocal communication in which visible bodily actions communicate particular messages, either in place of, or in conjunction with, speech. Gesttures include movement of the hands, face, or other parts of the body.
      Advantages of Gesture:
      1.Gesture are easier representation, makes the presentation attractive, Quick expressing of message, etc.
      2.Gestures are non-verbal communications.
      3.It can make the information to be presented easily via audio, visual, or even through silent.
      4.It is usually a substitute of verbal based communication.
      5.People can easily interpret the gesture of another person.
      6.Gestures are the main mode of communication hearing impaired persons.
      Disadvantages of Gesture:
      1.Gesture are difficult in understanding, informal etiquette, information might get distorted, etc.
      2.It is not precise and sometimes it is vague and plain.
      3.One cannot make long explanation or conversation through gesture.
      4.It is one of the informal types of communication, where it is not suited for official purposes.
      Visual: Visual communication is the practice of using visual elements to communicate information or ideas. Types of visual communication include animated GIFs, screenshots, videos, pie charts, infographics, and slide deck presentations.
      Advantages of Visual Communication
      1.Visual communication helps in re-upholding oral correspondence. Basically, it upholds oral correspondence. Since not exclusively does the beneficiary hear, yet the beneficiary likewise sees what is being said with their eyes.
      2.It can likewise re-uphold composed correspondence. For instance, assuming you are finding out about something and visual guides like diagrams, outlines, and graphs are added to the substance that you are perusing, it upgrades how you might interpret what you are perusing.
      3.Pictures and delineations have more grounded sway than words. Pictures can be utilized to let things know that words don’t have the solidarity to tell.
      4.Visual interchanges can be perceived by both proficient and uneducated individuals. Each of the necessities to comprehend Visual communication is the capacity to have the option to see things with the eyes dissimilar to the composed correspondence which necessitates that one is instructed and ready to peruse and compose before one can get it.
      Disadvantages of Visual Communication
      1.Visual communication can be over the top expensive. Dissimilar to other channels of correspondence like oral correspondence, Visual communication can be extravagant to create. The expense associated with delivering it is perhaps its greatest detriment.
      2.Putting away it can likewise be over the top expensive. Not exclusively is creating a visual type of correspondence costly, yet in addition with regards to putting away it, it can cost a considerable amount. Take an enormous announcement for instance.
      3.It requires some investment and works to create it. Simply envision how much time and exertion goes into the making of visual guides, for example, charts, maps, graphs and so forth
      4.One more impediment with the visual type of correspondence is the way that one can undoubtedly misjudge or misconstrue the focal significance of the message being conveyed.
      5.Certain individuals can never receive the message being conveyed by means of Visual communication. This classification of individuals is the outwardly impeded who can never see any message sent through Visual communication since they can’t see the message in any case.
      Types of communication: On the basis of area of operation (Internal and External):
      When the members of the organization, communicate with each other, it is called as internal communication. However, when there is a communication between members of the organization, with the outside party, it is said to be external communication.
      On the basis of relationship (Formal and Informal):Formal communication is defined as the communication in which the information is reached through proper channels or routes. It is also called official communication.
      Informal communication is defined as communication that does not undertake formal methods to communicate. People/ subordinates do not follow the rigid rules of the organization.
      On the basis of direction (Horizontal, Vertical and Diagonal, upwards and downwards), Meaning:
      Horizontal communication, sometimes referred to as lateral communication, encompasses workplace communications among people, departments or teams at the same level in an organization.
      1.Coordination: Organizational activities are divided into various departments or groups. Horizontal communication facilities coordination of various departmental activities so that organization can reach its ultimate goal.
      2.Reducing Misunderstanding: Misunderstanding and conflict among the mangers and staffs are very common in organizational life. Horizontal communication helps to reduce possible misunderstanding and conflict though meeting, discussion, face to face conversation etc.
      3.Strengthening group efforts: Group efforts and teamwork are essential prerequisites for organizational success. Horizontal communication helps in reducing conflicts, controversies, and differences in opinions and thus establishes consensus among the managers and workers concerned. This consensus strengthens group efforts and team spirit in the organization.
      1.Rivaling attitude: Horizontal communication occurs between the people at the same rank and position. If there exists any hostility or rivalry between them, they will not exchange information spontaneously. Moreover, they will conceal their information intentionally to deprive someone from the real news.
      2.Interdepartmental conflict: The success of horizontal communication depends on good relationship between sender and receiver. If there is any conflict, distrust or suspicion between them, horizontal communication will be ineffective.
      3.Discouraging attitude of top management: In some cases, top managers discourage horizontal communication thinking that workers may become friendly with one another and may create threat for the management.
      Vertical communication is a business communication strategy in which information, tasks, and requests move upward and downward between senior management and lower-level employees.
      1.Conveying message of subordinate: Through upward direction of vertical communication system, the upper-level management covey their suggestions, complains and recommendations to the subordinates.
      2.Maintains good labor-management relations: There is a systematic flow of information under his communication system, so a good relationship can be developed between superiors and subordinates.
      1.Delay process: Vertical communication system is a delay process. It maintains long chain of command in large organization to exchange information.
      2.Disturbing discipline: In this communication, if the boss’s role of direction is seen by doubtful eyes by the subordinates, the chain of command and discipline may be broken.
      3.Efficiency reduces: Downward direction of vertical communication is commanding in nature. So, there is no opportunity of the workers to become efficient.
      4.Loss or Distortion of information: Information may be fabricated by the employees to maintain lengthy channel. So, through his communication information may lose its originality.
      Upwards Communication: When the information passes from lower-level employees to their superiors, it is called upward communication. An example of this route is a supervisor reporting to a department head.
      1.Development of plan: The information received from subordinate plays important role to help development of planning of the organization.
      2.Providing suggestions and opinions: By upward communication system, subordinate takes necessary suggestions and opinions from superiors about the work-related issues of the organization.
      3.Motivating to employees: Upward communication system allows lower level staff to express their attitude or opinion to upper-level staff. As a result, sub-ordinates are influenced to work more towards fulfillment to target.
      4.Providing constructive suggestion: All employees are supplied with constructive and important messages that can help to implement the goals or objectives.
      1.Changes of information: In upward communication subordinates may change their accurate information. So, the top executive cannot take an accurate decision.
      2.Unwillingness: Sometimes subordinates don’t send the information to their superior willingly. So, the communication system may be disrupted.
      3.Fear of inefficiency: The main problem of upward communication is fair to superiors. Generally, superiors make a question about the employees work position and efficiency. Many employees fear to communicate and share their ideas, constructive suggestions and opinions with the superiors.
      4.Indiscipline: Sometimes employees communicate directly to superior by avoiding proper channel or chain of command. Here disciplines are not properly maintained.
      Downwards Communication:Downward communication does not involve response unless included as a part of the message. The best example of this type of communication is an announcement of a new employee or a notice of a merger.
      1.To inform: Top level management informs the lower level employees of the organization about the policies and procedures through downward communication.
      2.Delegation of Authority: Downward communication helps the management to delegate authority among the employees. It also helps to distribute workload to the workers so that they can know their area of responsibility as well as authority.
      3.Explaining Policies: Downward communication is widely sued by the managers to explain polices and organizational procedures to the lower level employees to make them acquainted with the organizational culture.
      4.Maintaining Discipline: In downward communication system, a chain of command is established that helps to develop a sense of discipline among the employees.
      1.Under communication and over communication: Downward communication is often marred by either under communication or over communication. Under communication occurs when the superior talks too little or gives incomplete instructions to the subordinates. And over communication takes place when the superior talks too much or gives instructions repeatedly.
      2.Lack of Feedback: Downward communication lacks in feedback. After getting message from the superiors the subordinates cannot pass out their feelings to their boss if there is not any upward communication system.
      3.Delay in Exchanging Information: If the line of communication in the downward communication system is very long. It takes too much time to transmit information to the lowest level workers. By the time information reaches them, it may lose its significance much.
      Diagonal Communication: It refers to the exchange of information between different levels within an organization. It takes place between employees without any consideration of the hierarchy or reporting chain.
      Advantages: The advantages of diagonal communication are:
      (a) It ends communication barriers between the higher and lower sectors of a business.
      (b) It increases the efficiency and speed of the labour if positive relations are created.
      (c) It can be used as a team build up/motivational tool.
      (d) It helps in challenge and production management of the firm.
      Disadvantages:The disadvantages of diagonal communication are:
      (a) It can increase competitiveness as more information of ongoing production is given.
      (b) It may consume time of the employees; for example work chat groups don't have details of work assignments etc and they consume time as well.
      (c) Time consumption may also lead to inefficiency.
      (d) Due to lack of proper communicative skill of employees,misunderstandings might arise.
      Barriers to Communication:
      (i) Semantic barriers to communication These are concerned with the meaning of words and symbols. These barriers are:
      1.Badly expressed message
      2.Technical jargon
      3.Unclarified assumptions
      4.Faulty translations
      (ii)Psychological barriers Emotional or psychological factors acts as barriers to communication. Some of the psychological barriers are:
      1.Lack of attentioN
      2.Premature evaluation
      3.Poor retention
      (iii) Organisational barriers The factors related to organisational structure authority relationship, rules and regulations act as barriers to effective communication. Some of these barriers are:
      1.Organisational policy
      2.Rules and regulations
      4.Complexity in organisational structure
      (iv) Personal barriers The personal factors of both sender and receiver my affect effective communication. Some of these barriers are:
      1.Fear of challenge to authority
      2.lack of confidence of superior on his subordinate
      3.Unwillingness to communicate
      4.Lack of proper incentives
      Overcoming the barriers to communication:
      1.Be aware of languages, tone and content of message
      2.Convey things of help and value to listeners
      3.Ensure feedback
      Communicate for present as well as future
      4.Follow-up communication
      5.Be a good listener
      6.Clarify the ideas before communication
      7.Communicate according to the needs of receiver
      8.Consult others before communicating
      (ii) Business Correspondence
      Need of business correspondence: It helps in maintaining the proper relationships between the parties. Business correspondence strengthens the business. It also helps in the internal communication. It makes communication within the organization more clear and precise.
      Importance of Business Correspondence
      A business correspondence has numbers of importance. Its most important feature is the ease of reaching and communicating with different parties. It is not always possible to meet persons face to face.
      1.Maintaining a Proper RelationshipIt is not always possible for any business or organization to reach to any person in particular. This will cost any business. Here, the business correspondence will be a rescue for any business.
      It helps in maintaining the proper relationships between the parties. Business correspondence strengthens the business. It also helps in the internal communication. It makes communication within the organization more clear and precise.
      2. Serves as Evidence
      Any written form of communication serves as evidence. A business correspondence helps the person in a business to keep a record of all the facts. These written records will serve as evidence.
      3. Create and Maintain Goodwill
      It helps in creating and maintaining goodwill between a business and a customer. Any letter to enquire, complaint, suggestion or feedbacks helps a company to grow and maintain goodwill.
      4. Inexpensive and Convenient
      It is a cheap and convenient form of business communication.
      Business Letters
      Elements and contents of various business letters:
      1.Sender’s address: You have two choices here. Most word processors have letterhead templates. Consider creating your own letterhead and storing it as a separate document.
      2.Date: The sender’s address is followed by the date the letter is sent, not to be confused with the date that it is authored. This allows both the sender and the recipient to understand the date the correspondence was effectuated.
      3.Recipient’s address: Use this portion of your letter to identify the name and address of the person/persons for whom the correspondence is intended. Make sure to include any known job titles as a professional courtesy. For example, Joseph Smith, Chief Bottle washer.
      4.Subject matter: Include a brief line that also includes names and file numbers, if appropriate.
      5.Salutation: Professional correspondence is considered a formal method of communication. Unless you have an extremely personal relationship with the person you are writing to, avoid using first names
      6.Body of the Letter: The first paragraph of your letter should sum up the basis for your correspondence. Be concise and to the point. The content of this paragraph is what encourages the reader to move on. Be conscious of the fact that a businessperson may merely skim through your letter
      7.Closing Paragraph: Your closing paragraph should be a call to action. Provide someone with a solution they can give to your issues. Ask for the sale or the job. Sum up the problem.
      8.Say Thank You: Even in the worst situations, it is common courtesy to thank someone for reading your letter. If you are asking for something in particular, consider this phrase: “Thank you for consideration.”’
      9.Close: Choose from an assortment of closing, such as “Sincerely” or“Very truly yours”. Go down three spaces and type your name. Under your name, you may place your title, if appropriate.
      10.Enclosure and copies: In years past, letters were typed on typewriters, with carbon paper in between pages
      Types of letters: solicited and unsolicited letters of application for a job:
      Solicited and unsolicited: A quick comparison of cover letters
      Cover letters for both job opportunities must be convincing from A to Z. They should give recruiters at the targeted company as comprehensive a picture as possible of your expertise and personality and provide the business with valid arguments for hiring you. Both comprise a maximum of one page and are structured in the same way, but have different focal points:
      1.In the cover letter for the solicited application, the applicant states exactly what they are applying for and where they found the relevant job posting.
      2.In the unsolicited application, you make it clear that you are looking for a position outside of the regular selection procedure and not as part of the normal application process.
      3.In both the conventional cover letter and the unsolicited application, you briefly explain in the first paragraph who you are, what you are looking for, and why you think you would be a good fit for the company.
      4.The main body is where the two types of application differ the most: In the solicited application cover letter, you list your professional qualities with reference to the job posting and back them up with concrete examples – supplemented by two or three sentences about your motivation.
      5.In the unsolicited application letter, your motivation plays the main role and takes up most of the space. Why do you want to work for the company and what contribution can you make? What skills do you have to offer, and how will your potential employer benefit from them
      6.To score points, you should do a thorough analysis of your personal strengths and the conditions at the target company beforehand (e.g. do some research on the industry and company culture).
      7.The last paragraph of the conventional cover letter may end with a note that you are looking forward to an invitation for an interview.
      8.In the unsolicited application, you can ask them to look into employment opportunities for you.
      Drafting of biodata:
      Examples of biodata include name, age, maiden name, contact information, date of birth, residential address, genotype, race, skills, allergies, hobbies emergency contact, and blood group, to mention a few. However, biodata examples are categorized and can’t be used in all scenarios. These would be explained below.
      Name is usually the first and most important information contained in a biodata. Since a biodata typically profiles an individual, it is necessary for it to be properly assigned to the individual in question. This is why you must provide your name when completing your biodata.
      Provide the title you prefer to be addressed with.
      Date of Birth
      Since a biodata typically profiles a person, it is necessary to provide your date of birth too. In some selection processes involving the use of biodata, age may be a criterion for evaluating candidates. Although this might be counted as age discrimination and it’s particularly untenable in many countries, age is being used by many organizations during their selection process.
      Contact Number/Email
      Providing your contact number or email is necessary to enable further correspondence with you. The organization requesting the biodata may need to provide feedback; especially if the biodata was used in a recruitment or selection process.
      State of Residence
      State of residence information is needed in order to correctly profile the person in question. This information is necessary; especially if the location of an individual is an important part of an evaluation process.
      Some organizations may require you to provide your exact residential address when filling your biodata; although not in all cases. It is not common for you to be asked to provide your address when filling out a personal biodata.
      Next of Kin/Emergency Contact
      This information is expedient. It is necessary for the organization to have details of an individual who they can contact in cases of emergency.
      This information is mostly requested in an employment biodata. Employers usually ask applicants to highlight relevant skills in a job application.
      Interest & Hobbies
      This field is quite common in biodata. It cuts across the different types of biodata. This information helps you to better profile the individual in question. It also helps you to make a better judgment on their experiences as it relates to the process under consideration.
      If you’re filling an educational or employment biodata, you may be required to provide information on physical challenges; if any. This will help the school or company to prepare to meet your specific needs. Many organizations have different selection and operational criteria for persons living with disabilities.
      Marital Status
      You may also be required to provide information on your marital status. Again, this helps the organization to profile you more accurately.
      In a biodata, you could be asked to provide information on your religious affiliation; although this is not always the case for employment or job biodata.
      Some jobs require you to meet specific specifications height-wise. Hence, you may be required to provide this information. Also, this is part of your personal data and it helps better individual profiling.
      You may also be required to provide information on professional, political, and/or religious affiliations as is applicable.
      In multiracial societies, a person can be asked to indicate his or her racial background as part of his or her personal information.
      Genotype & Blood Group
      These bits of information are commonly requested; especially in personal biodata. It helps the organisation to draw up an even more accurate profile for you.
      Interview letter:
      1.The job interview’s time, date, and location
      2.The job description for the post for which the interview is being held must be included in the interview call letter.
      3.Candidates must be supplied with contact information and an email address so that they can reach you if they have any problems.
      4.It contains information on what documents are required for the job interview.
      5.In the subject line, specify the name of the company.
      6.Demonstrate a passion for the candidate you’ll be interviewing.
      7.Include important details such as the names of the interviewers and the location of the interview or meeting platform.
      8.To book the interview, provide a range of dates and times.
      9.Mention your contact details in your signature.
      Offer of Appointment:
      Now that we know the basics of an appointment letter, let us look at what goes into it.
      1.A formal letterhead to make it official and the candidate’s name, contact information, and issuance date at the top of the letter.
      2.Include a greeting using the candidate’s official name and preceded by a salutation, such as “Dear Atul Sharma.”
      3.For writing the letter’s content, either use the traditional paragraph style, where the content is written in full sentences. Or the modern style, where the key sections are listed as bullet points that include small paragraphs.
      4.In the introduction paragraph, offer the role formally to the prospective candidate. The offer should include the recipient’s official job title.
      5.Provide a brief description of the candidate’s role and responsibilities in the next section.
      6.Include the recipient’s starting date as discussed during the interview or job offer stage, along with a brief reference to the conversation.
      7.Include the offered position’s working schedule, such as expected daily hours with the start and end time or the expected weekly hours. Also, mention if the role is full-time or part-time.
      8.Include the official salary for the position as discussed during the job offer and negotiation stage. Also, include other essential parts of the gross salary in this section, such as pension plans, gratuity, insurance plans, etc.
      9.Include all other important additional terms and conditions (such as dress code) towards the end of the letter.
      10.Close the letter by stating if the recipient needs to sign the document at the end. Include the deadline for acceptance or response to the letter in this final section.
      Letter of enquiry:
      A letter of enquiry is a letter written to enquire about something that you want to know. When writing a letter of enquiry, make sure to mention a list of all the details you would want to gather about the product you would like to purchase or the service you would like to avail. Also, ensure that you provide your contact details accurately so that the service provider can get back to you with the details you have asked for.
      The format of a formal letter is followed when writing an enquiry letter, so like all formal letters, you have to start the letter with the sender’s address followed by the date on which the letter is being written. The receiver’s address comes next, followed by the subject, which states the purpose of the letter. The salutation and the body of the letter explaining what you want to know about are then written. You can end the letter by using a complimentary closing, followed by your signature and name in block letters. Business Enquiry Letter – Regarding the Purchase of Materials in Bulk 89 B, Shamma Cottage
      Devakottai Karaikudi Tamil Nadu – 630201 2nd January, 2022
      The Manager Fabloe Cloth Company Katargam Surat – 395003
      Subject: Business enquiry for bulk purchase of fabrics
      I am writing in regard to our intention to buy cloth materials in bulk. I came across your store, and we had a talk with your supply manager in this regard. I own a boutique that sells customised clothing, and I am in need of materials that would be suitable for sarees, salwar suits and lehengas. I am looking for crepe, georgette, double georgette, linen, cotton, silk cotton, jute, brasso silk, and chiffon materials. It would be a great help if you could send me the colours and patterns available in these categories and also the pricing details for each. I would also like to know if it is possible for you to customise colours and patterns for me. Once I have a look at the different patterns and colours you have, I will let you know the ones for which you can send me samples. I will meet you in person to discuss the final pricing and the quantity of different fabrics I need. Feel free to contact me in case of any questions. Thank you.
      Yours sincerely,
      Quotation letter:
      A quotation letter or a quotation mail is an official letter sent out to a manufacturer, a distributor or an organisation who deliver the required products or services. A request for a quotation is an enquiry about the prices and availability of the products or services. The main reason behind requesting a quotation letter is to evaluate if the particular product or service can be afforded or is well within the budget of the buyer.
      Before you send a quotation request, ensure that you know perfectly well about what you need. List out clearly the product/service and the quantity required along with the specifications, if any. In case you are not sure about something, you can ask the distributor/manufacturer to provide details regarding the same. Check for the availability of the required quantity of products/services and enquire about the shipping cost as well. Be sure to let your receiver know that you are expecting a response from their side within a particular date.
      Sample Quotation Letter – Requesting for a Quotation Letter with the Fee Details of Various Courses
      25 B, Pavilion Apartments Anna Nagar Chennai – 600023 21st August, 2021
      The Managing Director VITA Training Academy 39, Alangad Census Town Paravur, Ernakulam – 683513
      Subject: Enquiry about Selenium Automation with Java/Python and Selenium with Appium courses
      Respected Sir/Ma’am, I have been working as a Manual Tester for four years. I am looking for short-term certificate courses to upskill myself and to suit the growing needs of my company. I came across your institute and found it to be highly promising and efficient. I would like to know the details about the fees and duration of the Selenium Automation with Java/Python and Selenium with Appium courses. It would be highly appreciated if you could provide me with a quotation of the fees applicable for each of the courses as I have to submit it to the management. Also, if there are other Automation courses that would be suitable, please let me know. I request you to kindly send me the quotation letter as soon as possible so that I can start taking classes soon.
      Thanking you Yours faithfully, Signature SHANU SHYAM
      Order letter:
      The main purpose of writing an order letter is to inform the buyer/seller about the details of the items bought/sold. It also serves as documentation for further reference and record keeping. An order letter format is similar to the format of a formal letter. It must contain the following details:
      1.The items/products you want to purchase.
      2.The quantity, colour and other specifications of the products.
      3.The mode of payment and shipment details in the order confirmation letter sent by the seller.
      An order letter should be clear and precise. See to that you use a polite and professional note. Specify all the required details without missing out on anything in order to avoid any sort of confusion. Show that you trust the recipient and thank them for their service. Do not hesitate to get in touch with the recipient in case of any queries. The letter should be signed by the sender. Order letters are usually written on the letterhead of the company instead of a plain A4 sheet.
      Order Letter Format
      Sender’s Address
      Date Receiver’s Address
      Subject: ________________________________
      Dear Sir/Ma’am, Body of the Letter Paragraph 1 – Introduction and Purpose of Writing the Letter. Paragraph 2 – List of items required with the quantity in bullet points or tabular columns. Paragraph 3 – Concluding paragraph stating when you expect the delivery of items and thanking them for their service. Complimentary closing – Yours sincerely, Sincerely, etc.
      Signature of the sender
      NAME in block letters
      Complaint letter: Complaint letters are written to the concerned authorities when you are not satisfied with some service, or you have a problem that needs to be addressed. See to it that you write the letter in a polite manner. The format of a complaint letter follows the format of a formal letter. To write a complaint letter, you can start with the sender’s address followed by the date, the receiver’s address, the subject, salutation, body of the letter, complimentary closing, signature and name in block letters. Sender’s address
      DD/MM/YY Receiver’s address
      Subject: ___________________________
      Sir/Ma’am, (Salutation)
      Body of the Letter explaining the reason for your letter and the complaint.
      Thanking you
      Yours faithfully, (Complimentary Closing)
      NAME in block letters
      Complaint letter:
      Complaint letters are written to the concerned authorities when you are not satisfied with some service, or you have a problem that needs to be addressed. See to it that you write the letter in a polite manner. The format of a complaint letter follows the format of a formal letter. To write a complaint letter, you can start with the sender’s address followed by the date, the receiver’s address, the subject, salutation, body of the letter, complimentary closing, signature and name in block letters.
      Sender’s address
      Receiver’s address
      Subject: ___________________________
      Sir/Ma’am, (Salutation)
      Body of the Letter explaining the reason for your letter and the complaint.
      Thanking you
      Yours faithfully, (Complimentary Closing)
      NAME in block letters
      Complaint Letter Samples
      Here are a few complaint letter samples to help you understand the format of the complaint letter and help you write a complaint letter on your own.
      Complaint Letter Sample 1 – Poor Maintenance of the Garden and Improper Waste Disposal
      45 B, Rory Lane Damsel Street Mumbai – 400056 29th December, 2021
      The Secretary Residential Association Mumbai – 400056
      Subject: Complaint letter regarding the poor maintenance of the garden and improper waste disposal
      Sir, I am Shawn Mendez, a resident of Rory Lane. I am writing to bring to your notice the poor maintenance of the garden around our residential area and the improper disposal of waste. The garden around the residential area was watered regularly, and grass shrubs were trimmed and maintained neatly in the beginning. It has been more than a month now since any kind of maintenance is done in the garden. We have tried contacting the person in charge, but every effort has just been in vain. Another growing issue is the problem of waste disposal. There were people from the corporation collecting garbage for disposal every two days, but it has been more than a week now since they have collected any garbage from our area. This has led to the accumulation of waste, and people have started dumping it in the corner of the street as they have no other choice. Kindly look into this and the maintenance of the garden as it would become a huge mess if this continues. It would be highly appreciated if you could also inform the residents that all garbage would be collected and not to throw them out around the street corners.
      Thank you in advance.
      Yours faithfully,
      Reply to Complaint letter:
      When writing a customer complaint response, consider following these steps:
      1. Read the entire complaint
      Before you compose your response, read the entire complaint carefully. Make sure you understand the circumstances of the incident in question and then restate those circumstances in your response as a way of validating the customer’s frustration. Related: 9 Common Customer Issues and How To Resolve Them
      2. Apologize for any inconvenience
      Begin your response with an apology. If there has been a misunderstanding and the company has not made an error, you can still apologize for any inconvenience or confusion that has arisen. Related: How To Deal with Angry Customers (With Examples and Tips)
      3. Explain what may have caused the issue
      Customers may feel more satisfied if they understand why the situation resulted in an inconvenience for them. In as much detail as possible, consider explaining the process behind why the customer encountered this inconvenience.
      4. Propose an actionable, detailed solution One of the most important aspects of a customer complaint response letter is the action that the company offers to take as compensation to the customer. This can include many things, such as:
      1.An offer to replace a missing product
      2.A rescheduling of the service
      3.A refund of the product or service
      Related: 8 Reasons Why Customer Service Is Important
      5. Explain how you can improve the customer's experience in the future
      After ensuring that your company will resolve the situation, the next immediate step would be to detail how your company plans to improve the customer's experience in the future. The more details you can provide regarding the future of an improved customer experience, the more meaningful your response will feel. Related: FAQ: Is The Customer Always Right? (With Helpful Tips)
      6. Offer an incentive
      If possible, offer an incentive to your customer in your response letter. This can be anything from a discount for a product subscription to an upgrade to a better version of a product.
      7. Encourage customer response
      To conclude your letter, encourage the customer to respond with any further questions or concerns they may have about your product or service. Being open to communication lets your customer know that you are genuinely invested in retaining them as a customer. Related: How To Gather Customer Feedback
      8. Reply to any follow-up letters or questions
      Reply to any further letters your customer sends. Replying quickly and genuinely shows your customers that your company appreciates them.
      Meaning and definition of Reports:
      A report is a specific form of writing that is organised around concisely identifying and examining issues, events, or findings that have happened in a physical sense, such as events that have occurred within an organisation, or findings from a research investigation.
      Types of reports:-
      Private: Private report means a custody and access or any other type of assessment report that has been requested by one or both of the parents, but without a court order, whether or not that report is later submitted by one or both parents as an expert report.
      Public: Public Reporting is data, publicly available or available to a broad audience free of charge or at a nominal cost, about a health care structure, process or outcome at any provider level (individual clinician, group, organization).
      Informational: Informational reports do not provide an analysis or interpretation of information and do not provide recommendations. An example of this type of “just the facts” report is a police accident report.
      Interpretative: Interpretative reports are also known as recommendation reports. They assess the data and provide rational findings and worthwhile recommendations.
      Routine/periodic: A Routine Report is prepared and presented as a routine work and at a regular period of time. For example, the annual report of an association or a company which has to be prepared by the secretary or by the Board of Directors at the end of every financial year and copies have to be distributed among the members.
      Special: Special Reports are short review-style articles that summarize a particular niche area, be it a specific technique or therapeutic method.
      Differences between statutory and nonstatutory:
      Statutory refers to organizations and bodies that are defined by a formal law or a statute. These bodies are entities shaped by an Act of Parliament and set up by the Government to consider the data and make judgments in some area of activity. Non-statutory is essentially another term for common law. Therefore, such bodies are formed by executive resolution or action, which means that they are formed only by the Government’s action.
      Differences between private and public:
      Differences between informational and interpretative: Informational reports do not provide an analysis or interpretation of information and do not provide recommendations. An example of this type of “just the facts” report is a police accident report. : Interpretative reports are also known as recommendation reports. They assess the data and provide rational findings and worthwhile recommendations.
      Differences between routine / periodic and special report:
      A Routine Report is prepared and presented as a routine work and at a regular period of time. For example, the annual report of an association or a company which has to be prepared by the secretary or by the Board of Directors at the end of every financial year and copies have to be distributed among the members.Special Reports are short review-style articles that summarize a particular niche area, be it a specific technique or therapeutic method.
      Format of report (report writing not required):
      A report is a document which covers all the information related to the event or topic and includes all the factual information. Therefore, the one who writes a report must ensure that all the information provided has proper evidence for the same. The information that can be added to a report include,
      1.The brief details of the event
      2.Consequences and effects of the event
      3.Evaluation of statistical data and analytics
      4.Interpretations from the information
      5.How the information is relevant to other events
      How to Write a Report?
      A report can be written easily if you have adequate information and you know how to categorise your points. To learn how to write a report in English, you can refer to the tips provided below
      Find a Suitable Topic
      Before you can start writing your report, it is crucial to find the topic you wish to write on. In most cases, the topic is already given, and if not, you can find a suitable topic for the same. To find the topic, you must keep in mind that you must be interested in the topic and must be able to collect the required information.
      Conducting a Research
      Whatever the kind of report, academic, business, news, etc., healthy research must be conducted. Research is essential to find adequate information regarding the topic. Since a report includes all the factual data, extensive research is essential. It is essential to find the right evidence to prove your topic.
      Gathering all the Information
      After you are done with your research, you can jot down all the points at a place and note down all the facts collected. After collecting the information, you can decide on the subheadings and divide them as per their categories.
      Writing a Thesis Statement
      A thesis statement is written to conceptualise the main theme of the report. Just like the first sentence or the topic of the report, the thesis statement summarises the main points in brief.
      Preparing the Outline
      Preparing an outline of a report is essential for all the kids who are writing a report because you can categorise your important points and it becomes easy for you to decide on the headings and subheadings. It is essential to prepare the outline so that you do not miss out on the important points.
      Start Writing the Final Report
      After you have prepared the rough draft, you can start writing the final report. The final report must be written in simple language and in short sentences. The sentences must be short but convey the message clearly.
      Review and Revise
      After the final report is written, it is crucial to revise and recheck if all the information has been added and you are not missing out on important information. Make sure to check if all the information has been added under the right heading and subheading.
      Editing and Proofreading
      After the final revision of the report, you must check the report for any grammar, spelling, and typographical errors. It is common that while writing, you might have overlooked a lot of mistakes. Therefore, final proofreading is essential.
      (iii) Current trends in Business Communication: e-mail and video conferencing.
      Meaning and uses of e-mail:An email is an electronic medium of exchanging and transmitting digital files and messages through the internet- by using various electronic devices like smartphones, tablets, desktops, laptops, etc. A user can operate Email across the Internet.
      Uses:The one use that comes to focus more often is that we can contact the person any time of the day, and he/she can read the mail and respond at their own convenience. This makes the email to respect the individual’s time and avoid unnecessary communications.
      1.The traditional method of contacting people anywhere in the world used to be costly. With a single click, mail can be sent to anyone who has a mail address, which helps to maintain contacts easily. And this is done with no cost at all if the system is connected to the internet.
      2.Emails can be used for many purposes and this depends on the person who uses them. It can be used as a means of communication, informing a failure or an update, helping the team with instructions and guidelines to follow, route map for a trip, instructions to be followed for cleaning or hospitalizing and anything that seems relevant to the user.
      3.In educational terms, emails can be sent to apply for admissions, receive results and job offers. It helps the communication smooth and simple that people find it easy by clicking on the send button.
      Video conferencing:Video conferencing is a technology that allows users in different locations to hold real-time face-to-face meetings, often at little to no cost. There are many ways to utilize video conferencing technology, such as company meetings, job training sessions, or addressing board members.Video conferencing is an online meeting between two or more participants communicating in real time over an internet connection.

      LESSON PLAN:-03

      (i) Various business entities.
      Sole proprietorship
      Sole Proprietary is one man entity where there is no difference between owner and the entity. All the responsibility is on the owner himself. Likewise, he takes all profit and losses for himself.
      Partnership is owned by two or more people where the ownership and share in profit and losses are split between the owners in a certain agreed ratio and it establish through the partnership deed.
      Private Limited Company
      It is a business entity formed under Companies Act, with a minimum of 2 members. Shareholders are the owners of Private Limited Company and establish through registration.
      Public Limited Company
      A public limited company means a company that is listed on a recognised stock exchange and whose shares are publicly traded
      (ii) Sources of business finance
      Equity shares:Equity shares are defined as long-term financing options for firms looking to raise capital. Each equity share represents a unit of part ownership in the company. Equity shares are also referred to as common stock, or common shares, and are offered as an investment opportunity to the public.
      Preference shares:Preference shares, also known as preferred stock, is an exclusive share option which enables shareholders to receive dividends announced by the company before the equity shareholders.
      Preference shares provide the shareholders with the special right to claim dividends during the company lifetime, and also with the option to claim repayment of capital, in case of the wind up of the company.
      It is considered as a hybrid security option as it represents the characteristics of both debt and equity investments.
      The capital raised by issuing preference shares is known as preference share capital and preference shareholders can be regarded as owners of the company. They however do not enjoy any kind of voting rights, unlike equity shareholders.
      Debentures:A debenture is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no collateral backing, they must rely on the creditworthiness and reputation of the issuer for support. Both corporations and governments frequently issue debentures to raise capital or funds.
      Bonds:A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer.
      Retained profits:Retained profit is the amount of a business's net income that is kept within its accounts, rather than paid out to shareholders. Retained profit is a strong indicator of the long-term financial stability of a business.
      Public deposits:The deposits that are raised by organisations directly from the public are known as public deposits. Rates offered on public deposits are higher than of bank deposits. But, there is higher risk in public deposits. Public deposits cater to both short term and medium term finance requirements.
      Loans: A loan is a form of debt incurred by an individual or other entity. The lender—usually a corporation, financial institution, or government—advances a sum of money to the borrower. In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions.
      Trade credit:Trade credit is a business-to-business (B2B) agreement in which a customer can purchase goods without paying cash up front, and paying the supplier at a later scheduled date. Usually, businesses that operate with trade credits will give buyers 30, 60, or 90 days to pay, with the transaction recorded through an invoice.
      Discounting of bills of exchange:Discounting of the bill refers to the encashment of the bill before the date of its maturity. The bank deducts its charges from the bill.
      The bank shall make the payment of the bill after deducting some interest (called a discount in this case). This process of encashing the bill with the bank is called discounting the bill
      The bank gets the amount from the drawee on the due date
      Global depository receipt: A global depositary receipt (GDR) is a negotiable financial instrument issued by a depositary bank. It represents shares in a foreign company and trades on the local stock exchanges in investors' countries. GDRs make it possible for a company (the issuer) to access investors in capital markets beyond the borders of its own country. GDRs are commonly used by issuers to raise capital from international investors through private placement or public stock offerings.
      Angel investors:Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
      Venture capitalists:A venture capitalist (VC) is a private equity investor that provides capital to companies with high growth potential in exchange for an equity stake. This could be funding startup ventures or supporting small companies that wish to expand but do not have access to equities markets.
      Crowd funding: Crowd funding is the use of small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together, with the potential to increase entrepreneurship by expanding the pool of investors beyond the traditional circle of owners, relatives, and venture capitalists.
      Peer to peer funding:Peer-to-peer (P2P) lending is a form of financial technology that allows people to lend or borrow money from one another without going through a bank. P2P lending websites connect borrowers directly to investors. The site sets the rates and terms and enables the transactions.
      Factoring : It is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs.

      LESSON PLAN:-04

      (i) Globalisation-
      Meaning:Globalization is the word used to describe the growing interdependence of the world's economies, cultures, and populations, brought about by cross-border trade in goods and services, technology, and flows of investment, people, and information.
      1. Liberalisation:
      It stands for the freedom of the entrepreneurs to establish any industry or trade or business venture, within their own countries or abroad.
      2. Free trade:
      It stands for free flow of trade relations among all the nations. Each state grants MFN (most favored nation) status to other states and keeps its business and trade away from excessive and hard regulatory and protective regimes.
      3. Globalisation of Economic Activity:
      Economic activities are be governed both by the domestic market and also the world market. It stands for the process of integrating the domestic economy with world economies.
      4. Liberalisation of Import-Export System:
      It stands for liberating the import- export activity and securing a free flow of goods and services across borders.
      5. Privatisation:
      Keeping the state away from ownership of means of production and distribution and letting the free flow of industrial, trade and economic activity across borders.
      6. Increased Collaborations:
      Encouraging the process of collaborations among the entrepreneurs with a view to secure rapid modernisation, development and technological advancement.
      7. Economic Reforms:
      Encouraging fiscal and financial reforms with a view to give strength to free world trade, free enterprise, and market forces.
      Opportunities and threats of globalization for business:
      Opportunities offered to businesses from operating in a global market place include:
      Lower costs – some countries have much cheaper production, premises and wages. This allows businesses to operate with lower overall costs and increase their profit margins. Businesses may also be able to gain economies of scale. This would benefit shareholders, who will gain increased dividends.
      Larger target market – operating on a global scale gives businesses a much larger potential target market. A larger potential target market is likely to increase the potential profit for shareholders.
      Quicker expansion – businesses are able to quickly expand by opening overseas business locations. Consumers are often likely to welcome new businesses to operate in their country, as this will increase their options to purchase products. Suppliers are also likely to benefit from business expansion, as when businesses grow they will receive more orders.
      Investment in the UK economy – more businesses operating into and out of the UK will lead to businesses investing in the UK economy, providing more money in tax revenue for the government and increasing employment opportunities.
      Increased competition – operating in a global market provides a huge amount of competition for a business. If they chose to operate in another country, they may enter a crowded marketplace. Other businesses may also enter the UK market, making it difficult for UK businesses to achieve success. This may limit opportunities for employees and reduce the potential profit for shareholders.
      Risk of takeovers – as businesses are able to operate on a global scale, larger businesses may make a hostile takeover of smaller UK businesses to reduce their level of competition. This could risk jobs for employees, and lead to large MNCs (multinational companies) controlling prices for consumers.
      Increased risk of exploitation – some of the world’s largest businesses have huge amounts of power over their suppliers and governments. These businesses can force suppliers to lower prices. They may also have leverage over governments in relation to taxes and business costs. Consumers may benefit from lower prices, but this threatens other, smaller UK-based businesses as they struggle to compete. In addition to this, large foreign businesses may also pay poor employee wages and have poor conditions. Brief understanding of how globalization has been instrumental in transforming the manner in which Business is conducted: Globalization leads to increased competition. This competition can be related to product and service cost and price, target market, technological adaptation, quick response, quick production by companies etc. When a company produces with less cost and sells cheaper, it is able to increase its market share.
      (ii) e-Business:
      Meaning:E-Business (electronic business) is any process that a business organization conducts over a computer-mediated network. Business organizations include any for-profit, governmental, or nonprofit entity. Their processes include production-, customer-, and internal- or management-focused business processes.
      Nature: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.
      Importance of e-business to the buyer and to the seller:
      E-commerce allows customers to choose a product or service they want, from any supplier, anywhere in the world. You have a much wider choice than in brick-and-mortar stores. And the freedom to browse without any stress or hurry is priceless. You can also get a big variety of products since there is no space limitation with e-commerce. The traditional store has boundaries that allow it to offer only a limited quantity of goods.
      However, e-commerce stores may have their limitations elsewhere. Although you can choose from a much higher number of products online than offline, it does not necessarily mean that the online product is actually in stock. If it isn’t, you have to wait for a few days. With e-commerce, businesses save a significant amount of money and time on advertising. No need for printed catalogues. Thanks to the advantages of online shopping, you can truly show off your product – easily, quickly, creatively and affordably. For example, via email marketing, website videos, pictures, infographics, Google Adwords or social media – either through free organic posts or through paid advertising. Also, branding is more affordable with e-commerce. Online, your logo can be made by yourself or a professional graphic designer, yet it’s still cheaper than manufacturing an actual physical logo.
      You may consider using a QR code in your logo. Quick Response code can store practically any data for example a link to your website.. Simply by scanning the QR code with their smart devices, your customers will be routed wherever you send them.. All you need is to look for the best dynamic QR code generator. If businesses wish to achieve an exceptional customer experience, they simply need customers’ data. It reveals all their likes, dislikes and needs in order to tailor the best products, services, campaigns, or even exceptional e-commerce customer support.
      Online world is a goldmine of data insights that you would never get in brick-and-mortar stores. During purchasing or subscribing to promotional materials, customers provide their name, phone numbers, email addresses, demographic data and more. You may then analyze these data in analytical tools, such as Google Analytics or HubSpot. This accumulated information can also help with retargeting advertising to attract leads who haven’t purchased yet, or to email potential customers that left your store before purchasing, reminding them that their “shopping card” is full.
      (iii) Outsourcing.
      Concept of 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.
      Parties involved –
      The outsourced: The external agency which agrees to perform certain functions and processes is the outsourced.
      The outsourcer:It is the organisation which engages an external agency to perform some functions and processes.
      The service provider –The agency or individual who actually performs the function is called the service provider.
      Advantages and disadvantages of Outsourcing:
      1.To the outsourced.
      (i) Earning from outsourcing (ii)client network (iii)use of expertise and experience.
      Disadvantages:(i)No guarantee of repeating the client (ii)staff costs and other costs.
      2.To the outsourcer.
      Advantages: (i) focus on core functions (ii) Reduction in costs (iii)less investment (iv)freedom of choice
      Disadvantages:(i) payment of high fees (ii) Risks of leakage of business secrets(iii)Potential competition from the outsourcer
      3. To the service provider.
      Advantages:(i) True costs of the process becomes known
      Disadvantages: (i) Training employees of outsourced.
      (iv) Types of Outsourcing-
      Business Process Outsourcing (BPO):The full form of BPO is Business Process Outsourcing. BPO is an organization contract with a 3rd party or an independent service provider with regard to its workflow activities and obligations. It is a cost-saving process that allows enterprises to outsource their non-core functions. The outsourcing of repetitive or secondary business operations is in vogue. Currently, a large number of multinational corporations are outsourcing their maintenance by offering technical support, customer care services, human resources, communications, etc. BPO has gained considerable significance over this period.
      Knowledge Process Outsourcing (KPO):The full form of KPO is Knowledge process outsourcing. KPO defines the outsourcing of core business operations related to information that is competitively relevant or that forms an essential part of the value chain of a corporation. KPO requires advanced technological and analytical skills and a high standard of professional experience.
      The main reasons behind KPO include increased technical knowledge and skills, added value production, cost-saving opportunities and a lack of skilled labour. The territories that are especially prevalent in outsourcing the information process involve India, Eastern Europe and Sri Lanka, notably Romania, Poland and the Baltic States. KPO is a continuation of the outsourcing of business processes, but with much greater complexity of the industry.
      Business Legal Process Outsourcing (LPO):LPO can be defined as the contracting out of law-related services and processes to a third party provider.This usually involves sending work overseas to be carried out by lawyers in another country, who can often provide a more cost-effective service.LPO is not a new concept?—?it has been used by law firms for many years as a way to reduce overheads and increase efficiency. In recent years, however, the LPO industry has grown exponentially, with an increasing number of firms looking to outsource their work.
      (v) Online means of conducting business.
      Business to Consumer (B2C):B2C (business-to-consumer) is a retail approach in which goods or services are delivered directly from a business to the end customer who has bought them for individual consumption. It is the opposite of B2B. The B2B (business-to-business) model includes exchanging products and services between businesses rather than between companies and customers.
      Consumer to Consumer (C2C):C2C stands for “consumer to consumer” or “customer to customer”; it's a business model that fosters commerce between private individuals, usually in an online environment. C2C companies act as intermediaries to foster engagement and help consumers reach bigger audiences.
      Business to Business (B2B):B2C (Business-to-Customers) transactions have business firms at one end and its customers on the other end. The salient aspects of B2C Commerce are as follows:
      (i) Online Selling: B2C commerce involves selling the products online to customers who register for online shopping. However, it must be appreciated that 'selling' is the outcome of the marketing process.
      (ii) Online Marketing: B2C commerce includes a wide gamut of marketing activities such as promotion and sometimes even delivery of products (e.g., music or e-books) that are carried out online at a much lower cost but high speed.
      (iii) Adaptation to Customer Requirements: B2C commerce has made it possible for firms to manufacture the product with customised features to suit the requirements of the customers and also to provide the convenience of delivery and payment to customers.
      (iv) Customer Feedback: B2C variant of e-commerce enables a business to be in continuous touch with its customers through online surveys about demand trends and customer satisfaction.
      Intra Business (Intra B):Intra B Commerce refers to business where parties involved in the electronic transactions are from within a given business firm. It is largely due to use of intra-B commerce that today it has become possible for the firms to go in for flexible manufacturing.
      Business to Government (B2G):Business to government (B2G) is the sale and marketing of goods and services to federal, state, or local agencies. In modern lingo, there are three basic business models: business to consumer (B2C), business to business (B2B), and business to government (B2G). B2G is not an insignificant chunk of business.
      Government to Business (G2B):Government-to-business (G2B) is a relationship between businesses and government, where government agencies of various levels provide services or information to a business entity via government portals or with the help of other IT solutions.

      LESSON PLAN:-05

      Regulators and Intermediaries.
      Meaning of the terms Regulators and Intermediaries: Intermediaries play many roles in the regulatory space between the regulator and the regualtees; they might provide expertise and feedback to facilitate implementation, monitor the behavior of regulatory target or help build communities of assurance and trust between parties.
      These intermediaries, such as middlemen (wholesalers, retailers, agents, and brokers), distributors, or financial intermediaries, typically enter into longer-term commitments with the producer and make up what is known as the marketing channel, or the channel of distribution.
      A regulator is a person or organization appointed by a government to regulate an area of activity such as banking or industry.
      Role of Regulators and Intermediaries:-
      a.Reserve Bank of India (RBI):
      The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Kolkata but was permanently moved to Mumbai in 1937.
      Indian banks:- Indian Bank means any bank incorporated or established under any Act, and includes a wholly owned subsidiary of a foreign bank incorporated in India, but does not include a co-operative bank;
      Foreign banks:- The term "foreign bank" generally refers to any United States operation of a banking organization headquartered outside of the U.S.The first foreign banks established their presence in the United States in the mid-1800's, with New York being the first state to license or regulate these institutions.
      Non-Banking Financial Companies (NBFC):- A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
      b.Securities and Exchange Board of India (SEBI):- SEBI is a statutory body and a market regulator, which controls the securities market in India. The basic functions of Sebi is to protect the interests of investors in securities and to promote and regulate the securities market. Sebi is run by its board of members. The board consists of a Chairman and several other whole time and part time members. The chairman is nominated by the union government. The others include two members from the finance ministry, one member from Reserve Bank of India and five other members are also nominated by the Centre. The headquarters of Sebi is situated in Mumbai and the regional offices are located in Ahmedabad, Kolkata, Chennai and Delhi.
      Stock exchanges:- A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions via open outcry at a central location such as the floor of the exchange or by using an electronic trading platform
      Stock brokers:- A stockbroker is a financial professional who executes orders in the market on behalf of clients. A stockbroker may also be known as a registered representative (RR) or an investment advisor. Most stockbrokers work for a brokerage firm and handle transactions for a number of individual and institutional customers.
      Merchant bankers:- Merchant banker is a person who provides assistance for the subscription of securities. The merchant banker plays an important role and carries a lot of responsibilities like, private placement of securities, managing public issue of securities, stock broking, international financial advisory services, etc.
      Depositories:- A depository can be an organization, bank, or institution that holds securities and assists in the trading of securities. A depository provides security and liquidity in the market, uses money deposited for safekeeping to lend to others, invests in other securities, and offers a funds transfer system.
      Mutual funds:- A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that collects money from a number of investors who share a common investment objective and invests the same in equities, bonds, money market instruments and/or other securities.
      Credit rating agencies:- A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the servicers of the underlying debt, but not of individual consumers.
      c.Insurance Regulatory and Development Authority of India (IRDA): Insurance Regulatory and Development Authority of India (IRDAI), is a statutory body formed under an Act of Parliament, i.e., Insurance Regulatory and Development Authority Act, 1999 (IRDAI Act 1999) for overall supervision and development of the Insurance sector in India.
      Insurance companies:- The term insurance company means a company whose primary and predominant business activity during the taxable year is the issuing of insurance or annuity contracts or the reinsuring of risks underwritten by insurance companies.
      Insurance agents and insurance brokers:-
      An agent is a person who represents an insurance firm and sells insurance policies on its behalf.
      Description: Generally, there are two types of such agents who reach the prospective parties that may be interested in buying insurance. These are independent agents and captive or exclusive agents.
      An insurance broker is a specialist in insurance and risk management. Brokers act on behalf of their clients and provide advice in the interests of their clients. A broker will help you identify your individual and/or business risks to help you decide what to insure, and how to manage those risks in other ways.
      d.Pension Fund Regulatory and Development Authority (PFRDA):-
      PFRDA is regulating NPS, subscribed by employees of Govt. of India, State Governments and by employees of private institutions/organizations & unorganized sectors. The PFRDA is ensuring the orderly growth and development of pension market.
      Pension funds and Pension aggregators:-
      A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme that provides retirement income. Pension funds are pooled monetary contributions from pension plans set up by employers, unions, or other organizations to provide for their employees' or members' retirement benefits.
      Pension aggregators:-
      An aggregator is the link between a subscriber and the NPS Lite structure, functioning as the point of contact/interface between these two entities.
      e.Food Safety and Standards Authority of India (FSSAI):-
      FSSAI has been created for laying down science based standards for articles of food and to regulate their manufacture, storage, distribution, sale and import to ensure availability of safe and wholesome food for human consumption.
      Food processors:- A food processor is a kitchen appliance used to facilitate repetitive tasks in the preparation of food. Today, the term almost always refers to an electric-motor-driven appliance, although there are some manual devices also referred to as "food processors".
      Food packers:- The responsibilities of a food packer include prepping and packing food and drinks for distribution and sale. As a food packer, the products you handle vary from meat, vegetables, and pre-cooked meals to soda and alcoholic beverages. The tasks associated with this type of position tend to be repetitive.
      f.Bureau of Indian Standards (BIS):-
      BIS is the National Standard Body of India established under the BIS Act 2016 for the harmonious development of the activities of standardization, marking and quality certification of goods and for matters connected therewith or incidental thereto.
      ISI mark given to industrial goods:- The ISI mark is a standards-compliance mark for industrial products in India since 1955. The mark certifies that a product conforms to an Indian standard (IS) developed by the Bureau of Indian Standards (BIS), the national standards body of India.
      Consumer electrical goods:- Consumer electronics devices include those used for. entertainment (flatscreen TVs, television sets, MP3 players, video recorders, DVD players, radio receivers, etc.) communications (telephones, cell phones, e-mail-capable personal computers, desktop computers, laptops, printers, paper shredders, etc.
      Steel manufacturers:- Steel manufacturing means manufacturing of steel from coke and ore until finished long and flat steel products are produced, of the type currently produced by ISC on the date hereof.

      LESSON PLAN:-01

      The word ‘business environment’ indicates the aggregate total of all people, organisations and other forces that are outside the power of industry but that may affect its production.
      Features of Business Environment
      1. Totality of external forces: Business environment is the sum total of all the forces/factors external to a business firm.
      2. Specific and general forces: Business environment includes both specific and general forces. Specific forces include investors, competitors, customers etc. who influence business firm directly while general forces include social, political, economic, legal and technological conditions which affect a business firm indirectly.
      3. Inter-relatedness: All the forces/factors of a business environment are closely interrelated. For example, increased awareness of health care has raised the demand for organic food and roasted snacks.
      4. Dynamic: Business environment is dynamic in nature which keeps on changing with the change in technology, consumer’s fashion and tastes etc.
      5. Uncertainty: Business environment is uncertain as it is difficult to predict the future environmental changes and their impact with full accuracy.
      6. Complexity: Business environment is complex which is easy to understand in parts separately but it is difficult to understand in totality.
      7. Relativity: Business environment is a relative concept whose impact differs from country to country, region to region and firm to firm. For example, a shift of preference from soft drinks to juices will be welcomed as an opportunity by juice making companies while a threat to soft drink manufacturers.
      Importance of Business Environment:
      1. Identification of opportunities to get first mover advantage: Understanding of business environment helps an organization in identifying advantageous opportunities and getting their benefits prior to competitors, thus reaping the benefits of being a pioneer.
      2. Identification of threats: Correct knowledge of business environment helps an organization to identify those threats which may adversely affect its operations. For example, Bajaj Auto made considerable improvements in its two wheelers when Honda & other companies entered the auto industry.
      3. Tapping useful resources: Business environment makes available various resources such as capital, labour, machines, raw material etc. to a business firm. In order to know the availability of resources and making them available on time at economical price, knowledge of business environment is necessary.
      4. Coping with Rapid changes: Continuous study/scanning of business environment helps in knowing the changes which are taking place and thus they can be faced effectively.
      5. Assistance in planning and policy formulation: Understanding and analysis of business environment helps an organization in planning &policy formulation. For example, ITC Hotels planned new hotels in India after observing boom in tourism sector.
      Helps in Improving performance: Correct analysis and continuous monitoring of business environment helps an organization in improving its performance.
      Dimensions of Business Environment– Micro (Internal and External factors):
      An external Environment includes those outside factors that exercise an influence on a business’s operations. It is further classified into two segments.
      I)Macro - Socio-cultural, political, legal, and global factors fall into this category.
      Micro - This environment has a direct and immediate impact on a business. It consists of customers, investors, suppliers, etc.
      Macro (Economic, social, technological, political and legal):
      Economic Environment: It has immediate and direct economic impact on a business. Rate of interest, inflation rate, change in the income of people, monetary policy, price level etc. are some economic factors which could affect business firms. Economic environment may offer opportunities to a firm or it may put constraints.
      2. Social Environment: It includes various social forces such as customs, beliefs, literacy rate, educational levels, lifestyle, values etc. Changes in social environment affect an organization in the long run. Example: Now a days people are paying more attention towards their health, as a result of which demand for mineral water, diet coke etc. has increased while demand of tobacco, fatty food products has decreased.
      3. Technological Environment: It provides new and advance ways/techniques of production. A businessman must closely monitor the technological changes taking place in the industry as it helps in facing competition and improving quality of the product. For Example, Digital watches in place of traditional watches, artificial fabrics in place of traditional cotton and silk fabrics, booking of railway tickets on internet etc.
      4. Political Environment: Changes in political situation also affect business organizations. Political stability builds confidence among business community while political instability and bad law & order situation may bring uncertainty in business activities. Ideology of the political party, attitude of government towards business, type of government-single party or coalition government affects the business Example: Bangalore and Hyderabad have become the most popular locations for IT due to supportive political climate.
      5. Legal Environment: It constitutes the laws and legislations passed by the Government, administrative orders, court judgements, decisions of various commissions and agencies. Businessmen have to act according to various legislations and their knowledge is very necessary. Example: Advertisement of Alcoholic products is prohibited and it is compulsory to give statutory warning on advertisement of cigarettes.
      S.W.O.T. Analysis - A basic understanding of S.W.O.T. Analysis:
      SWOT analysis can be performed by entrepreneurs organization leaders to project managers to analyse the business environment both internally and externally. This is generally presented in a 2X2 matrix. SWOT analysis helps you visualize everything you know and don’t know about your business. This helps the entrepreneurs or project leads to strategies and effectively plan future activities
      SWOT analysis is an extended level of the planning and decision-making phases of a project or business. Hence, all the inputs must be gathered appropriately, which includes information from all departments and key personnel in the business. These inputs are taken based on the four primary elements as explained below.
      Strengths are attributes that are often classified as internal as it is something that is under our control. These are the unique qualities of the business which could be tangible or intangible and yet give a certain edge to the business. Reputation, leadership qualities, knowledge, exclusive technology, etc. are things that help businesses stand out in the market and eventually become the strength of the business. It is a key factor in the business or project that helps earn goodwill and success.
      For example, in a Start-up business scenario, it’s important to identify the core strength of the business idea or model. It could be knowledge, skilled resources, leadership or the unique product itself.
      These are certain drawbacks or loopholes in the business process or the product that distance you from your strength. Generally, weakness is influenced by internal factors, market competition and location and the requirement of additional assets such as money, furniture or equipment. Certain times it’s also a flaw or a small gap in the business process. These are generally self-identified or brought out after critical thinking and brainstorming.
      Progressing on these strategically and logically is the next most critical step to be taken during planning the business. As it helps identify areas that require enhancement, it could be in terms of skill, knowledge, finance, technology, furniture and fixtures. It could also be in terms of market competition and the need for an ideal location to operate the business.
      This process of analysis is based on a detailed study of the market in terms of new products, emerging products, decline of other competitors, publicity in the media and expansion options. It encourages the entrepreneur to capitalize on the new areas of improvement. It forces the entrepreneurs to look at all external factors such as new regulations or events that can bring profitability to the business. Identifying opportunities on time is very important as it also pushes the entrepreneur to plan future activities effectively. Opportunities also mean that as an entrepreneur to look at all external factors such as new regulations or events that can bring in profitability to the business. Identifying opportunities on time is very important as it also pushes the entrepreneur to plan future activities effectively.
      Every business faces threats mostly from external factors or environments that we don't have control over. It comes with various risk factors the company has to constantly work on mitigating it. These treats are capable of changing the way you do your business. New players in the market, sudden dissolution of a supplier, new technology or regulation are some of the factors that can impact the business and restrict the growth. However, identifying these treats or being aware of them plays a vital role in the company as it allows you to create alternate strategies, helps you invest wisely, etc.
      Some examples of SWOT analysis matrices are given below. Companies brainstorm against each of the factors on the matrix and work on developing a business strategy around it. Based on these, companies set timelines and plan activities for the future focusing mainly on the strength area. They also look at how external factors help improve on our internal weaknesses and bring factual clarity on the objective of the business plan or project.

      LESSON PLAN:-02

      Capital: Sources of finance for sole trader: The ability of a sole trader is relatively limited when compared to a private or public company. The sole trader has multiple options for extending his finances and preventing dilution of ownership while continuing to fulfil his financial needs. The sole trader may utilize his personal capital, retained profits, sale of assets, sale and lease back, loans or credit lines from banks and hire purchase.
      The sole trader can invest his own savings into his business for expansion. A sole trader who is confident about the future prospects of his business may be prepared to invest additional savings into the business for expansion. This prevents him from the burden of interest payments and allows him to retain full control over the business.
      A profitable business generates a positive net income every year. Instead of drawing out large sums of money, a sole trader may opt to retain the earnings for business expansion.
      When a sole trader is short of personal capital and retained earnings and there's a need to further investment in the business, he may decide to sell some of his assets. This could be a property registered in the name of the business. The sole trader may rent an office and use the sale proceeds to expand his business.
      If the sole trader does not have any other assets to sell, he may decide to sell an asset or a property and lease it back from the buyer. This helps him to retain the same business address and continue business as normal while raising capital for expansion.
      The sole trader can approach a bank or a financial institution to apply for a loan. This could include a business loan, a credit line, credit cards, trade credit and a mortgage. Trade credit and credit cards are preferred by sole traders as these will usually not require a mortgage of the business assets. Trade credit is mostly secured against the accounts receivable and the work in progress of the sole trader.
      This sole trader may acquire a certain asset through hire purchase by paying a proportion of the value as down payment and paying a rental on the remaining value until the full payment has been cleared. Hire purchase provisions are often available on purchases of machinery or similar assets.
      Partnership: Partnerships refer to the the simplest forms of business organization. A partnership can include more than one individual,. Partnership members carry out a business in common in pursuit of a profit. Partnerships carry unlimited liability (except for the Limited Liability Partnership)--if the business goes bust, its owners can be forced to compensate for any unpaid debts of their business from their own pockets. Partnerships have a range of options to get finance: personal savings, retained profits, working capital, sale of assets, and bank loans.
      Personal Savings: Put simply, personal savings is the the amount of money a person has at his disposal. It becomes a source of finance when a partnership member is willing to invest it in his business. It is up for the individual to decide whether he wants to keep his savings or use them to buy equipment, vehicles, tools or other things his business's needs.
      Retained Profits: A business exists to make profits. Those profits can be either withdrawn by the owners of the firm or reinvested to expand the business. If the partnership members decide to keep the profit for the company, this source of funding is called retained profit.
      Working Capital: Working capital is the short-term finance or capital of a business. It is calculated by subtracting current liabilities--how much a firm owes--from current assets--how much money the company has or is owed. Using working capital to cover short-term finance needs amounts to another source of finance.
      Sale of Assets: If a partnership needs money, it can dispose of some of its assets, selling machinery, land, buildings, tools and other assets not vital for the existence of a firm. However, assets normally are required for a business to expand, and so selling them can only be a temporary source of finance.
      Bank Loans: Taking a loan from a bank amounts to yet another source of funding available to partnerships. However, as this form of business organization has unlimited liability, a person taking a loan for his business is responsible for its repayment. If the business goes bankrupt, he will still have to pay the loan back.
      Sources of Finance for Company: A Company (Joint Stock Company ) can raise funds from two main sources: (a) Owned funds, and (b) Borrowed funds.
      Owned funds refer to the funds provided by the owners. In a sole proprietorship, the proprietor himself provides the owned fund from his personal property. In a partnership firm, the funds contributed by partners as capital are called owned funds. In a joint stock company, funds raised through the issue of shares and reinvestment or earnings are the owned funds.
      Borrowed funds refer to the borrowings of a business firm. In a company, borrowed funds consist of the finance raised from debenture holders, public deposits, financial institutions and commercial banks. Thus, the various sources of finance may be divided as Owned funds Equity shares, preference shares, ploughing back of profits and debentures are generally used for long-term finance. Public deposits, commercial banks and financial institutions are the main sources of medium-term and short-term finance
      Financial planning: Financial planning is the process of assessing the current financial situation of a business to identify future financial goals and how to achieve them. The financial plan itself is a document that serves as a roadmap for a company's financial growth.
      Importance of finance for business: Finance is important in strengthening business finance because it helps companies take risks and grow. Businesses could do what they wanted without any financial support in the past. But now, with the increased use of technology and globalization, businesses are becoming more reliant on money to accomplish their goals. Finance is also important in strengthening business finance because it allows companies to take risks and grow.
      With the increased use of technology, people are also becoming more reliant on money to accomplish their goals. Finance is important in strengthening because it allows companies to take risks and grow.
      Factors affecting capital structure.
      Fixed capital – meaning: Fixed capital is that amount of capital which is incurred in procurement or buying the fixed assets for a business or an organization. The fixed assets of an organization are those assets which remain with the business for more than one year.
      For example: Plant and Machinery, land, furniture and fixtures vehicles, etc.
      Factors affecting fixed capital:
      1.Nature of Business: The requirement of fixed capital largely depends upon the type and nature of the business a company or organization is involved in. Trading requires less fixed capital, while manufacturing business requires more fixed capital due to the involvement of heavy plant and machinery.
      2.Scale of operations: Larger the business operation, bigger is the investment and lower the level of business operation smaller is the investment.
      3.Choice of Technique: The requirement of fixed capital of an organization largely depends upon the technique of operation in the organization. An organization that is capital-intensive requires a huge amount of investment in plant and machinery because it does not rely on manual labour whereas if an organization is labour-intensive it requires a comparatively less amount of investment in its fixed assets.
      4.Technology Upgradation: The organizations whose assets become obsolete in a very short duration need to upgrade their technology from time to time which may result in a higher amount of investment in fixed assets.
      5.Growth Prospects: If an organization aspires for higher growth, the investment in fixed assets should be on a higher side.
      6.Diversification: Diversification needs investment in fixed assets. If a jute textile manufacturing company diversifies into FMCG it requires huge investment.
      7.Financing Alternatives: There are many tools that act as alternatives to huge investment in assets. For example: Plant and Machinery may be available on a lease and the firm may use the asset for the required time and pay the rentals thereby reducing huge capital investment.
      8.Level of Collaboration: It has become a common practice to collaborate with different organizations in the industry and use each other's resources for a common good. For example: One single ATM machine can be used to withdraw funds from accounts of different banks, this practice reduces the investment cost at a large scale.
      1.Working capital – meaning: Working capital is that amount of capital which is used in the day-to-day operations of the business this may be in cash or cash equivalents. The working capital is utilised by the business within one year.
      2.For example: stocks and inventories, debtors, bills receivables, etc.
      Based on concept
      i)Gross Working Capital- It is the aggregate, meaning the total number of funds invested in the company’s current assets.
      ii)Net Working Capital- The current assets exceed the current liabilities in a business. The amount by which the current assets exceed is called net working capital. The net working capital is shown in the equation of working capital. Hence, the sum of all current assets such as cash, inventory, accounts receivable minus current liabilities such as accounts payable will give you the net working capital of a company.
      Based on time
      Permanent Working Capital- It is also called fixed working capital. Part of the working capital is permanently used to pay off current assets without interrupting the business. It is the minimum amount of current assets needed to keep the business going—for example, the minimum cash required to function operational activity in a company.
      Temporary Working Capital- It is also called variable or fluctuating working capital. When the working capital is invested for a temporary period in the business, it is called temporary working capital. As the size and assets of the business change, this temporary working capital changes.
      Factors affecting working capital:
      i)Nature of Business: Manufacturing business requires more working capital as compared to trading business or service provider.
      ii)Business Cycle: During boom period firms require a large amount of working capital to manage the increased sales and production.
      iii)Seasonal Factors: Seasonal businesses require more working capital during their season time.
      iv)Scale of Operations: Businesses operating on a large scale require larger amounts of working capital as compared to small business firms.
      v)Credit Allowed: A business extending a longer credit period to its buyers will need more working capital as compared to a business doing cash business or offering a lesser credit period.
      vi)Production Cycle: Businesses with longer production cycles require more working capital as compared to businesses with short-term production cycles.
      vii)Credit Availed: A business organisation receiving longer credit period from their supplier will require lesser working capital as compared to business purchases goods for cash or receive short credit period.
      viii)Operating Efficiency: A business operating efficiently is able to convert current assets into cash easily and thus will require lesser working capital.
      ix)Availability of Raw Material: A business having each and continuous availability of raw material will not require large stock levels and thus, can manage with lesser working capital.
      x)Growth Prospects: Firms with high growth rate targets need higher working capital to meet increased sales target.
      xi)Level of Competition: Tougher competition forces businesses to offer discounts liberal credit and maintain high levels of stock requiring larger amounts of working capital.
      Inflation: Inflation increases prices as a result firms require large amounts of working capital to meet the same volume of purchase and operating expenses.
      Different types of share:
      (i)Equity shares
      (ii)Preference shares
      Bonus shares: Bonus shares are an additional number of shares given by the company to its existing shareholders as “BONUS” when they are not in the position to pay a dividend to its shareholders despite earning decent profits for that quarter. Only a company has the right to issue bonus shares to their shareholders, which has earned massive profit or large free reserves that cannot be utilized for any particular purpose and can be distributed as dividends. However, these bonus shares are given to the shareholders according to their existing stake in the company.
      Rights issue: A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights. With the rights, the shareholder can purchase new shares at a discount to the market price on a stated future date.
      ESOP: An Employee Stock Ownership Plan (ESOP) refers to an employee benefit plan that gives the employees an ownership stake in the company. The employer allocates a certain percentage of the company’s stock shares to each eligible employee at no upfront cost. The distribution of shares may be based on the employee’s pay scale, terms of service, or some other basis of allocation. The shares for an employee stock ownership plan are held in a trust unit for safety and growth until the employee exits the company or retires. After their exit, the shares are bought back by, and thus returned to, the company for further distribution to other employees.
      Sweat Equity Shares: “Sweat Equity Shares” means such equity shares as are issued by the Company to its Directors or Employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.
      Retained earnings: Retained earnings are the amount of profit a company has left over after paying all its direct costs, indirect costs, income taxes and its dividends to shareholders. This represents the portion of the company's equity that can be used, for instance, to invest in new equipment, R&D, and marketing.
      Long-term sources of funds:Capital market, special financial institution, banks, non-banking financial companies, retained earnings and foreign investment and external borrowings are the main sources of long- term finances for companies.
      Equity shares –An equity share, normally known as ordinary share is a part ownership where each member is a fractional owner and initiates the maximum entrepreneurial liability related to a trading concern. These types of shareholders in any organization possess the right to vote.
      1.Equity share capital remains with the company. It is given back only when the company is closed.
      2.Equity Shareholders possess voting rights and select the company’s management.
      3.The dividend rate on the equity capital relies upon the obtainability of the surfeit capital. However, there is no fixed rate of dividend on the equity capital.
      Equity Shares does not create a sense of obligation and accountability to pay a rate of dividend that is fixed
      It can be circulated even without establishing any extra charges over the assets of an enterprise
      It is a perpetual source of funding, and the enterprise has to pay back; exceptional case – under liquidation
      Equity shareholders are the authentic owners of the enterprise who possess the voting rights
      The enterprise cannot take either the credit or an advantage if trading on equity when only equity shares are issued
      There is a risk, or a liability overcapitalization as equity capital cannot be reclaimed
      The management can face hindrances by the equity shareholders by guidance and systematizing themselves
      When the firm earns more profits, then, higher dividends have to be paid which leads to raising in the value of the shares in the marketplace and its edges to speculation as well
      Preference shares – Preference shares, also known as preferred stock, is an exclusive share option which enables shareholders to receive dividends announced by the company before the equity shareholders. Preference shares provide the shareholders with the special right to claim dividends during the company lifetime, and also with the option to claim repayment of capital, in case of the wind up of the company.
      Features: The following are the features of preference shares:
      1.Preferential dividend option for shareholders.
      2.Preference shareholders do not have the right to vote.
      3.Shareholders have a right to claim the assets in case of a wind up of the company.
      4.Fixed dividend payout for shareholders, irrespective of profit earned.
      5.Acts as a source of hybrid financing.
      Types: The various types of preference share are discussed below:
      1.Cumulative preference share: Cumulative preference shares are a special type of shares that entitles the shareholders to enjoy cumulative dividend payout at times when a company is not making profits. These dividends will be counted as arrears in years when the company is not earning profit and will be paid on a cumulative basis, the next year when the business generates profits.
      2.Non-cumulative preference shares: These types of shares do not accumulate dividends in the form of arrears. In the case of non-cumulative preference shares, the dividend payout takes place from the profits made by the company in the current year. If there is a year in which the company doesn’t make any profit, then the shareholders are not paid any dividends for that year and they cannot claim for dividends in any future profit year.
      3.Participating preference shares: These types of shares allow the shareholders to demand a part in the surplus profit of the company at the event of liquidation of the company after the dividends have been paid to the other shareholders. In other words, these shareholders enjoy fixed dividends and also share a part of the surplus profit of the company along with equity shareholders.
      4.Non-participating preference shares: These shares do not yield the shareholders the additional option of earning dividends from the surplus profits earned by the company. In this case, the shareholders receive only the fixed dividend.
      5.Redeemable Preference Shares: Redeemable preference shares are shares that can be repurchased or redeemed by the issuing company at a fixed rate and date. These types of shares help the company by providing a cushion during times of inflation.
      6.Non-redeemable Preference Shares: Non-redeemable preference shares are those shares that cannot be redeemed during the entire lifetime of the company. In other words, these shares can only be redeemed at the time of winding up of the company.
      7.Convertible Preference Shares: Convertible preference shares are a type of shares that enables the shareholders to convert their preference shares into equity shares at a fixed rate, after the expiry of a specified period as mentioned in the memorandum.
      8.Non-convertible Preference Shares: These type of preference shares cannot be converted into equity shares. These shares will only get fixed dividend payout and also enjoy preferential dividend payout during the dissolution of a company.
      Advantages: There are several advantages of investing in preferred shares from an investor’s point of view. The details of these advantages have been mentioned below:
      1.Priority Payments: Firstly, it is important to note that preferred shareholders are given priority payments. This is because the nature of the financial instrument is such that the company has to first pay the priority shareholders before they can make any payments to common stockholders. These priority payments virtually guarantee coupon payments at a higher rate until the company runs into cash flow issues and reaches the verge of bankruptcy.
      2.Lower Default Risk: Preferred shareholders are considered to be senior in the debt structure of the firm. This means that in the unfortunate event of dissolution or winding up of the firm, the preferred shareholders will have a higher claim as compared to equity shareholders. This means that the default risk of preferred shares is considerably lower as compared to the default risk of regular shares.
      3.Tax Advantages: In the United States, the income received from preferred shares receives a preferential tax treatment. There are certain kinds of preferred stock that have been listed down in the tax code. The dividend received from these shares is taxed at a significantly lower rate as compared to regular income tax rates.
      4.Convertible to Common Stock: Many preferred stocks give the investor the option to convert their share into common stock if they wish to do so. Of course, since the value of this option has to be taken into account, the dividend paid by these preferred shares tends to be lower than other shares. Investors are generally keen on investing in preferred shares which have convertible features. This is because they get the best of both worlds i.e. a fixed income at a higher rate in the initial years and an option to convert the preferred shares to common stock only if it is beneficial for them to do so.
      Disadvantages: While investment in preferred shares is generally considered to be a safe bet, there are several disadvantages that result from such investments as well. Details of some of these disadvantages have been mentioned below:
      1.Dividend Deferral Risk: Firstly, preferred shares have to be evaluated in a way that is very different as compared to bond investments. In the case of bond investments, investors only have to take into account the risk of default. Here, there are other types of risks that need to be accounted for. For instance, the issuer may not be able to make dividend payments in a given year and may have to defer the same. In such cases, preference shareholders have no recourse and have to forego the payment that year. This means that the investors cannot rely completely on these dividend payments as a source of their income.
      2.No Claim on the Company: Preference shareholders get no real claim on the company. This means that their title is not secured by any particular asset. Instead, they will be paid only if there is a residual value that is left over after paying all the senior creditors. They are only senior to equity shareholders when it comes to the dissolution of the firm. Hence, it can be said that they do face the risk of default to some extent. This makes preference shares riskier since the downside is the same as bonds but the upside is less as compared to bonds.
      3.Retractable and Redeemable: The specific features which are embedded in preference shares differ from company to company. However, in most cases, the shares are either retractable or redeemable. Being retractable means that the shares can be called back by the company. In such cases, the company can make a unilateral decision to return the face value of the preference share and extinguish it.
      Bonus and rights issue: Bonus shares are issued to the shareholders free of cost. Rights shares are either partly paid or fully paid up depending on the proportion of the paid-up value of equity shares when further issues occur. On the other hand, bonus shares are always fully paid up.
      Retained earnings – meaning, merits and demerits:
      Retained Earnings is that part of the profits of an organization, which remains with it after meeting all its operating expenses and paying out dividend to all the shareholders. The organization intends to keep this surplus amount with itself in the form of reserves and surplus to meet any contingency, carry out research work, expansion projects, etc.
      Most Dependable Source: Being an internal source, retained earnings are a more dependable and permanent source of finance than external sources of funds. This is because all external sources depend upon market conditions, the preference of the creditors, etc.
      No Explicit Cost: Using retained earnings does not involve any costs to be incurred as no expenditure is to be made on issuing prospectus, advertising, floatation costs, etc.
      No Fixed Liability: There is no fixed liability to pay dividends or interest on this source of funds as retained earnings are a company’s own money.
      No Interference: When a company utilizes its retained profits, it does not need to issue any new shares. As a result, there is no risk of dilution of control in the organization.
      No Security: Unlike debentures, no charge is created on the assets of the company. As a result, the company is free to use its assets for raising loans in the future.
      Goodwill: Retained earnings add to the financial strength and credibility of the company. Large reserves enable businesses to respond with ease to any crisis or unforeseen contingency. Retained earnings may lead to an increase in the market price of the equity shares.
      Absorbs Unexpected Losses: If a business has retained earnings, then it is in the position to absorb unexpected losses.
      Limitations of Retained Earnings
      Retained Earning has the following limitations:
      Dissatisfaction: In cases of excessive ploughing back of profits, i.e., where a major portion of the profits has been kept in the form of reserves, the shareholders might be disappointed by the lower amounts of dividends paid to them.
      Uncertainty: Retained earnings are a highly uncertain method of raising funds since the profits of a business are always fluctuating.
      Opportunity Cost: The opportunity cost associated with the usage of retained profits is often overlooked or sometimes, not even recognized by a lot of firms, which leads to sub-optimal usage of the funds.
      (b)Loan capital: debentures.
      Debentures – meaning: Debentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements. In return, investors are compensated with an interest income for being a creditor to the issuer. They are usually an unsecured form of borrowing from the public and have a lengthy tenure, usually exceeding ten years.
      kinds of debentures:
      1. From the Point of view of Security
      Secured Debentures: Secured debentures are that kind of debentures where a charge is being established on the properties or assets of the enterprise for the purpose of any payment. The charge might be either floating or fixed. The fixed charge is established against those assets which come under the enterprise’s possession for the purpose to use in activities not meant for sale whereas floating charge comprises of all assets excluding those accredited to the secured creditors. A fixed charge is established on a particular asset whereas a floating charge is on the general assets of the enterprise.
      Unsecured Debentures: They do not have a particular charge on the assets of the enterprise. However, a floating charge may be established on these debentures by default. Usually, these types of debentures are not circulated.
      2. From the Point of view of Tenure
      Redeemable Debentures: These debentures are those debentures that are due on the cessation of the time frame either in a lump-sum or in instalments during the lifetime of the enterprise. Debentures can be reclaimed either at a premium or at par.
      Irredeemable Debentures: These debentures are also called as Perpetual Debentures as the company doesn’t give any attempt for the repayment of money acquired or borrowed by circulating such debentures. These debentures are repayable on the closing up of an enterprise or on the expiry (cessation) of a long period.
      3. From the Point of view of Convertibility
      Convertible Debentures: Debentures which are changeable to equity shares or in any other security either at the choice of the enterprise or the debenture holders are called convertible debentures. These debentures are either entirely convertible or partly changeable.
      non-Convertible Debentures: The debentures which can’t be changed into shares or in other securities are called Non-Convertible Debentures. Most debentures circulated by enterprises fall in this class.
      4. From Coupon Rate Point of view
      Specific Coupon Rate Debentures: Such debentures are circulated with a mentioned rate of interest, and it is known as the coupon rate.
      Zero-Coupon Rate Debentures: These debentures don’t normally carry a particular rate of interest. In order to restore the investors, such type of debentures are circulated at a considerable discount and the difference between the nominal value and the circulated price is treated as the amount of interest associated to the duration of the debentures.
      5. From the view Point of Registration
      Registered Debentures: These debentures are such debentures within which all details comprising addresses, names and particulars of holding of the debenture holders are filed in a register kept by the enterprise. Such debentures can be moved only by performing a normal transfer deed.
      Bearer Debentures: These debentures are debentures which can be transferred by way of delivery and the company does not keep any record of the debenture holders Interest on debentures is paid to a person who produces the interest coupon attached to such debentures.
      Advantages and disadvantages of debentures:
      1. To Investors:
      Fixed Income for Investors: A company has to pay interest on the issued debentures, whether it earns profits in a financial year or not. So, the investors get a fixed income. This is not the case with equity shareholders, whose dividend depends solely on the profit earned.
      Secured Investment: Since debt securities are usually secured by way of a charge against the issuing company’s assets, the holders can sell off the asset in case of the company goes bankrupt or insolvent.
      Fixed Return even during Inflation: The rate of interest on debentures does not fluctuate with the changes in price levels, thereby ensuring a fixed level of income.
      2. To the Company:
      No Dilution of Ownership: Since debenture holders do not have any voting rights or any participation in company meetings, the ownership of the company’s management remains intact, as opposed to companies issuing equity capital where control is diluted owing to voting rights to the holders.
      Cheaper Source: Flotation costs and listing costs for debentures are way lesser than those of equity capital, making them a cheaper source of funds for the company.
      1. To Investors:
      No Voting Rights: Debenture holders are not allowed to participate in company meetings and do not have voting rights. Thus they do not have any say in the company matters or policies.
      2. To the Company:
      Rigidity as to Interest Payment: A company issuing equity capital can fix the dividend rate as per the profit earned, but the same is not possible for a company issuing debentures, where the rate of interest is fixed, and interest has to be paid whether there is profit or not.
      Less control over Mortgaged Assets: Assets against which charges are made cannot be employed freely for the company’s uses because they are under the control of the creditors. This leads to the underutilization of assets and resources.
      Loans from commercial banks and Financial Institutions –
      Meaning:A commercial loan is a financial instrument that businesses owners can avail of to address any short-term capital needs. The sanctioned amount can be used to increase the working capital, acquire new machinery, build new infrastructure, meet operational costs, and other such expenditures.
      Advantages and disadvantages:
      The loan is not repayable on demand and so available for the term of the loan - generally three to ten years - unless you breach the loan conditions.
      Loans can be tied to the lifetime of the equipment or other assets you're borrowing the money to pay for.
      At the beginning of the term of the loan you may be able to negotiate a repayment holiday, meaning that you only pay interest for a certain amount of time while repayments on the capital are frozen.
      While you must pay interest on your loan, you do not have to give the lender a percentage of your profits or a share in your company.
      Interest rates may be fixed for the term so you will know the level of repayments throughout the life of the loan.
      There may be an arrangement fee that is paid at the start of the loan but not throughout its life. If it is an on-demand loan, an annual renewal fee may be payable.
      Larger loans will have certain terms and conditions or covenants that you must adhere to, such as the provision of quarterly management information.
      Loans are not very flexible - you could be paying interest on funds you're not using.
      You could have trouble making monthly repayments if your customers don't pay you promptly, causing cashflow problems.
      In some cases, loans are secured against the assets of the business or your personal possessions, e.g. your home. The interest rates for secured loans may be lower than for unsecured ones, but your assets or home could be at risk if you cannot make the repayments.
      There may be a charge if you want to repay the loan before the end of the loan term, particularly if the interest rate on the loan is fixed.
      Short-term sources of funds –
      Public deposits: Public deposits refer to the unsecured deposits invited by companies from the public mainly to finance working capital needs. A company wishing to invite public deposits makes an advertisement in the newspapers.
      1. Simplicity:
      Public deposits are a very convenient source of business finance. No cumbersome legal formalities are involved. The company raising deposits has to simply give an advertisement and issue a receipt to each depositor.
      2. Economy:
      Interest paid on public deposits is lower than that paid on debentures and bank loans. Moreover, no underwriting commission, brokerage, etc. has to be paid. Interest paid on public deposits is tax deductible which reduces tax liability. Therefore, public deposits are a cheaper source of finance.
      3. No Charge on Assets:
      Public deposits are unsecured and, therefore, do not create any charge or mortgage on the company’s assets. The company can raise loans in future against the security of its assets.
      4. Flexibility:
      Public deposits can be raised during the season to buy raw materials in bulk and for other short-term needs. They can be returned when the need is over. Therefore, public deposits introduce flexibility in the company’s financial structure.
      5. Trading on Equity:
      Interest on public deposits is paid at a fixed rate. This enables a company to declare higher rates of dividend to equity shareholders during periods of good earnings.
      6. No Dilution of Control:
      There is no dilution of shareholders’ control because the depositors have no voting rights.
      7. Wide Contacts:
      Public deposits enable a company to build up contacts with a wider public. These contacts prove helpful in the sale of shares and debentures in future.
      Demerits of Public Deposits:
      1. Uncertainty:
      Public deposits are an uncertain and unreliable source of finance. The depositors may not respond when economic conditions are uncertain. Moreover, they may withdraw their deposits whenever they feel shaky about the financial health of the company.
      2. Limited Funds:
      A limited amount of funds can be raised through public deposits due to legal restrictions.
      3. Temporary Finance:
      The maturity period of public deposits is short. The company cannot depend upon public deposits for meeting long-term financial needs.
      4. Speculation:
      As public deposits can be raised easily and quickly, a company may be tempted to raise more funds than it can profitably use. It may keep idle money to meet future contingencies. The management of the company may indulge in over-trading and speculation which exercise harmful effects on the business.
      Commercial Banks: A commercial bank is a financial institution which provides services like accepting deposits, granting loans, bank overdrafts, offering certificate of deposits, and savings accounts to individuals and businesses.
      1. Confidentiality of Information: The banks when lends funds or accept deposits do not share the information with anyone. Banks value the privacy of their customers by preserving the secrecy of personal information of customers. The personal details of the customers or the account holders are kept safe with the banks.
      2. Economical: Commercial banks are widely regarded as the cheaper funding source. The reason for its being an economical source is that it does not involves any cost for issuing of a prospectus, underwriting fees or any other charges. Banking services under commercial banks are free from any sort of hidden charges.
      3. Flexible: Commercial banks are considered to be a flexible source of funding because the borrower can easily borrow money from the banks whenever they are in urgent need of money or funds. The borrowers can easily increase or reduce the amount of borrowings as per their convenience and requirements. The banks make the funds available as and when needed by the borrowers. Also, borrowers can repay the money when they don’t feel the requirement.
      4. Lesser Formalities: It’s easy for borrowers to raise funds from commercial banks because it requires no stringent formalities to follow up. As such no paperwork is involved in the whole borrowing process. It requires no formalities like looking for an underwriter or issuing of a prospectus. So, it makes the process hassle-free and smooth.
      5. Encourage Savings: Commercial Banks through their operations encourage savings among the general public. With this facility, banks offer a safer way to collect money from individuals, which otherwise they could have consumed impulsively. The amount of savings is subject to some fixed rate of interest. So savings from individuals whether in small or big amount increases the capital accumulation with the banks, which then can be used to invest or lend to the general public.
      Disadvantages of Commercial Bank
      1. Procedural Difficulty: While lending funds to borrowers, it’s important for commercial banks to check if the advances are being made to the right entity. The only way to check is to conduct a detailed investigation of the firm’s background and its financial affairs. It follows stringent rules, so it makes the procedure of borrowing very tricky and rigorous.
      2. Difficulty in Renewal: Loans from Commercial Banks can be generally borrowed for a short period of time only. It’s almost difficult to renew or extend the borrowings. Also, extending the tenure of borrowed funds can be tough and only fresh loans can be borrowed.
      3. Need for Security: Loans from commercial banks can’t be provided without any security. For any amount of loan or advances, there is a requirement of any asset or personal guarantees from the borrowers against which borrowings can be issued. Most of the time, the loan amount is lower than the security’s value. So it has become disadvantageous for the public and firms.
      4. Bankruptcy: Sometimes, the banks may not be capable to provide the amount requested by the borrowers even if that money belongs to the customers and they have only deposited those to their savings account. This happens when the management of the banks does not take proper care of depositors’ or investors’ finances and rather mismanages them. But sometimes, it could also happen due to weaker economic health, like in times of recession when customers do more withdrawal than borrowings.
      Trade credit: Trade credit is credit given by one merchant to another for the purchase of products and services. Trade credit allows for the purchase of materials without the need for immediate payment.
      Advantages of Trade Credit
      The advantages of Trade Credit are as follows:
      1.Business Growth: The two main obstacles to worldwide business expansion are: The capacity to pay vendors for products or services delivered, and the risk of non-payment. Trade credit is a kind of short- to medium-term working capital that offers security on the product or service being exported or imported, enabling multinational enterprises to overcome these hurdles more effectively. As a result, business growth is facilitated.
      2.Continuous Source: Trade Credit is a continuous and convenient source of funds, which is easily available to firms.
      3.Easily Available: If the creditworthiness of the customers is known to the seller, trade credit may be readily available to customers.
      4.Increase in Sales: Trade Credit can be used if an organisation wants to increase its inventory level in order to meet the expected rise in the sales volume in the near future.
      5.No Charge on Assets: It does not create any charge on the assets of the firm while providing funds.
      Disadvantages of Trade Credit
      1.Cash Flow Effect: The most obvious effect of trade credit is that merchants do not receive instant payment for their goods. Sellers have their own costs to pay, and offering credit terms to buyers disrupts their financial flow.
      2.Overtrading: Trade Credit allows businesses to avail credit facilities easily, which may induce a firm to indulge in overtrading, which may add to the risks of the firm.
      3.Limited Funds: Only a limited amount of funds can be generated through trade credit, so it is not very useful if a business required heavy funds.
      4.Investigate Creditworthiness of Customers: A vendor who gives credit to consumers, like a bank examines their credit ratings. This requires both money and time. Obtaining company credit reports, such as Dun & Bradstreet, is expensive, and calling references takes time. A vendor may need to recruit an additional person with credit analysis expertise to assist in making choices about extending payment terms.
      5.Financing Accounts Receivable: The seller must finance these receivables since credit terms have been extended to buyers. To receive trade credit, a seller may have to rely on his own suppliers, borrow on his bank line of credit, or use the company’s accumulated retained earnings. Each of these approaches has an inherent capital cost.
      6.Increase in Cost: Trade financing, like any other loan instrument, has a cost because trade financing is only charged on the particular trades carried out under the facility. It is essential to comprehend the profit margins on trades. If a company understands its profit margins and costs, the financing cost may be included in the trade costing. It is also more costly than other sources of raising money.
      Customer advances: Customer Advances means amounts arising from the operation of the Business that have been billed and collected by Seller as of the Closing Date but that are unearned because they relate to the provision of service after the Closing Date.
      Factoring: Factoring is a type of finance in which a business would sell its accounts receivable (invoices) to a third party to meet its short-term liquidity needs. Under the transaction between both parties, the factor would pay the amount due on the invoices minus its commission or fees.
      Advantages of Factoring
      Immediate cash flow/liquidity:
      Under the factoring arrangement, the factor pays up to 80% (in some cases even 90%) of receivables within one-two working day of presentation of the invoice. This substantially reduces the average receivable days, leading to improved liquidity and efficient working capital management.
      No need for collateral:
      Many banks require collateral from small businesses. However, most factoring companies don’t need collateral as the receivables, and the buyers are duly audited and the financial institution assumes the risk.
      Focus on core activities:
      Factoring saves time and the cost of collecting customers’ receivables. This makes it a good solution for small businesses. The factor provides all services related to sales ledger management, collection of account receivables, credit control and protection, etc., enabling the company to concentrate on its core competencies more efficiently.
      A sale, not a loan:
      Factoring isn’t a loan and doesn’t create any liability on the balance sheet. This is in stark contrast to a bill discounting service where the discounted bills are simply used as collateral against the loans.
      Advisory services:
      Factors need to recover dues from buyers in several other countries that their exporters regularly ship. So, they are generally aware of the potential risks of dealing with a buyer or a specific region.
      Disadvantages of Factoring
      Non-recourse factoring can be expensive:
      Although recourse and collateral-based factoring are relatively competitive, non-recourse and non-collateral-based factoring can be costly. The mitigation of risk and the agility of the product comes at a cost.
      Exhausting collateral security:
      A business uses its receivables to get financing. These receivables don’t appear on the balance sheet of the client. The client no longer has any control over the book debts. Hence, they cannot be used as collateral security in other financial services.
      Continuity of service:
      Factoring depends upon the factor’s perceived creditworthiness of the customer. It is also a continuous process that can be used for multiple shipments spanning several buyers on a rolling basis.
      Lack of a personal touch in buyer/seller relationships:
      There may be a certain degree of discomfort for the importer while a factoring company appraises his credit profile and regularly checks all the shipments. Some buyers might want to deal directly with the seller instead of involving a third party.
      Inter corporate deposits: An Inter-Corporate Deposit (ICD) is an unsecured borrowing by corporates and FIs from other corporate entities registered under the Companies Act 1956. The corporate having surplus funds would lend to another corporate in need of funds.
      Advantages of Inter-company Deposits:
      The advantages of inter-corporate deposits are:
      i. Surplus funds can be effectively utilized by the lender company.
      ii. Such deposits are secured in nature.
      iii. Inter-corporate deposits can be easily procured.
      Disadvantages of Inter-company Deposits:
      Inter-company deposits suffer from following disadvantages:
      i. A company cannot lend more than 10 per cent of its net worth to a single company and cannot lend beyond 30 per cent of its net worth in total.
      ii. The market for such source of financing is not structured.
      Installment credit: Installment credit, also called Installment Plan, or Hire-purchase Plan, in business, credit that is granted on condition of its repayment at regular intervals, or installments, over a specified period of time until paid in full.
      You can borrow a large amount of money and spread the payments out over time.
      The interest rate is typically fixed, so you will know exactly how much your monthly payments will be.
      You may be able to get a lower interest rate if you have good credit.
      You can use the money for any purpose, including financing a vacation.
      If you have bad credit, you may not qualify for an installment loan or you may get a higher interest rate.
      You will likely have to pay origination fees and other fees associated with taking out the loan.
      The interest on installment loans is not tax-deductible like it is with some other types of loans.
      If you miss a payment or make a late payment, you may be charged a fee and your interest rate could increase.
      (iii)Banking - latest trends.
      Online services- transfer of funds through Real Time Gross Settlement (RTGS): Real-time gross settlements are a process that is used for high-value inter-bank transactions. These transactions typically need instant and full clearing and are generally done by the central bank of the country.
      RTGS reduces the overall risk as these settlements are made almost instantly throughout the day. It is not like National Electronic Funds Transfer (NEFT) in which settlements are made in batches. Hence, the charges involved in the real-time gross transfer of funds may incur higher costs to customers.
      National Electronic Funds Transfer (NEFT): When an individual wishes to transfer money from his bank account to another person’s bank account, he may do so through the NEFT process rather than withdrawing the money and then paying it in cash or issuing a cheque. NEFT has the primary benefit that it can transfer funds from any branch account to any other bank account at any given venue. The only condition is that both the sender and the recipient branches are NEFT-enabled. On the RBI website, you can check the list of NEFT-enabled bank branches, or call your bank’s customer service to confirm the same. The NEFT process allows for the cross-border, one-way movement of funds from India to Nepal under the Indo-Nepal Remittance Facility Scheme.
      Some of the points to be considered while transferring money through NEFT are.
      NEFT transaction timing on weekdays from 8.00 am to 6.30 pm and Saturdays from 8.00 am to 12.00 pm.
      There is no transaction limit, but Rs.50,000 is per transaction limit.
      Immediate payment service(IMPS): Immediate Payment Service (IMPS) is an instant payment inter-bank electronic funds transfer system in India. IMPS offers an inter-bank electronic fund transfer service through mobile phones. The service is available 24x7 throughout the year including bank holidays. IMPS aims to make electronic funds transfer easy and convenient for customers and to support the RBI’s goal of electronification of retail payments. IMPS has built the foundation for a full range of mobile banking services.
      There are four major participating parties for an IMPS transaction to take place:
      Remitter (Sender)
      Beneficiary (Receiver)
      National Financial Switch (NFS)
      Issue of demand drafts online meaning: Issue Demand Draft transaction allows the customer to request the bank for issuance of a demand draft. The payee of the draft needs to be first registered through Manage Payees. The user then initiates a request to issue a demand draft by asking the bank to debit the account provided by user.
      It is issued by the bank to another bank.
      It is considered to be a prepaid negotiable instrument because the money is taken from the drawer’s account when it is issued. Therefore, when the payee cashes it out, it will not bounce due to insufficient funds since the payment is already made by the drawer. As a result, it is more secure and comes with less risk compared to a check.
      It is only payable to the payee written on the demand draft, and it is payable on demand. It means the payee can immediately be paid the specified amount and cannot be stopped from payment once he/she presents it to the bank to be cashed out.
      It does not require the use of a signature to authorize the transfer of funds. It can be authorized remotely by fax, phone, or online. Instead of a signature, it will say “authorized by depositor” or “authorized by drawer.”
      Online payments: Online payments refer to the electronic exchange of currency through the internet. These payments usually consist of the transfer of monetary funds from a customer's bank or debit or credit card account, into the seller's bank account, in exchange for products or services.
      E- Booking meaning: An ebook (short for electronic book), also known as an e-book or eBook, is a book publication made available in digital form, consisting of text, images, or both, readable on the flat-panel display of computers or other electronic devices.
      Features: E-Books share some of the following characteristics:
      eBooks generally include the complete text of the printed textbook, along with all figures and illustrations.
      eBooks usually have a table of contents that you can click to navigate to specific chapters or sections.
      You can usually search for text in eBooks.
      You can usually navigate to a specific page number by typing the page number in a text box.
      You can often bookmark pages in the eBook.
      You can often add highlighting and notes to the eBook. Your highlighting and notes are saved between sessions and are available to you anytime when you open the eBook.
      You can usually zoom in and out when viewing the eBook.
      You can sometimes click on links in the eBook which open media such as videos. Some of these additional media are interactive.
      You can usually print pages from the eBook.
      You can sometimes save the eBook to your computer for offline viewing.
      Some older eBooks require either the free Adobe Reader or the free Adobe Flash Player.
      Advantages and Disadvantages:
      Following are the benefits or advantages of e-books:
      i)It is available at much lower prices online compare to brick and mortar book stores.
      ii)It can be accessed comfortably even while traveling without any hassles of carrying hard books.
      iii)Users can carry hundreds of books anywhere they go. Moreover e-books are stored in the reader's online personal account.
      iv)E-books are available with "search option" and hence they ca easily look up for any information instead of wasting time turning page after page. One can also bookmark the page after search.
      v)Most of the e-books are cloud based. Hence writers or authors can update the connects online immediately. Due to this, readers can access updated content online. The process avoids investment on re-printing costs and saves time.
      vi)E-books are equipped with interactive elements for better reading experience. These contain audio, video and animations which are ideal for childrens and visually impaired people.
      Following are the drawbacks or disadvantages of e-books:
      i)E-books require power source i.e. battery. As a result, if battery is not charged and power source is not available, reader is deprived of access of e-books. This creates lot of inconvenience.
      ii)Files can not downloaded if appropriate software is not installed on e-book devices.
      iii)Notifications on the e-books distract the readers. This is observed more in phone or tablet.
      iv)Technologies are evolving very fast. E-books are required to be upgraded accordingly. Failing so, will lead to risk of losing saved files or books and formatting of documents.
      v)There are health issues while reading during night time mostly on tablets and with backlit e-readers. It can cause sleep deficiency, eye strain and/or damage health.
      Mobile Banking- SMS alerts: SMS alerts' is a form of mobile banking. It is a facility used by some banks or other financial institutions to send messages (also called notifications or alerts) to customers' mobile phones using SMS messaging, or a service provided by them which enables customers to perform some financial transactions using SMS.
      Transfer of funds: A Funds Transfer is a sequence of events that results in the movement of funds from the remitter to the beneficiary. It is also defined as the remittance of funds from one party to itself or to another party through the banking system.
      Making payments advantages and disadvantages:
      Followings are the advantages of making payment-
      1. Speed of transactions
      For both the seller and the customer, online payments save a lot of time. People don’t have to wait in lines, take time to write checks, or wait for paper bills. They don’t have to wait for banks to clear their checks so that they can access the money.For sellers, it saves a great deal of time since they don’t have to waste time printing and mailing bills. Online payments also decrease the chances of late payments. Since it takes less than a few minutes to complete a transaction, people will not forget it or put it off for later.
      2. Convenience
      People can pay for goods and services at any time of the day from any part of the world. It is easier to click a feature on your smartphone than to collect the correct amount of cash for your purchase. You don’t have to carry a lot of cash, get worried about theft or not having perfect change. With online payment options, you just need to remember a certain pin, and that’s it, your transaction is done! As simple as that.
      3. Reaching global audience
      One of the biggest advantages of having online payment gateways is that businesses can operate globally and have a customer base irrespective of geographical limitations. According to research, over 56% of online shoppers prefer to shop cross-border. So implementing online payment options on your e-commerce site will undoubtedly increase sales as you will be catering for a global audience.
      4. Low transaction costs
      In a traditional payment setup, businesses have to hire front-desk employees or cashiers to manage sales and payments. But with online payments, transactions take place in an automated environment. Merchants can set up online payment gateways with minimal investment and lower transaction costs.
      5. Quick and easy setup
      Instead of spending time on setting up a whole payment process that involves certain equipment and some extra employees, you can easily and quickly integrate online payment gateways for your business. However, before you choose the services of a particular vendor, you can evaluate the different options available in order to choose the best one.
      Disadvantages of making Payments
      1. Technical problems
      Online payments are subject to technical failures or downtime, just like any other software that is dependent on technology. Though tech maintenance operations are announced in advance and usually take place during the night, sometimes, it can cause frustration among online shoppers. Especially when it takes place without prior warning, a lot of businesses experience heavy bounce rates.
      2. Password threats
      If you are a registered user with a website who uses online payments pretty often, there are high chances that the online portal can have access to your personal information or bank account details. Though most transactions use OTPs (one-time passwords), the need for password protection arises in such situations. Especially if you are someone who deals with different banks, you might face the risk of a privacy breach.
      3. Cost of fraud
      Just as more and more people are shifting to online payments and preferring them over other traditional forms of payment, so are cybercriminals. ID thefts, phishing attacks, and database exploits are becoming more common. In order to prevent these and increase security, businesses install a lot of payment-security softwares and eventually incur a lot of costs.
      4. Security Concerns
      As discussed in the previous point, using online payments come with a lot of security risks. Without proper security measures, fraudsters can easily hack important financial information and data. And since there aren’t any verification systems like facial recognition or biometrics, criminals can easily get away without getting caught.
      Debit Cards: A debit card is a payment card that deducts money directly from a consumer’s checking account when it is used. Also called “check cards” or "bank cards," they can be used to buy goods or services; or to get cash from an automated teller machine or a merchant who'll let you add an extra amount onto a purchase.
      Credit Cards: A credit card is a type of credit facility, provided by banks that allow customers to borrow funds within a pre-approved credit limit. It enables customers to make purchase transactions on goods and services.
      ATM meaning: Automated Teller Machine, i.e., ATM definition includes being electronic banking outlet which allows customers to complete basic transactions without the aid of any representative from the bank.
      Convenience and accessibility are the key benefits of ATMs. Services like deposits, cash withdrawals, transfers between payments and bill payments can be performed by an ATM.
      Features: The features of the automated teller machine include the following.
      Transfer funds between linked bank accounts
      Receive account balance
      Prints recent transactions list
      Change your pin
      Deposit your cash
      Prepaid mobile recharge
      Bill payments
      Cash withdrawal
      Perform a range of features in your foreign language.

      LESSON PLAN:-03

      Management as an Activity:
      Like various other activities performed by human beings such as writing, playing, eating, cooking etc, management is also an activity because a manager is one who accomplishes the objectives by directing the efforts of others. According to Koontz, “Management is what a manager does”.
      Management as a group:
      Management as a group refers to all those persons who perform the task of managing an enterprise. When we say that management of ABC & Co. is good, we are referring to a group of people those who are managing.
      Management as a Discipline:
      Management as a discipline refers to that branch of knowledge which is connected to study of principles & practices of basic administration. It specifies the certain code of conduct to be followed by the manager & also various methods for managing resources efficiently.
      Management as a discipline specifies the certain code of conduct for managers & indicates various methods of managing an enterprise. Management is a course of study which is now formally being taught in the institutes and universities after completing a prescribed course or by obtaining degree or diploma in management, a person can get employment as a manager.
      Management as a process:
      As a process, management refers to a series of inter-related functions. It is the process by which management creates, operates and directs purposive organization through systematic, coordinated and co-operated human efforts.
      Characteristics of management:-
      To know the true nature of any system we should check the characteristic features of the same. Similarly, to know the management system we need to analyze its characteristics. The characteristics of management are as follows –
      1.Universal: Every organization irrespective of their financial position requires management to manage their activities, thus it is universal in nature.
      2.Goal Oriented: Management helps the organization achieve goals systematically and without any fuss.
      3.Continuous Process: Management is an ongoing process which is required in every facet of an organization to function good, be it production system, human resource, finance or marketing
      4.Multi-dimensional: Management not only manages the workforce but also manages every sphere of the organization whether it is production, human resource.
      5.Group Activity: The groups in an organization work together also the members in different groups work in a system, they belong to different backgrounds, culture and they have different aspirations, to work evenly without any difference issue they need to adopt the management.
      6.Dynamic Function: Business environments have different factors like social, political, legal, technological and economical, with these factors in force an organization is open to changes frequently, with management in their system they can apprehend the changes and work towards responding to it.
      7.Intangible Force: Management cannot be touched or seen, its effect can only be experienced and the benefit can only be enjoyed.
      Objectives of management
      To meet the challenges of changes:
      In the era of Globalisation, Computerization, Privatisation, and entry of multinationals the changes are inevitable. These changes are critical and intense. Hence effective and professional managerial techniques can handle them successfully in order to stay afloat amidst intense competition. Complex nature of modern business can be handled only by scientific, professional and effective managerial techniques. It adapts the organization to changing demand of market/changing needs of societies.
      Achievement of Group Goals:
      Organizational goals cannot be achieved individually. It requires several people to come together and work as a group (team) and every member of the group possesses some specialization of doing something to accomplish the task. Manager arranges the resources, integrate them in an effective manner to achieve goals.
      By defining objectives of the organization clearly, there would be no wastage of resources like time, manpower, money and effort. Managers plan to convert disorganized resources of men, machines, money etc. into a useful enterprise. To achieve the group goal these resources are coordinated, directed and controlled.
      Optimum Utilization of Resources:
      By defining objectives of the organization clearly, there would be no wastage of resources like time, manpower, money and effort. The manager uses smart ways and converts disorganized resources of men, machines, money etc. into a useful enterprise. This way the productivity of the organization increases.
      Alternate use of idle resources is found
      Minimization of Cost:
      Minimization of the cost and maximizing production is one of the ways to increase the profitability of the organization. At the same time, it may help the organization to offer its product at a lower cost to beat the competition.
      The idea of minimization of the cost is minimum input by proper planning and getting maximum output. Physical, human and financial resources are used in such a manner with the best combination to achieve cost reduction.
      Survival and Growth:
      In the era of Globalisation, Computerization, Privatisation, entry of multinationals, and Government policy, the changes are inevitable. These changes are critical and intense. Hence effective and professional manager can handle them successfully in order to stay afloat amidst intense competition.
      Complex nature of modern business can be handled only by scientific and professional managerial techniques.
      Sound Organizational Structure:
      Effective management on the basis of clear organizational structure effectively delegates the work and finalize responsibility. Due to smooth and coordinated efforts, no overlapping of efforts takes place.
      Proper organizational structure establishes effective authority & responsibility relationship. Manager fills up various positions with the right persons, having the right skills, training, and qualification.
      Generation of Employment:
      Good and innovative management results in the expansion and diversification of the business. It opens many job opportunities for people of society.
      Essentials for Prosperity of Society:
      Efficient management avoids wastage of scarce resources. By generating job it improves the standard of living of the people in the society. Organization comes with new innovative products and researchers which are beneficial for society.
      Improvement in Corporate Image:
      Good management results in the quality of products and services. As the corporate image (Goodwill) is directly proportional to the quality, by improvement of quality the corporate image of the organization improves.
      Employee Motivation:
      Effective management encourages initiative among its subordinates. It also encourages innovation. Incentives monetary or other improve willingness and efficiency of the employee.
      Nature of Management –
      Management as an Art:
      Art is the experienced and personal utilisation of subsisting information to accomplish solicited outcomes. It can be procured via education, research and practice. As art is involved with the personal utilisation of data some kind of inventiveness and creativity is needed to follow the fundamental systems acquired. The essential characteristics of art are as follows:
      The presence of theoretical knowledge: Art assumes the presence of specific academic knowledge. Specialists in their particular fields have obtained specific elementary postulates which are appropriate to a specific sort of art. For instance, the literature on public speaking, acting or music, dancing is publicly acknowledged.
      Personalised application: The application of this primary information differs from person to person. Art, hence, is a highly personalised notion.
      Based on custom and creativity: Art is practical. Art includes the creative practice of subsisting intellectual knowledge. We know that music is based on 7 notes. However, what makes the style of a musician different or distinctive is his performance of these notes in an artistic way that is uniquely his own solution.
      Management as a Science:
      Science is an organised collection of knowledge that emphasises definite universal truths or the action of comprehensive laws. The central characteristics of science are as follows:
      The organised body of knowledge: Science is a precise entity of knowledge. Its systems are based on a purpose and consequence association.
      Universal validity: Scientific conventions have global genuineness and application.
      Systems based on experimentation: Scientific conventions are originally formed via research and then tested via repeated trial and error under the regulated situations.
      Management as a Profession:
      The profession can be described as an occupation upheld by specific education and practice, in which entry is limited. A profession has the following features:
      The well-defined theory of knowledge: All services are based on a well-defined form of education that can be procured through education.
      Restricted entry: The entrance to a profession is defined through an examination or through obtaining an educational degree. For instance, to become a chartered accountant in India an aspirant has to clear a detailed examination regulated by the Institute of Chartered Accountants of India (ICAI).
      Professional community: All professions are affiliated to a professional association which controls entry, presents a certificate of training and expresses and supports a system of government. To be qualified to study in India, lawyers have to become members of the Bar Council which monitors and regulates their actions.
      Importance of Management
      The following points highlight the importance of management in an organisation:
      Achieving goals: Management helps the organisation in achieving its goals. The role of a manager is to provide common guidance and direction to the individual efforts for the fulfilment of organisational goals.
      Increasing the efficiency: Management helps in increasing the efficiency of the business by increasing productivity through efficient planning, organising, controlling and directing.
      Helps in creating a dynamic organisation: Management helps in providing the required impetus for an organisation to transition from one phase of development to another and also in adjusting to the changing dynamics of the business environment.
      Helps in achieving individual objectives: Management helps in guiding the individuals towards attaining personal objectives, which has a direct impact on attaining the organisational objectives.
      Principles of Management:
      Nature of Principles:
      By nature is intended conditions and aspects. Principles are universal declarations, which are appropriate when specific circumstances are present. These have been explained on the principle of research and trial and error as well as the personal backgrounds of the managers. The following points sum the nature of the principles of management:
      1. Universal relevance:
      Principles of management are expected to employ to all types of establishments, the industry as well as non-industry, small as well large, private sector as well as the public sector, production as well as the services divisions. However, the scope of their applicability would diversify with the nature of the industry, business activity, scale of operations etc.,
      2. General rules:
      The laws are the regulations to work but do not give readymade, simple clarifications to all administrative issues. This is so because real-time business conditions are difficult and powerful and are a consequence of many factors.
      3. Formed by practice and trial and error method:
      The principles of management are determined by wisdom and accumulated knowledge of managers as well as experimentation. For instance, it is a subject of current knowledge that the system is necessary for achieving any goal. This principle gains name in the management system.
      4. Contingent:
      As the application of principles of management depends upon prevailing situations and needs, so their results may not be uniform as expected.
      5. Flexible:
      The principles of management are general prescriptions not rigid. The managers can make certain changes as per the convenience and requirement of a situation.
      6. Based on Cause and Effect:
      The principles of management are intended to establish cause and effect relationship so that the findings can be applied to such given situations frequently. The principles of management tell the likely effect if a certain principle is applied. The effect of such principles remains more or less the same due to their application on human.
      Need for principles of management:-
      The need for the principles of management are:
      1. The principles are directed towards organisational objectives.
      2. The principles are not rigid rules but general guidelines for the manager.
      3. The principles are based on cause and effect relationship.
      4. The principles are very flexible in nature.
      5. The principles results in optimum utilization of the resources allocated in the business.
      Taylor’s 5 scientific principles of Management:
      Principles of Scientific Management by Taylor:
      F.W. Taylor or Fredrick Winslow Taylor, also known as the ‘Father of scientific management’ proved with his practical theories that a scientific method can be implemented to management. Taylor gave much concentration on the supervisory level of management and performance of managers and workers at an operational level. Let’s discuss in detail the five principles of management by F.W Taylor.
      1. Science, not the Rule of Thumb-
      This rule focuses on increasing the efficiency of an organisation through scientific analysis of work and not with the ‘Rule of Thumb’ method. Taylor believed that even a small activity like loading paper sheets into boxcars can be planned scientifically. This will save time and also human energy. This decision should be based on scientific analysis and cause and effect relationships rather than ‘Rule of Thumb’ where the decision is taken according to the manager’s personal judgement.
      2. Harmony, Not Discord-
      Taylor indicated and believed that the relationship between the workers and management should be cordial and completely harmonious. Difference between the two will never be beneficial to either side. Management and workers should acknowledge and understand each other’s importance. Taylor also suggested the mental revolution for both management and workers to achieve total harmony.
      3. Mental Revolution-
      This technique involves a shift of attitude of management and workers towards each other. Both should understand the value of each other and work with full participation and cooperation. The aim of both should be to improve and boost the profits of the organisation. Mental Revolution demands a complete change in the outlook of both the workers and management; both should have a sense of togetherness.
      4. Cooperation, not Individualism-
      It is similar to ‘Harmony, not discord’ and believes in mutual collaboration between workers and the management. Managers and workers should have mutual cooperation and confidence and a sense of goodwill. The main purpose is to substitute internal competition with cooperation.
      5. Development of Every Person to his Greatest Efficiency-
      The effectiveness of a company also relies on the abilities and skills of its employees. Thus, implementing training, learning best practices and technology, is the scientific approach to brush up the employee skill. To assure that the training is given to the right employee, the right steps should be taken at the time of selection and recruiting candidates based on a scientific selection.
      Fayol’s 14 principles of Management:
      Henry Fayol, also known as the ‘father of modern management theory’ gave a new perception of the concept of management. He introduced a general theory that can be applied to all levels of management and every department. The Fayol theory is practised by the managers to organize and regulate the internal activities of an organization. He concentrated on accomplishing managerial efficiency.
      The fourteen principles of management created by Henri Fayol are explained below.
      1. Division of Work-
      Henri believed that segregating work in the workforce amongst the worker will enhance the quality of the product. Similarly, he also concluded that the division of work improves the productivity, efficiency, accuracy and speed of the workers. This principle is appropriate for both the managerial as well as a technical work level.
      2. Authority and Responsibility-
      These are the two key aspects of management. Authority facilitates the management to work efficiently, and responsibility makes them responsible for the work done under their guidance or leadership.
      3. Discipline-
      Without discipline, nothing can be accomplished. It is the core value for any project or any management. Good performance and sensible interrelation make the management job easy and comprehensive. Employees good behaviour also helps them smoothly build and progress in their professional careers.
      4. Unity of Command-
      This means an employee should have only one boss and follow his command. If an employee has to follow more than one boss, there begins a conflict of interest and can create confusion.
      5. Unity of Direction-
      Whoever is engaged in the same activity should have a unified goal. This means all the person working in a company should have one goal and motive which will make the work easier and achieve the set goal easily.
      6. Subordination of Individual Interest-
      This indicates a company should work unitedly towards the interest of a company rather than personal interest. Be subordinate to the purposes of an organization. This refers to the whole chain of command in a company.
      7. Remuneration-
      This plays an important role in motivating the workers of a company. Remuneration can be monetary or non-monetary. However, it should be according to an individual’s efforts they have made.
      8. Centralization-
      In any company, the management or any authority responsible for the decision-making process should be neutral. However, this depends on the size of an organization. Henri Fayol stressed on the point that there should be a balance between the hierarchy and division of power.
      9. Scalar Chain-
      Fayol on this principle highlights that the hierarchy steps should be from the top to the lowest. This is necessary so that every employee knows their immediate senior also they should be able to contact any, if needed.
      10. Order-
      A company should maintain a well-defined work order to have a favourable work culture. The positive atmosphere in the workplace will boost more positive productivity.
      11. Equity-
      All employees should be treated equally and respectfully. It’s the responsibility of a manager that no employees face discrimination.
      12. Stability-
      An employee delivers the best if they feel secure in their job. It is the duty of the management to offer job security to their employees.
      13. Initiative-
      The management should support and encourage the employees to take initiatives in an organization. It will help them to increase their interest and make then worth.
      14. Esprit de Corps-
      It is the responsibility of the management to motivate their employees and be supportive of each other regularly. Developing trust and mutual understanding will lead to a positive outcome and work environment.
      This 14 principles of management are used to manage an organization and are beneficial for prediction, planning, decision-making, organization and process management, control and coordination.
      Functions of Management:
      There is no universally accepted list of management functions. Different experts have classified the functions of management in different ways. Koontz and O’Donnell have given a very convenient classification of management functions that are generally accepted they are:
      It is the basic function of management. It deals with chalking out a future course of action & deciding in advance the most appropriate course of actions for achievement of pre-determined goals.
      According to KOONTZ, “Planning is deciding in advance - what to do, when to do & how to do. It bridges the gap from where we are & where we want to be”. A plan is a future course of actions. It is an exercise in problem solving & decision making.
      Planning is determination of courses of action to achieve desired goals. Thus, planning is a systematic thinking about ways & means for accomplishment of pre-determined goals. Planning is necessary to ensure proper utilization of human & non-human resources. It is all pervasive, it is an intellectual activity and it also helps in avoiding confusion, uncertainties, risks, wastages etc.
      Planning Process
      As planning is an activity, there are certain reasonable measures for every manager to follow:
      (1) Setting Objectives
      i)This is the primary step in the process of planning which specifies the objective of an organisation, i.e. what an organisation wants to achieve.
      ii)The planning process begins with the setting of objectives.
      iii)Objectives are end results which the management wants to achieve by its operations.
      iv)Objectives are specific and are measurable in terms of units.
      v)Objectives are set for the organisation as a whole for all departments, and then departments set their own objectives within the framework of organisational objectives.
      A mobile phone company sets the objective to sell 2,00,000 units next year, which is double the current sales.
      (2) Developing Planning Premises
      Planning is essentially focused on the future, and there are certain events which are expected to affect the policy formation.
      Such events are external in nature and affect the planning adversely if ignored.
      Their understanding and fair assessment are necessary for effective planning.
      Such events are the assumptions on the basis of which plans are drawn and are known as planning premises.
      The mobile phone company has set the objective of 2,00,000 units sale on the basis of forecast done on the premises of favourable Government policies towards digitisation of transactions.
      (3) Identifying Alternative Courses of Action
      Once objectives are set, assumptions are made.
      Then the next step is to act upon them.
      There may be many ways to act and achieve objectives.
      All the alternative courses of action should be identified.
      The mobile company has many alternatives like reducing price, increasing advertising and promotion, after sale service etc.
      (4) Evaluating Alternative Course of Action
      In this step, the positive and negative aspects of each alternative need to be evaluated in the light of objectives to be achieved.
      Every alternative is evaluated in terms of lower cost, lower risks, and higher returns, within the planning premises and within the availability of capital.
      The mobile phone company will evaluate all the alternatives and check its pros and cons.
      (5) Selecting One Best Alternative
      The best plan, which is the most profitable plan and with minimum negative effects, is adopted and implemented.
      In such cases, the manager’s experience and judgement play an important role in selecting the best alternative.
      Mobile phone company selects more T.V advertisements and online marketing with great after sales service.
      (6) Implementing the Plan
      This is the step where other managerial functions come into the picture.
      This step is concerned with “DOING WHAT IS REQUIRED”.
      In this step, managers communicate the plan to the employees clearly to help convert the plans into action.
      This step involves allocating the resources, organising for labour and purchase of machinery.
      Mobile phone company hires salesmen on a large scale, creates T.V advertisement, starts online marketing activities and sets up service workshops.
      (7) Follow Up Action
      Monitoring the plan constantly and taking feedback at regular intervals is called follow-up.
      Monitoring of plans is very important to ensure that the plans are being implemented according to the schedule.
      Regular checks and comparisons of the results with set standards are done to ensure that objectives are achieved.
      Importance & Limitation of Planning:
      Planning importance:
      Importance of Planning
      Planning is definitely significant as it directs us where to go, it furnishes direction and decreases the danger of risk by making predictions. The significant advantages of planning are provided below:
      Planning provides directions: Planning assures that the objectives are certainly asserted so that they serve as a model for determining what action should be taken and in which direction. If objects are well established, employees are informed of what the company has to do and what they need do to accomplish those purposes.
      Planning decreases the chances of risk: Planning is an activity which permits a manager to look forward and predict changes. By determining in prior the tasks to be completed, planning notes the way to deal with changes and unpredictable effects.
      Planning decreases overlapping and wasteful activities: Planning works as the foundation of organising the activities and purposes of distinct branches, departments, and people. It assists in avoiding chaos and confusion. Since planning guarantees precision in understanding and action, work is conducted on easily without delays.
      Planning encourages innovative ideas: Since it is the primary function of management, new approaches can take the form of actual plans. It is the most challenging project for the management as it leads all planned actions pointing to growth and of the business.
      Planning aids decision making: It encourages the manager to look into the future and make a decision from amongst several alternative plans of action. The manager has to assess each option and pick the most viable plan.
      Planning Limitations:-
      The limitations of Planning are furnished below:
      Planning Leads to Rigidity
      The plans are rigid in nature and have to be complied with throughout the organisation.
      Such rigidity of plans may be internal as well as external.
      Internal rigidity relates to plans, policies, programs, rules, and methods, etc.
      External rigidity relates to political, industrial, technological, legal and economic changes, etc.
      Example: A super speciality hospital has fine branches in a city. Whatever the top management of the hospital decides the head of the branch of the hospital and their subordinates have to follow. Though on occasions they know they could have done better on their own but the plan laid out provides rigidity to their approach.
      (2) Planning May Not Work in Dynamic Environment
      The environment in which a business survives is dynamic as it keeps on changing.
      It is difficult for an organisation to access future trends, the taste of customers, natural calamity, competitors’ policies and effects of changes in the different components of the environment.
      Example: Nestle, a very successful producer was very proactive in deciding strategies for Maggi noodles. Maggi noodles were in a lot of demand but they were off the shelf due to political and legal dimensions. This was due to the high content of lead in Maggi noodles.
      (3) Planning Reduces Creativity
      Planning is mostly done by the top management and other members
      like middle and lower levels of management have to follow these plans.
      They can’t deviate or change the plans made by their seniors.
      Example: The need for a branch of a renowned shoe manufacturing company sees a lot of scope in customized shoes. The top management is not interested in this idea as the company manufactures standardised shoes.
      (4) Planning Involves Huge Cost
      Formulation of plans can be too much costly because there is a lot of time and money is involved.
      Some costs are incidental in nature like- expenses on boardroom meetings, discussions with professional experts and preliminary investigations to find out the feasibility of the plan.
      Example: Companies like IBM spend a lot of research. Many world-class levels give their advice to this company and change their fee. However, without so much of painstaking such a huge company won’t be able to sustain itself. So planning in case of IBM becomes necessary.
      (5) Planning is a Time-consuming Process
      Planning is a very lengthy process as it consumes a lot of time for collection, analysis, and interpretation of data.
      Due to such a lengthy process, sometimes decisions get delayed, opportunities are lost and there is not much time left for the implementation of plans.
      Example: Health is wealth Ltd. plans to organise 25 health checkup camps on the World Health Day and send a requisition to the top management but management could send its approval just a day before and the sales manager could organise only 5 camps and thus huge opportunity is lost. Here the implementation was delayed.
      (6) Planning Does Not Guarantee Success
      The success of an enterprise is possible only when plans are properly drawn up and implemented.
      Plans become meaningless if it is not translated into action.
      Managers have a tendency to rely on previously tried and tested successful plans.
      Example: In a paint manufacturing company, the top management very meticulously chalked out a great plan. The whole company worked out on the plan in a much focused manner. However, with the entrance of a competitor with better paint quality the whole plan failed. The reason for the failure was the dynamic conditions which were not in control of the organisation.
      Types of plans
      The 4 Types of Plans
      Operational Planning“Operational plans are about how things need to happen,” motivational leadership speaker Mack Story said at LinkedIn. “Guidelines of how to accomplish the mission are set.”
      This type of planning typically describes the day-to-day running of the company. Operational plans are often described as single use plans or ongoing plans. Single use plans are created for events and activities with a single occurrence (such as a single marketing campaign). Ongoing plans include policies for approaching problems, rules for specific regulations and procedures for a step-by-step process for accomplishing particular objectives.
      Strategic Planning
      “Strategic plans are all about why things need to happen,” Story said. “It’s big picture, long-term thinking. It starts at the highest level with defining a mission and casting a vision.”
      Strategic planning includes a high-level overview of the entire business. It’s the foundational basis of the organization and will dictate long-term decisions. The scope of strategic planning can be anywhere from the next two years to the next 10 years. Important components of a strategic plan are vision, mission and values.
      Tactical Planning
      “Tactical plans are about what is going to happen,” Story said. “Basically at the tactical level, there are many focused, specific, and short-term plans, where the actual work is being done, that support the high-level strategic plans.”
      Tactical planning supports strategic planning. It includes tactics that the organization plans to use to achieve what’s outlined in the strategic plan. Often, the scope is less than one year and breaks down the strategic plan into actionable chunks. Tactical planning is different from operational planning in that tactical plans ask specific questions about what needs to happen to accomplish a strategic goal; operational plans ask how the organization will generally do something to accomplish the company’s mission.
      Contingency Planning
      Contingency plans are made when something unexpected happens or when something needs to be changed. Business experts sometimes refer to these plans as a special type of planning.
      Contingency planning can be helpful in circumstances that call for a change. Although managers should anticipate changes when engaged in any of the primary types of planning, contingency planning is essential in moments when changes can’t be foreseen. As the business world becomes more complicated, contingency planning becomes more important to engage in and understand.
      Objectives of Planning:
      The objectives of planning are many and varied. These aims are not the same for all countries, not are they same for the same country at all times.
      Some major objectives of economic planning are:
      (a) An improvement in the standard of living of the people through a sizable increase in national income within a short period of time;
      (b) A large expansion of employment opportunities for the removal of unemployment and for creating jobs and incomes;
      (c) A reduction in all types of social, economic and regional inequalities;
      (d) An efficient utilisation of the country’s resources for faster growth;
      (e) Removal of mass poverty within a definite time limit through land reform, employment creation, and provision of educational and medical facilities;
      Planning Policy:
      Planning policy is created at two different levels:
      national - planning policies set by the government through the National Planning Policy Framework
      local - planning policies created by local planning authorities (such as us), parish councils and neighbourhood forums
      Methods of planning:-
      Planning consists of several individual plans depending upon nature and scope. it can be classified as follows:
      Repeated use plans
      These plans can be used again and again. The elements of standing plans are
      1. Objectives
      Objectives are the end towards which the activities of an organisation are directed. For planning, objectives are essential. Planning has no meaning if it is not related to objectives. Objectives are useful for all managerial purposes. It is expressed in measurable statement in written form. For example, hire and fully train five new customer service staff members by June 30.
      2. Policy
      Policies provide the framework within which the decision makers are expected to operate while making the decisions relating to the organisation. They are the guide for thinking and the action of subordinate for attaining the goal. It shows the limit within which the organisational decisions have to be made. For example, an enterprise may follow a policy of selling its products only on cash basis.
      3. Procedure
      A procedure will lay down the manner in which certain work has to be performed. It prescribes the sequence of operations to be carried out to complete a given task. For example, procedure is laid down in an organisation for purchase of raw material, selection of employees, etc.
      4. Methods
      Methods specifies the way in which a particular step is to be performed, procedure tells the various steps to be taken to perform a particular task, but method tells how a particular step in the procedure is to be performed. The definition of a method is a system or a way of doing something. An example of a method is a teacher’s way of cracking an egg in a cooking class.
      5. Rules
      A rule specifies the people to do or not to do certain things. They are always rigidly enforced. For example, no smoking in working place, wear uniform in factory etc,. There is always a fine or penalty for the violation of rules.
      6. Strategies
      Strategy is a term which is normally used in battlefield for planning a military movement, handling of troops, etc. In business, strategy means tactics adopted to counter competitor’s actions. It is also concerned with meeting the challenges posed by the policies and the actions of the competitors in the market. For example, keeping prices low to attract more customers. Since profit margins are very low, the business must sell a lot of products to make money.
      Single use plan
      Single use plan are used for a specific purpose only. As soon as the purpose is over the plan becomes useless. Programmes and budgets are the examples of single use plan.
      1. Programme:
      Programme specific the date and time by which the activities of the enterprise will be carried out. Programme may be major or minor in nature. For example, to sell 10,000 cycles by the end of the year is the sales programme of the company.
      2. Budget:
      A budget is the financial plan of a business. It is expressed in numerical terms. A budget is a plan you write down to decide how you will spend your money each month. A budget shows you: how much money you make? And how you spend your money?
      Before preparing the budget, the past happenings, the present needs and future trends are taken into account. Budget is always prepared for specific period of time i.e., for a month, for half year or whole year. A budget helps you decide: what you must spend your money on? And if you can spend less money on some things and more money on other things. For example, your budget might show that you spend Rs.1000 on clothes every month. You might decide you can spend Rs.500 on clothes. You can use the rest of the money to pay bills or to save for something
      It is the process of bringing together physical, financial and human resources and developing productive relationship amongst them for achievement of organizational goals.
      According to Henry Fayol, “To organize a business is to provide it with everything useful or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a business involves determining & providing human and non-human resources to the organizational structure.
      Importance of Organising:-
      A comprehensive approach to organizing helps the management in many ways. Organizing aligns the various resources towards a common mission.
      i.Efficient Administration
      It brings together various departments by grouping similar and related jobs under a single specialization. This establishes coordination between different departments, which leads to unification of effort and harmony in work.
      It governs the working of the various departments by defining activities and their authority relationships in the organizational structure. It creates the mechanism for management to direct and control the various activities in the enterprise.
      ii.Resource Optimization
      Organizing ensures effective role-job-fit for every employee in the organization. It helps in avoiding confusion and delays, as well as duplication of work and overlapping of effort.
      iii.Benefits Specialization
      It is the process of organizing groups and sub-divide the various activities and jobs based on the concept of division of labor. This helps in the completion of maximum work in minimum time ensuring the benefit of specialization.
      iv.Promotes Effective Communication
      Organizing is an important means of creating coordination and communication among the various departments of the organization. Different jobs and positions are interrelated by structural relationship. It specifies the channel and mode of communication among different members.
      v.Creates Transparency
      The jobs and activities performed by the employees are clearly defined on the written document called job description which details out what exactly has to be done in every job. Organizing fixes the authority-responsibility among employees. This brings in clarity and transparency in the organization.
      vi.Expansion and Growth
      When resources are optimally utilized and there exists a proper division of work among departments and employees, management can multiply its strength and undertake more activities. Organizations can easily meet the challenges and can expand their activities in a planned manner.
      Steps of Organising:-
      1] Identifying the Work
      The obvious first step in the process of organizing is to identify the work that has to be done by the organization. This is the ground level from which we will begin. So the manager needs to identify the work and the tasks to be done to achieve the goals of the organization.
      Identification of the work helps avoid miscommunication, overlapping of responsibilities and wastage of time and effort.
      2] Grouping of Work
      For the sake of a smooth flow of work and smooth functioning of the organization, similar tasks and activities should be grouped together. Hence we create departments within the company and divisions within each department. Such an organization makes the functioning of the company way more systematic.
      Depending on the size of the organization and the volume of work, an organization can have several department and divisions. And every department has a manager representing them at the top-level of the management.
      In smaller organizations sometimes these departments are clubbed together under one manager.
      3] Establish Hierarchy
      The next step in the process of organizing is to establish the reporting relationships for all the individual employees of the company. So a manager establishes the vertical and horizontal relationships of the company.
      This enables the evaluation and control over the performances of all the employees in a timely manner. So if rectifications need to be made, they can be made immediately.
      4] Delegation of Authority
      Authority is basically the right an individual has to act according to his wishes and extract obedience from the others. So when a manager is assigned certain duties and responsibilities, he must also be delegated authority to carry out such duties effectively.
      If we only assign the duties, but no authority he will not be able to perform the tasks and activities that are necessary. So we must always assign authority and clearly specify the boundaries of the duties and the authority which has been delegated.
      5] Coordination
      Finally, the manager must ensure that all activities carried out by various employees and groups are well coordinated. Otherwise, it may lead to conflicts between employees, duplication of work and wastage of time and efforts. He must ensure all the departments are carrying out their specialized tasks and there is harmony in these activities. The ultimate aim is to ensure that the goal of the organization is fulfilled.
      Structure of organization –
      We have previously seen two other forms of organization – line organization and functional organizational structure. And both of these have their own set of drawbacks.
      The line system focuses excessively on authority, and the functional organization divides the firm into departments. This is where we come up with a perfect combination to avoid these limitations, i.e. the line and staff organization structure.
      In a line and staff organization structure, both the line managers and the staff have their own important roles to play. In this structure, the authority flows from the top down.
      The line manager is the one in charge. He is the one with the authority to make all the important decisions of the company. And he is also responsible for these decisions and the performance of his employees.
      The staff is the experts in this scenario. They have the knowledge and expertise of their field and are there to assist their line managers. They have an advisory role in the firm.
      But since they do not have authority over the line managers, the line managers can choose to take their advice or ignore it. So the main objective of the staff is to come up with solutions to problems. They help the line manager in attaining the company’s objectives and goals.
      Divisional Orgnizational Structure:-
      In a divisional structure, people are grouped together based on the product or service they provide, not the work they do. For example, a large corporation such as General Electric has divisions for electronics, transportation, and aviation, each with its own team of accountants, marketers, etc
      Formal and Informal organization:
      An organization type in which the job of each member is clearly defined, whose authority, responsibility and accountability are fixed is formal organization.
      An organization formed within the formal organization as a network of interpersonal relationship, when people interact with each other, is known as informal communication.
      Meaning and importance of delegation of authority:
      Delegation Of Authority Is A Process That Enables A Person To Assign A Task To Others. As A Manager Or Leader, You’re Expected To Perform Several Tasks And Meet Multiple Deadlines. To Ensure That You Achieve Your Objectives On Time, You Delegate Responsibility To Your Team Members. In Short, The Meaning Of Delegation Of Authority Is To Entrust Someone With Tasks And Share The Overall Responsibility.
      Elements Of Delegation Of Authority
      There Are Three Central Elements Involved In The Process Of Delegating Authority. These Elements Also Reflect The Importance Of Delegation Of Authority In Management.
      1. Authority
      In The Context Of Business Organizations, Authority Is The Right And Power Of An Individual To Assign Resources Efficiently, Make Decisions And Give Instructions To Achieve Organizational Goals. This Authority Should Be Well-Defined And Shouldn’t Be Misused. There’s A Co-Dependent Relationship Between Authority And Responsibility, Which Is Why Authority Should Always Be Accompanied By An Equal Amount Of Responsibility To Complete Tasks Successfully. However, The Ultimate Responsibility Always Rests With The Person With The Greatest Authority.
      2. Responsibility
      Responsibility Refers To The Scope Or Duty Of An Individual To Complete The Task Assigned To Them. Someone Who Is Entrusted With Responsibility Should Take Ownership Of Their Tasks. It’s Best Not To Make Excuses Or Give Explanations If The Tasks Aren’t Fulfilled. Responsibility Without Adequate Authority Can Lead To Dissatisfaction And Discontent. It’s Best To Not Give Someone Too Much Authority And Too Little Responsibility. Managers And Leaders May Be Ultimately Held Accountable For The Overall Performance, But The More Important Responsibilities Lie In The Hands Of Employees.
      3. Accountability
      What Is A Delegation Of Authority Without Accountability? It’s A Component That Differentiates Between An Individual’s Performance And The Expectations That Were Set In Advance. Unlike Authority And Responsibility, Accountability Can’t Be Delegated To Others. Anybody Who Sets Out To Complete A Task Becomes Accountable For Their Efforts And Outcomes. For Example, If Madan Is Given A Task With Adequate Authority And He Delegates The Task To Mohan, The Responsibility Rests With Mohan But Madan Is Still Accountable For The Task.
      Importance Of Delegation Of Authority
      The Process Of Delegating Authority Is To Ensure A Well-Functioning And Productive Workplace. The Process Can Benefit You, Your Employees And The Organization At Large, If Done Properly. Here Are Some Of The Benefits That Highlight The Importance Of Delegation Of Authority.
      1. Increased Productivity
      Delegation Helps Employees Finish Tasks Faster Because The Work Is Distributed Among A Group Of Individuals And Everyone Is Responsible For Their Respective Targets.
      2. Personal Development
      When You Delegate Tasks, Your Team Members Get A Chance To Showcase Their Skills And Expertise In A Particular Area. With Proper Guidance, They Can Also Improve Their Knowledge And Skill Sets.
      3. Continuity
      If You’re Busy Or Absent From Work, Your Team Can Help Complete Some Of Your Work And Ensure Continuity And Productivity.
      4.Employee Motivation
      When You Assign New Responsibilities, It Shows That You Trust Your Employees To Take Control. They’re Encouraged And Driven To Fully Utilize Their Potential.
      5. Career Growth
      The More You Delegate Tasks To Different Members Of Your Team, The More They Understand Business Goals And Objectives. This Gives Way To Potential Promotion Within The Organization.
      Importance of Staffing:-
      Following are some of the points of importance of staffing
      1. Finding proper resources: Staffing performs a very important role of finding the best resource necessary for conducting the day to day operations of the business. In other words, staffing is the process of finding out the qualified resources for performing the various functions of the business.
      2. Facilitates control: An organisation where the staff are well trained in their respective jobs will result in better control and also better performance for the organisation. This reduces deviations in workflow and ensures smooth functioning of the business.
      3. Improved performance: Since the staffing process is all about selection of the right person for the right position, it greatly impacts the business performance by reducing the turnaround time.
      4. Provides motivation: By recognising the talent of the employee various financial and non-financial incentives can be provided by management. It will keep the employee motivated to provide the best effort towards the improvement of organisational performance.
      5. Reduction in cost of production: Staffing selects the appropriate candidate for the job role which results in reducing cost of production and also improves revenue of the organisation.
      Recruitment –
      Recruitment is referred to as the process which involves searching for potential candidates and influencing them in order to fill the vacant positions in the organisation. The purpose of recruitment is to find qualified candidates for the development of the organisation.
      Sources of Recruitment:
      1.Internal Sources: Internal sources of recruitment refers to the recruitment of employees who are already a part of the existing payroll of the organisation. The vacancy for the position can be informed to the employee through internal communication.
      2.External Sources: External sources of recruitment seek to employ candidates that have not been recruited anytime before in the organisation.
      Introduction of fresh talent among the workforce leads to growth and development of the business.
      Selection –
      The selection process can be defined as shortlisting the right candidates with the required qualifications to fill the vacancies in an organization. The process varies from company to company hence need to be understood what type of process suits accordingly.
      The Selection Process is quite a lengthy and complex process as it involves a series of steps before making a final decision
      Steps in Selection Process
      Popularly there are seven stages in the process of selection :
      1.Application – After the job opening has been announced, the candidates apply for the respective jobs which suit them.
      2.Screening and Pre-selection – The goal of this second phase is to reduce the number of candidates from a large group to a manageable group of between 3-10 people that can be interviewed in person. The selection is based on their selection technique and according to the company’s needs.
      3.Interview – The interview gives insight into a person’s verbal accuracy and how sociable they are. This also provides the opportunity to ask the candidate job-related queries.
      4.Assessment-The full assessment usually is more accurate as this helps the organization to check the candidate well. Assessments include work sample tests, integrity tests, and related job knowledge tests.
      5.Reference And Background Check- An essential step is the reference check, which is to confirm about the candidate. The candidates are asked to give references and he follows up on these.
      6.Decision- The next step is to decide to choose the correct candidate who promises the greatest future potentiality for the organization.
      7.Job Offer and Contract – After the decision-making process, the candidate needs to accept the offer which is known as the contract.
      Training and development –
      Training refers to the process of increasing the knowledge, skills and abilities of employees for doing a work. Development refers to the overall growth of the employees. These are learning opportunities which are designed for employees to grow. Aim. Its main aim is to help the employee to do the job better.
      It is that part of managerial function which actuates the organizational methods to work efficiently for achievement of organizational purposes. It is considered life-spark of the enterprise which sets it in motion the action of people because planning, organizing and staffing are the mere preparations for doing the work.
      Direction is that inter-personnel aspect of management which deals directly with influencing, guiding, supervising, motivating sub-ordinate for the achievement of organizational goals. Direction has following elements:
      Supervision- implies overseeing the work of subordinates by their superiors. It is the act of watching & directing work & workers.
      Functions of Supervision:-
      i)Planning and Organizing - Supervisor’s basic role is to plan the daily work schedule of the workers by guiding them the nature of their work and also dividing the work amongst the workers according to their interests, aptitudes, skills and interests.
      ii)Provision of working conditions - A supervisor plays an important role in the physical setting of the factory and in arranging the physical resources at right place. This involves providing proper sitting place, ventilation, lighting, water facilities etc. to workers. His main responsibility is here to provide healthy and hygienic condition to the workers.
      iii)Leadership and Guidance - A supervisor is the leader of workers under him. He leads the workers and influences them to work their best. He also guides the workers by fixing production targets and by providing them instruction and guidelines to achieve those targets.
      iv)Motivation - A supervisor plays an important role by providing different incentives to workers to perform better. There are different monetary and non-monetary incentives which can inspire the workers to work better.
      v)Controlling - Controlling is an important function performed by supervisor. This will involve
      1.Recording the actual performance against the time schedule.
      2.Checking of progress of work.
      3.Finding out deviations if any and making solutions
      4.If not independently solved, reporting it to top management.
      Motivation- means inspiring, stimulating or encouraging the sub-ordinates with zeal to work. Positive, negative, monetary, non-monetary incentives may be used for this purpose.
      Maslow’s Hierarchy of Needs Theory
      i)It is regarded as one of the most popular theories on motivation. It is a theory of psychology that explains that humans are highly motivated in order to fulfill their needs, which is based on hierarchical order.
      ii)It was first introduced by Abraham Maslow in 1943 for his paper titled Theory of Motivation and is based on a hierarchy of needs, which starts with the most basic needs and subsequently moves on to higher levels.
      iii)The main goal of this need hierarchy theory is to attain the highest position or the last of the needs, i.e need for self actualization.
      iv)In business studies, it is used as a part of organisational behaviour and also regularly used in psychology lectures.
      Levels of Hierarchy
      The levels of hierarchy in Maslow’s need hierarchy theory appear in the shape of a pyramid, where the most basic need is placed at the bottom while the most advanced level of hierarchy is at the top of the pyramid.
      Maslow was of the view that a person can only move to the subsequent level only after fulfilling the needs of the current level. The needs at the bottom of the pyramid are those which are very basic and the most complex needs are placed on the top of the pyramid.
      Let us read in detail about the various steps in Maslow’s hierarchy of needs theory.
      Physiological needs: The physiological needs are regarded as the most basic of the needs that humans have. These are needs that are very crucial for our survival. The examples of physiological needs are food, shelter, warmth, health, homeostasis and water, etc.
      In addition to all the above needs, Abraham Maslow also included sexual reproduction as one of the most common needs as it is essential for the survival of the species.
      Safety Needs: Once the basic needs of food, shelter, water, etc are fulfilled, there is an innate desire to move to the next level. The next level is known as the safety needs. Here the primary concern of the individual is related to safety and security.
      Safety and security can be regarding many things like a stable source of income that provides financial security, personal security from any kind of unnatural events, attacks by animals and emotional security and physical safety which is safety to health.
      The various actions taken by an individual in ensuring safety and security are finding a job, getting an insurance policy, choosing a secure neighborhood for staying with family, etc.
      Social Needs (Also known as Love and Belonging Needs): This is the third level in the need hierarchy theory. It is that stage where an individual having fulfilled his physiological needs as well as safety needs seeks acceptance from others in the form of love, belongingness.
      In this stage, human behaviour is driven by emotions and the need for making emotional relationships is dominant here.
      The following examples can satisfy this need:
      1. Friendship
      2. Family
      3. Intimacy
      4. Social Groups
      When an individual is deprived of the above needs, he/she feels lonely and depressed.
      Esteem needs: This is considered as the fourth level of the hierarchy of needs theory. It is related to the need of a person being recognised in the society. It deals with getting recognition, self respect in the society.
      The need for recognition and acceptance arises when a person has fulfilled their need for love and belongingness.
      In addition to recognition from others, there is a need for the person to develop self esteem and personal worth.
      Self-actualization needs: This is the final level of the theory of hierarchy of needs as proposed by Maslow. It is the highest level of needs and is known as the self-actualization needs. It relates to the need of an individual to attain or realise the full potential of their ability or potential.
      At this stage, all individuals try to become the best version of themselves. In other words, self actualisation is the journey of personal growth and development.
      Leadership- may be defined as a process by which manager guides and influences the work of subordinates in desired direction.
      Qualities of a good leader:-
      It is said that to be a successful leader an individual must possess certain qualities. Some of the qualities of a good leader are as follows.
      Physical Attributes: People with good physical features such as height, appearance, health etc. are attractive. A healthy and active person can himself work hard and efficiently and thereby, has the capability of being looked up to. Thus, he can induce his subordinates as well to work and perform better.
      Honesty: A good leader should maintain high degree of honesty. He should be sincere and should follow ethics and values. He should be an idol for others in terms of honesty, integrity and values.
      Intelligence: A leader must have a good presence of mind and knowledge. He should be competent enough to effectively examine and solve the problems encountered in the course of work. He must have the required intelligence to take proper decisions based on logic and facts.
      Inspiration: A leader should be a source of inspiration and motivation to others. That is, he must be exemplary in terms of work, performance and values. He must be able to develop willingness among the subordinates to work to the best of their capabilities.
      Confidence: A leader should be high in confidence. He must also be able to maintain his confidence in difficult situations as well. Only when a leader is confident himself, he can boost the confidence of his subordinates.
      Responsibility: A leader should command responsibility for the work and tasks of his group. He should hold the responsibility of being answerable for the mistakes of his subordinates. However, as a mark of encouragement he must share the credit of the success with his subordinates.
      Effective Communication Skill: A leader should be able to clearly express his ideas and instructions clearly to the subordinates. On the other hand, a leader also forms the link between the higher authorities and the subordinates. He should be able to effectively pass the problems and suggestions of the subordinates to the seniors. Besides, he should also be a patient listener and counsellor.
      Ability to take Decisions: A leader should be able to take appropriate decisions based on logic, facts and figures. Moreover, he should be confident enough to hold on to his decisions and not get confused.
      Social Behaviour: He should maintain a friendly and supportive behaviour with his subordinates. He must be able to understand people and maintain good social relations with them.
      Dynamic: A leader must be dynamic and outgoing. He must be able to take up new initiatives and break the old paradigms for the benefit of the organisation.
      Though the above mentioned qualities are necessary for being a good leader, however, the mere presence of these qualities does not ensure leadership success. In fact, no single individual can possess all the qualities. However, a conscious effort must be made by the managers to acquire them.
      Communications- is the process of passing information, experience, opinion etc from one person to another. It is a bridge of understanding.
      Objectives of Communication:-
      Following are a few of the main objectives of communication:-
      The main purpose of communication is to transmit information from a source to target individuals or groups. One of the most important objectives of communication is passing or receiving information about a particular fact or circumstance. It is to convey information and making individual more up to date.
      For example, all the advertisement campaigns are an attempt to inform and convey the information across to others. In case of companies, this information is generally regarding the product or services at offer. Various types of information is transmitted in the organization- policies and rules and changes and development in the organization.
      Stronger decision making:-
      For arriving at decision several kinds of communication are needed. For example, exchange of information, views available, alternatives, favorable points to each alternative. Thus, communication helps a great deal in decision making.
      Communication is essential to boost the workers’ motivation. Thus if the communication is carried out correctly and is successful in encouraging the workers and workers are sufficiently encouraged, the work gets completed easily, proficiently encouraged, the work gets completed easily, proficiently and the workers will carry out their functions by themselves without supervision. Communication can be utilized to construct a proper working environment. Communication can bring about a feeling of involvement and connection and creates more loyalty towards the company.
      The management is ,in brief, a control mechanism Information is transmitted to ensure that the plans are being carried out according to the original design. Communication helps in ensuring such control and monitoring.
      Increased productivity:-
      The ability to communicate effectively increases productivity of both an individual’s and of an organization. With good communication skills, one can anticipate problems, make decisions, co-ordinate work flow, supervise others, develop relationships and promote products and services.
      Raising Morale:-
      In a business, communication aims to maintain a sense of high morale amongst the workers, so that they perform their tasks with enthusiasm and spirit as a team. This is a key aspect that can create a great impact on the success of a company. However the condition of high morale is not a lasting feature.
      Process of Communication:-
      The communication is a dynamic process that begins with the conceptualizing of ideas by the sender who then transmits the message through a channel to the receiver, who in turn gives the feedback in the form of some message or signal within the given time frame. Thus, there are Seven major elements of communication process.
      Sender: The sender or the communicator is the person who initiates the conversation and has conceptualized the idea that he intends to convey it to others.
      Encoding: The sender begins with the encoding process wherein he uses certain words or non-verbal methods such as symbols, signs, body gestures, etc. to translate the information into a message. The sender’s knowledge, skills, perception, background, competencies, etc. has a great impact on the success of the message.
      Message: Once the encoding is finished, the sender gets the message that he intends to convey. The message can be written, oral, symbolic or non-verbal such as body gestures, silence, sighs, sounds, etc. or any other signal that triggers the response of a receiver.
      Communication Channel: The Sender chooses the medium through which he wants to convey his message to the recipient. It must be selected carefully in order to make the message effective and correctly interpreted by the recipient. The choice of medium depends on the interpersonal relationships between the sender and the receiver and also on the urgency of the message being sent. Oral, virtual, written, sound, gesture, etc. are some of the commonly used communication mediums.
      Receiver: The receiver is the person for whom the message is intended or targeted. He tries to comprehend it in the best possible manner such that the communication objective is attained. The degree to which the receiver decodes the message depends on his knowledge of the subject matter, experience, trust and relationship with the sender.
      Decoding: Here, the receiver interprets the sender’s message and tries to understand it in the best possible manner. An effective communication occurs only if the receiver understands the message in exactly the same way as it was intended by the sender.
      Feedback: The Feedback is the final step of the process that ensures the receiver has received the message and interpreted it correctly as it was intended by the sender. It increases the effectiveness of the communication as it permits the sender to know the efficacy of his message. The response of the receiver can be verbal or non-verbal.
      Note: The Noise shows the barriers in communications. There are chances when the message sent by the sender is not received by the recipient.
      Barriers to communication and overcoming barriers to communication.
      Following are some of the barriers to effective communication:
      Semantic barriers:- Semantic barriers are also known as language barriers. These barriers are caused due to improper communication between the sender and the receiver. The following instances of semantic barriers can be witnessed in communication.
      Psychological barriers:- Psychological barriers play an important role in interpersonal communication as the state of the mind of the sender or the receiver can make it difficult to understand the information that is conveyed, which often leads to misunderstanding.
      Organisational barriers:- Organisational barriers are those barriers that are caused due to the structure, rules and regulations present in the organisation. The various types of barriers that can be encountered due to superior subordinate relationships where the free flow of communication is not possible.
      Cultural barriers:- Cultural barriers are those that arise due to lack of similarities among the different cultures across the world. A term that can be harmless in one culture can be regarded as a slang in another culture. Moreover, various beliefs can differ from one culture to another.
      Physical barriers:- Physical barriers to communication are those that arise due to certain factors like faulty equipment, noise, closed doors and cabins that cause the information sent from sender to receiver to become distorted, which results in improper communication.
      Physiological barriers:- Physiological barriers arise when a sender or the receiver of the communication is not in a position to express or receive the message with clarity due to some physiological issues like dyslexia, or nerve disorders that interfere with speech or hearing.
      Barriers to communication can be overcome by:
      1.checking whether it is a good time and place to communicate with the person
      2.being clear and using language that the person understands
      3.communicating one thing at a time
      4.respecting a person’s desire to not communicate
      5.checking that the person has understood you correctly
      6.communicating in a location that is free of distractions
      7.acknowledging any emotional responses the person has to what you have said.
      Importance of directing:-
      The importance of directing are as follows:
      Directing Initiates action: Directing sets an organisation into motion, and helps other managerial functions to initiate and activate. It helps the managers to supervise, communicate, lead, guide and motivate the subordinates to achieve the organisational goals. For example, a superior guides his subordinates and explains the task, which will help the subordinates to start the work and achieve the goal.
      Directing leads to integrated group activity: The organisational objectives can be achieved only when individual efforts are integrated. Directing integrates employees’ efforts in such a way that every individual effort contributes to organisational performance. For example, a leader can convince his subordinates that group efforts will help to achieve organisational goals.
      Directing attempts to get maximum out of individuals: Directing helps superiors to realise the potential and identify the capabilities of individuals by motivating and guiding them. By using the elements of directing, i.e., supervision, motivation, leadership, and communication, the efficiency of employees can be raised.
      Directing helps to implement changes: Directing helps to introduce changes in an organisation. Generally, people in an organisation resist changes. Effective communication, supervision, motivation and guidance help to overcome such resistance at the workplace. For example, the introduction of a new method of doing a particular task in a factory is resisted by workers, but when managers explain the purpose, guide and provide them training and rewards, it can be easily accepted by the workers.
      Directing provides stability and balance in the organisation: Stability and balance are maintained in an organisation with the help of directing because it fosters cooperation and commitment amongst employees, and helps to achieve balance amongst various groups, departments, units, etc. For example, every individual has personal goals, but the managers integrate the efforts of all the individuals towards the achievement of organisational goals through guidance, motivation, supervision and communication.
      It implies measurement of accomplishment against the standards and correction of deviation if any to ensure achievement of organizational goals. The purpose of controlling is to ensure that everything occurs in conformities with the standards. An efficient system of control helps to predict deviations before they actually occur.
      According to Theo Haimann, “Controlling is the process of checking whether or not proper progress is being made towards the objectives and goals and acting if necessary, to correct any deviation”.
      According to Koontz &O’Donell “Controlling is the measurement & correction of performance activities of subordinates in order to make sure that the enterprise objectives and plans desired to obtain them as being accomplished”. Therefore controlling has following steps:
      a.Establishment of standard performance:-The first step in the controlling process is to set the performance standards
      Standards are those criteria, on which the actual performances are measured. These standards serve as a benchmark towards which an organisation strives to work.
      b.Measurement of actual performance:-After the establishment of standards, the next step is measuring the actual performance with the set standards. This can be done by opting several methods like personal observation, sample checking, performance reports, etc.
      c.Comparison of actual performance with the standards and finding out deviation if any:-In this step, the actual performances are compared with the established standards. Such comparisons reveal the deviation between planned and actual results.
      Two methods are generally used:
      (a) Critical point control: It means keeping the focus on key result areas where deviations are not acceptable and they should be attended on a priority basis.
      (b) Management by exception: It means that if a manager tries to control everything, he may end up in controlling nothing. Thus, he should first handle the significant deviations, which require his priority.
      d. Corrective action:-The most important step in the controlling process is taking corrective actions. After the deviations and their causes are analysed, the task is to remove the hurdles from the actual work plan. The purpose of this step is to bring the actual performance up to the level of expectations by taking corrective measures.
      Importance of Controlling:-
      Achieving organisational objectives: Controlling is implemented with the purpose of taking care of the organisational objectives. Controlling detects any kind of deviation and accordingly corrective actions are implemented.
      This helps in reducing the gap between expected and actual results and in this way helps in achieving the organisational objectives.
      Coping with changes: An organisation has to put up with many changes in the environment, which can be emergence of new products and technologies, change in government regulations or changes in strategies of the competitors.
      Efficient use of resources: Controlling allows the manager in minimising the wastage of resources and ensuring proper utilisation of the available resources that leads to effective performance by the organisation.
      Determining the accuracy of standards: Managers always compare the work done with a set of provided standards defined for the work and determine whether the set of standards are effective or there is a need for improvement in the standards that will lead to more accurate determination of process efficiency.
      Helps in decision making: Controlling helps the managers in determining the gap between thinking and actual implementation. It leads to better decision making and improves the overall performance of the organization.
      Relationship between Planning and Controlling:-
      Planning and controlling are interrelated and interdependent.
      Planning and controlling are inseparable twins of management. They are interrelated and interdependent functions of management.
      Planning is the base of controlling function, as controlling involves measurement of performance against the standards to analyse deviations and take corrective action. Thus, controlling is impossible without planning.
      Planning without controlling is meaningless because, in the absence of controlling, it is impossible to monitor the progress and keep a check on the proper implementation of plans. Thus, without controlling, planning will fail to achieve objectives. Planning is a thinking process while controlling is an executive function. While planning involves creative thinking, imagination and sound judgement, controlling ensures that such decisions are converted into desired actions. Thus, planning is prescriptive, whereas, controlling is evaluative.
      The working together of various organs of the body of an organism in a proper manner to produce appropriate reaction to a stimulus is called coordination.
      Stimulus- The changes in the environment to which an organism responds and reacts is called Stimulus
      Coordination: Essence of Management
      1. Coordination is needed in all management functions: In planning, coordination is needed between the plan of the enterprise and the plans of the various departments. The enterprise should always have coordination between the main objective and the resources available. During organizing, coordination is required between the authority and responsibility of every individual. In staffing, coordination is gained by assigning the employees, the right job by seeing their skills and abilities. In directing, coordination is needed among orders, instructions and suggestions, and between superiors and subordinates. Whereas during controlling, coordination is achieved by confirming that the results are close to the planned results.
      2. Coordination is needed at all levels of management: The top-level needs coordination so that all the activities are integrated. The middle level needs coordination for integration efforts at different sections and sub-sections, and the lower level needs coordination in various activities of workers, and to ensure that plans are properly executed. So, coordination is essential at all levels in order to achieve the goals on time,
      Therefore, Coordination is the essence of management, which works carrying along all the other functions and activities affecting an organization to achieve the required goal.

      LESSON PLAN:-04

      Marketing: concept and functions.
      Meaning of markets
      Market means by which the exchange of goods and services takes place as a result of buyers and sellers being in contact with one another, either directly or through mediating agents or institutions.
      Meaning of marketing.
      Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
      Objectives of marketing-
      1. Creation of Demand:
      The marketing management’s first objective is to create demand through various means. A conscious attempt is made to find out the preferences and tastes of the consumers. Goods and services are produced to satisfy the needs of the customers. Demand is also created by informing the customers the utility of various goods and services.
      2. Customer Satisfaction:
      The marketing manager must study the demands of customers before offering them any goods or services. Selling the goods or services is not that important as the satisfaction of the customers’ needs. Modern marketing is customer- oriented. It begins and ends with the customer.
      3. Market Share:
      Every business aims at increasing its market share, i.e., the ratio of its sales to the total sales in the economy. For instance, both Pepsi and Coke compete with each other to increase their market share. For this, they have adopted innovative advertising, innovative packaging, sales promotion activities, etc.
      4. Generation of Profits:
      The marketing department is the only department which generates revenue for the business. Sufficient profits must be earned as a result of sale of want-satisfying products. If the firm is not earning profits, it will not be able to survive in the market. Moreover, profits are also needed for the growth and diversification of the firm.
      5. Creation of Goodwill and Public Image:
      To build up the public image of a firm over a period is another objective of marketing. The marketing department provides quality products to customers at reasonable prices and thus creates its impact on the customers.
      The marketing manager attempts to raise the goodwill of the business by initiating image- building activities such a sales promotion, publicity and advertisement, high quality, reasonable price, convenient distribution outlets, etc..
      Marketing Mix.
      Marketing Mix is a set of marketing tool or tactics, used to promote a product or services in the market and sell it. It is about positioning a product and deciding it to sell in the right place, at the right price and right time. The product will then be sold, according to marketing and promotional strategy. The components of the marketing mix consist of 4Ps Product, Price, Place, and Promotion. In the business sector, the marketing managers plan a marketing strategy taking into consideration all the 4Ps. However, nowadays, the marketing mix increasingly includes several other Ps for vital development.
      What is 4 P of Marketing
      1 )Product in Marketing Mix:
      A product is a commodity, produced or built to satisfy the need of an individual or a group. The product can be intangible or tangible as it can be in the form of services or goods. It is important to do extensive research before developing a product as it has a fluctuating life cycle, from the growth phase to the maturity phase to the sales decline phase.
      A product has a certain life cycle that includes the growth phase, the maturity phase, and the sales decline phase. It is important for marketers to reinvent their products to stimulate more demand once it reaches the sales decline phase. It should create an impact in the mind of the customers, which is exclusive and different from the competitor’s product. There is an old saying stating for marketers, “what can I do to offer a better product to this group of people than my competitors”. This strategy also helps the company to build brand value.
      Goods and services:- Goods and services are the output of an economic system. Goods are tangible items sold to customers, while services are tasks performed for the benefit of the recipients. Examples of goods are automobiles, appliances, and clothing. Examples of services are legal advice, house cleaning, and consulting services. The output of a business can lie somewhere between these two concepts. For example, a landscaping company could sell a homeowner a tree (goods) and also mow the lawn (a service).
      Branding:- Branding is the process of creating a distinct identity for a business in the mind of your target audience and consumers. At the the most basic level, branding is made up of a company's logo, visual design, mission, and tone of voice.
      Labelling and packaging:- Labelling is done on the product packaging and presents all important information about the product and its manufacturer. It is often made part of the product package but, if necessary, the information can also be printed on the product itself.
      Packaging refers to the various activities that are carried out for designing and developing a suitable package for a product, which may be in the form of a container, wrapper, box, tube, plastic bottle, tetra pack or tin etc. The packaging must be properly and solidly done so that it can protect the product from contamination, leakage, evaporation, spoilage or damage during its storage, transportation and promotional activities.
      2) Price in Marketing Mix:
      Price is a very important component of the marketing mix definition. The price of the product is basically the amount that a customer pays for to enjoy it. Price is the most critical element of a marketing plan because it dictates a company’s survival and profit. Adjusting the price of the product, even a little bit has a big impact on the entire marketing strategy as well as greatly affecting the sales and demand of the product in the market. Things to keep on mind while determining the cost of the product are, the competitor’s price, list price, customer location, discount, terms of sale, etc.,
      Factors determining price:-
      The factors influencing the price can be divided into two heads – Internal Factors and External Factors.
      Internal Factors
      Talking about the internal factors means the factors that work from within the organization. The factors are:
      Organizational Factors:
      Two management levels decide the pricing policy, one is the price range and the policies are decided by the top-level managers while the distinct price is fixed by the lower-level staff.
      Marketing Mix
      For implementing a price, the marketing mix needs to be in sync, without matching the marketing mix, consumers will not be attracted to the price. The marketing mix should be decisive for the price range fixed, meaning the marketing mix needs to maintain the standard of the price of the product.
      Product Differentiation:
      In today’s market, it is uncommon to find a unique product, hence the differentiation lies in the nature, feature and characteristic of the product. The added features like quality, size, colour, packaging, and its utility all these factors force the customers to pay more price regarding other products.
      Cost of the Product:
      Cost and Price are closely related. With the cost of the product, the firm decides its price. The firm makes sure that the price does not fall below the cost lese they will run on losses. Cost of the price includes the input cost that a company spends on raw materials, wages for labourers, advertisement cost, promotion cost and salaries for the employees
      External Factors
      External factors are not under the control of the firm. These factors affect the whole industry group uniformly. Yet, a company tries to estimate any upcoming problems in the external environment and also makes up a backup plan in advance. This is done by forecasting the market trend.
      The factors are:
      The market demand of a product has an impact on the price of the product, if the demand is inelastic then a higher price can be fixed, if the demand is highly elastic then less price is to be fixed. When the demand for the goods is more and the supply of the goods is constant, the price of the goods can be increased and if the demand for the goods decreases the price of the goods should be decreased to survive in the market.
      The prices are required to be competitive without any compromise on the quality of the product. While in a monopolistic market, the prices are fixed irrespective of the competition. Thus, the manufacturer tries to estimate the price of his competitor. When the price of the supplementary goods is high, the customers will buy the manufacturer’s product.
      If the supplies condition, the easy availing option of the raw materials are available, then the price of the product can be moderate. Once, the raw materials supply price heightens then the price also rises.
      In the period of recession, price is lowered so that easy purchase is guaranteed. While in boom periods, prices shoot up high as now they can earn profit.
      3) Place in Marketing Mix:
      Placement or distribution is a very important part of the marketing mix strategy. We should position and distribute our product in a place that is easily accessible to potential buyers/customers.
      Channel of distributionL:-
      Direct Distribution: Is one where a company sells directly to the end consumer. For instance, an athletic apparel company who manufactures sports shoes and sells them through an e-commerce website or at their own retail store is employing a direct channel of distribution. Products go directly to the buyer with no intermediaries or intervening partners between them.
      Indirect Distribution:- Is one where companies work with one or more distribution partners or intermediaries to bring products and services to customers.
      Physical Distribution:- Physical distribution refers to the movement of finished goods from a company's distribution and fulfillment network to the end user. In ecommerce, physical distribution involves several ecommerce supply chain activities including warehousing, inventory control, order processing, retail fulfillment, and shipping.
      4) Promotion in Marketing Mix:
      It is a marketing communication process that helps the company to publicize the product and its features to the public. It is the most expensive and essential components of the marketing mix, that helps to grab the attention of the customers and influence them to buy the product. Most of the marketers use promotion tactics to promote their product and reach out to the public or the target audience. The promotion might include direct marketing, advertising, personal branding, sales promotion, etc.
      Elements of Promotion:
      Elements of promotional mix are also called as tools, means, or components. Basically, there are five elements involved in promotional mix. Some authors have considered more elements, too. However, we will consider five elements as shown in Figure
      Advertising is defined as any paid form of non-personal presentation and promotion of ideas, goods, and services by an identified sponsor. It is a way of mass communication. It is the most popular and widely practiced tool of market promotion. Major part of promotional budget is consumed for advertising alone. Various advertising media – television, radio, newspapers, magazines, outdoor means and so forth – are used for advertising the product.
      Sales Promotion:
      Sales promotion covers those marketing activities other than advertising, publicity, and personal selling that stimulate consumer purchasing and dealer effectiveness. Sales promotion mainly involves short-term and non-routine incentives, offered to dealers as well consumers. The popular methods used for sales promotion are demonstration, trade show, exhibition, exchange offer, seasonal discount, free service, gifts, contests, etc.
      Personal Selling:
      Personal selling includes face-to-face personal communication and presentation with prospects (potential and actual customers) for the purpose of selling the products. It involves personal conversation and presentation of products with customers. It is considered as a highly effective and costly tool of market promotion.
      Publicity is also a way of mass communication. It is not a paid form of mass communication that involves getting favourable response of buyers by placing commercially significant news in mass media. William J. Stanton defines: “Publicity is any promotional communication regarding an organisation and/or its products where the message is not paid for by the organisation benefiting from it.”
      It is the traditional form of public relations. Publicity is not paid for by the organisation. Publicity comes from reporters, columnists, and journalists. It can be considered as a part of public relations. Publicity involves giving public speeches, giving interviews, conducting seminars, charitable donations, inauguration by film actor, cricketer, politician or popular personalities, stage show, etc., that attract mass media to publish the news about them.
      Public Relations:
      The public relations is comprehensive term that includes maintaining constructive relations not only with customers, suppliers, and middlemen, but also with a large set of interested publics. Note that public relations include publicity, i.e., publicity is the part of public relations.
      Consumer protection:
      Consumer protection: Consumer protection safeguards the well-being and interests of consumers through education, mobilization and representation. Consumer protection ensures that consumers make well-informed decisions about their choices and have access to effective redress mechanisms.
      Rights of consumers:
      Right to Safety
      This is the right of the consumer to be protected against the marketing of any commodity, goods and services which are in the interest of harm towards them.
      Right to Be Informed
      The consumer has the right to be informed about the commodity they are purchasing. This pertains to the quality, quantity, potency, purity, standard and price of the good or service at hand.
      Right to Choose
      The consumer should have proper access to the market to make an informed choice between selected goods and services. In a market where there is a monopoly, this right extends to warranting a fair price for a good or service.
      Right to Be Heard
      This is the right extended to consumers to be heard at the appropriate forums for voicing out concerns and also representing ideas and visions for consumer welfare.
      Right to Seek Redressal
      The right to seek redressal is one of the fundamental rights provided by the Indian Constitution to its people. When pertaining to consumer rights, it is the right of consumers to seek redressal in case of any unfair practices in trade or exploitation of the consumer.
      Right to Consumer Education
      The right to consumer education focuses on spreading the meaning of consumer awareness and having each citizen and consumer know what consumer rights are. Information about consumer rights must be given to all consumers, which is ensured by this right.
      Methods of consumer protection:
      Following are the ways of consumer protection:
      1.The manufacturers and suppliers should impose a discipline that should work in the interests of the consumers.
      2.The government should be enacting laws for the protection of consumer interests and also make arrangements for their enforcement.
      3.Formation of voluntary associations of consumers in the form of NGO or co-operative societies to protect the consumer interests.
      Need for consumer protection: Consumer protection is required to protect consumers from such exploitative practices. Widespread Exploitation of Consumers: Consumers are abused on a huge scale through a variety of unfair trade practices, and consumer protection is necessary to safeguard them.
      Methods of consumer protection –
      1.Self-regulation by businesses: Businesses that value corporate social responsibility adhere to ethical norms and practices while working with customers.
      2.Business associations: The FICCI and the CII have established codes of conduct for its members to follow while interacting with clients.
      3.Consumer Awareness: A well-informed consumer will be able to speak out against any unethical business activities.
      4.Consumer Organizations: Consumer organisations play a vital role in informing consumers about their rights and protecting them.
      5.Government: The government safeguards consumers' interests by establishing various consumer protection regulations.
      Consumer protection act,1986
      The Consumer Protection Bill, 1986 seeks to provide for better protection of the interests of consumers and for the purpose, to make provision for the establishment of Consumer councils and other authorities for the settlement of consumer disputes and for matter connected therewith.

      LESSON PLAN:-01

      Demand simply means a consumer’s desire to buy goods and services without any hesitation and pay the price for it. In simple words, demand is the number of goods that the customers are ready and willing to buy at several prices during a given time frame. Preferences and choices are the basics of demand, and can be described in terms of the cost, benefits, profit, and other variables.
      The amount of goods that the customers pick, modestly relies on the cost of the commodity, the cost of other commodities, the customer’s earnings, and his or her tastes and proclivity. The amount of a commodity that a customer is ready to purchase, is able to manage and afford at provided prices of goods, and customer’s tastes and preferences are known as demand for the commodity.
      The demand curve is a graphical depiction of the association between the price of a commodity or the service and the number demanded for a given time frame. In a typical depiction, the cost will appear on the left vertical axis. The number (quantity) demanded on the horizontal axis is known as a demand curve.
      Determinants of Demand
      There are many determinants of demand, but the top five determinants of demand are as follows:
      Product cost: Demand of the product changes as per the change in the price of the commodity. People deciding to buy a product remain constant only if all the factors related to it remain unchanged.
      The income of the consumers: When the income increases, the number of goods demanded also increases. Likewise, if the income decreases, the demand also decreases.
      Costs of related goods and services: For a complimentary product, an increase in the cost of one commodity will decrease the demand for a complimentary product. Example: An increase in the rate of bread will decrease the demand for butter. Similarly, an increase in the rate of one commodity will generate the demand for a substitute product to increase. Example: Increase in the cost of tea will raise the demand for coffee and therefore, decrease the demand for tea.
      Consumer expectation: High expectation of income or expectation in the increase in price of a good also leads to an increase in demand. Similarly, low expectation of income or low pricing of goods will decrease the demand.
      Buyers in the market: If the number of buyers for a commodity are more or less, then there will be a shift in demand.
      Types of Demand
      Few important different types of demand are as follows:
      1.Price demand: It refers to various types of quantities of goods or services that a customer will buy at a quoted price and given time, considering the other things remain constant.
      2.Income demand: It refers to various types of quantities of goods or services that a customer will buy at different stages of income, considering the other things remain constant.
      3.Cross demand: This means that the product’s demand does not depend on its own cost but depends on the cost of the other related commodities.
      4.Direct demand: When goods or services satisfy an individual’s wants directly, it is known as direct demand.
      5.Derived demand or Indirect demand: The goods or services demanded or needed for manufacturing the goods and satisfying the consumer indirectly is known as derived demand.
      6.Joint demand: To produce a product there are many things that are related to each other, for example, to produce bread, we need services like an oven, fuel, flour mill, and more. So, the demand for other additional things to produce a product is known as joint demand.
      7.Composite demand: A composite demand can be described when goods and services are utilised for more than one cause. Example: Coal
      The Law of Demand
      The law of demand is interpreted as ‘the quantity demanded of a product comes down if the price of the product goes up, keeping other factors constant.’ In other words, if the cost of the product increases, then the aggregate quantity demanded decreases. This is because the opportunity cost of the customers increases that leads the customers to go for any other substitute or they may not purchase it. The law of demand and its exceptions are really inquisitive concepts.
      Consumer proclivity theory assists us in comprehending the combination of two commodities that a customer will purchase based on the market prices of the commodities and subject to a customer’s budget restriction. The amount of a commodity that a customer actually purchases is the interesting part. This is best elucidated in microeconomics utilising the demand function.
      Increase and Decrease in demand
      An increase in. income leads to a higher demand for a normal good. This is because there is a positive relationship between the income of a consumer and the quantity demanded of a normal good. Therefore, an increase in income will lead to a rightward shift in the demand curve of a normal good.
      The original demand curve is depicted as D. However, when the income of the consumer increases, the quantity demanded of normal good increases and the demand curve shifts to D’. This implies that now a consumer will demand more of a commodity even at the same price.
      An increase in income leads to lower demand for an inferior good. This is because there is a negative relation between the income of a consumer and the quantity demanded of an inferior good. Therefore, an increase in income will lead to a leftward shift of the demand curve of the inferior good.
      The original demand curve is depicted as D. However, when the income of the consumer increases, the quantity demanded of inferior good decreases and the demand curve shifts to D’. This implies that consumer demand less of the commodity at the same price.
      Exceptions to the Law of Demand
      i) Giffen goods: These are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price.
      ii)Articles of snob appeal: Goods which serve status symbol do not follow the law of demand. These are goods of conspicuous consumption. These goods give their possessor utility in the sense of their ownership. Articles like diamond are purchased by the rich irrespective of their price hike as their possession is prestigious. When their price raises the prestige value goes up.
      Factors Affecting Demand
      i)Consumers tastes and Preferences: Tastes and preferences depend on social customs, fashion, habits of people etc. which keeps on changing leading to change in customers’ taste and preferences. As a result, the demand for different goods changes. For example, consumers may switch over from cheaper old fashioned goods to costlier ‘mod’ goods.
      The income of the consumer: Generally when the income of a consumer goes up, the demand . for a commodity also goes up and when income falls, the demand also falls in case of normal goods.
      ii)Price of related goods (i.e. of substitute goods and complementary goods): In the case of complementary goods like car and petrol, the demand for a commodity rises with a fall in the price of complementary good. In the case of substitute goods like tea and coffee, demand for a commodity falls with a fall in the price of other substitutes good.
      iii) The expectation of Change in the Price in Future: If the price of a certain commodity is expected to increase in the near future, then people will buy more of that commodity than what they normally buy. There exists a direct relationship between the expectation of change in the prices in future and change in demand in the current period. For example, if the price of petrol is expected to rise in future, its present demand will increase.
      Demand Curve
      It is a graphic representation of the relationship between product price and the quantity of the product demanded. It is drawn with price on the vertical axis of the graph and quantity demanded on the horizontal axis.
      Movement along the Demand Curve and Shift of the Demand Curve
      Every firm faces a certain demand curve for the goods it supplies. There are many factors that affect the demand and these effects can be seen by observing the changes in the demand curve. Broadly speaking, the factors can be categorized into two types:
      Change in demand
      Change in the quantity demanded
      Movement of the Demand Curve
      When there is a change in the quantity demanded of a particular commodity, because of a change in price, with other factors remaining constant, there is a movement of the quantity demanded along the same curve.
      The important aspect to remember is that other factors like the consumer’s income and tastes along with the prices of other goods, etc. remain constant and only the price of the commodity changes.
      In such a scenario, the change in price affects the quantity demanded but the demand follows the same curve as before the price changes. This is Movement of the Demand Curve. The movement can occur either in an upward or downward direction along the demand curve.
      We know that if all other factors remain constant, then an increase in the price of a commodity decreases its demand. Also, a decrease in the price increases the demand. So, what happens to the demand curve?
      The shift of the Demand Curve
      When there is a change in the quantity demanded of a particular commodity, at each possible price, due to a change in one or more other factors, the demand curve shifts. The important aspect to remember is that other factors like the consumer’s income and tastes along with the prices of other goods, etc., which were expected to remain constant, changed.
      In such a scenario, the change in price, along with a change in one/more other factors, affects the quantity demanded. Therefore, the demand follows a different curve for every price change.
      This is the Shift of the Demand Curve. The demand curve can shift either to the left or the right, depending on the factors affecting it.
      Let’s look at an example which captures the effect of a change in consumer’s income on the quantity demanded.
      Reasons for downward sloping demand curve:
      •Law of Diminishing Marginal Utility: According to this law, as consumption of a commodity increases, marginal utility of each successive unit goes on diminishing to a consumer. Accordingly, for every additional unit to be purchased, the consumer is willing to pay less and less price.
      •Income Effect: Income effect refers to change in quantity demanded when real income of the buyer changes owing to change in price of the commodity. With a fall in price, real income increases. Accordingly, demand for the commodity expands.
      •Substitution Effect: Substitution effect refers to substitution of one commodity for the other when it becomes relatively cheaper. Thus, when own price of commodity-X falls, it becomes cheaper in relation to commodity-Y. Accordingly, X is substituted for Y. Tea and coffee are substitutes. With a fall in the price of tea, it is substituted in place of coffee. It is expansion of demand due to the substitution effect.
      •Size of Consumer Group: When price of a commodity falls, many more buyers can afford to buy it. Accordingly, demand expands.
      •Different Uses: A good may have several uses. Milk, for example, is used for making curd, cheese and butter. If the price of milk reduces it will be put to different uses. Accordingly, the demand for milk expands.
      Law of Diminishing Marginal Utility:-
      According to many economists like Dr Marshall, the law of diminishing marginal utility definition is when the additional benefit that a person derives from a given increase of his stock of anything diminishes with the increase in the stock that he already has. The law states that the more we have of a commodity, the less we want to have more of it as the utility derived from every success unit of the commodity keeps on declining when more is consumed.
      John, for example, is starving and hasn't consumed anything for a while. When he eventually starts to consume, the very first piece will provide him with a considerable measure of satisfaction. As he continues to eat even more meals, his hunger will wane to the extent that he no longer wants to eat.
      Law of Equimarginal Utility:
      (ii) Law of Equi-marginal utility: This law states that the consumer maximizing his total utility will allocate his income among various commodities in such a way that his marginal utility of the last rupee spent on each commodity’ is equal.
      Explanation of the law when the prices of different commodities are unequal:
      In reality, we find that the prices of different commodities the consumer wants to purchase are unequal or indifferent.
      Consumer’s equilibrium through utility approach.
      In the case of the consumer consumes two or more than two commodities his equilibrium will be determined by the Law of Equi-marginal utility.
      According to the Law of Equi-marginal utility, the consumer spends his limited income on different goods in such a way that marginal utility derived by all commodities are equal.
      MUX = MY = MUZ ………
      Derivation of the Market Demand from Individual Demand Curve
      The market demand for a given commodity is the horizontal summation of the demands of the individual consumers. In other words, the quantity demanded in the market at each price is the sum of the individual demands of all consumers at that price.
      Cardinal Utility Analysis:
      Meaning of utility: Utility means “of practical use.” We refer to government facilities that provide water, electricity and natural gas as public utilities. Utility is similar to the word utilize, which is basically a stuffy word for use.
      Total Utility: Total utility is the overall satisfaction that a consumer derives from the consumption of particular goods and services. Each individual unit of goods or services has a marginal utility of their own. Total utility is the sum of marginal utilities of all such individual items.
      TU = U1 + MU2 + MU3 … TU = Total Utility. U = Utility. MU = Marginal Utility. The total utility is equal to the sum of utils gained from each unit of consumption.
      Marginal Utility: Marginal utility is the enjoyment a consumer gets from each additional unit of consumption. It calculates the utility beyond the first product consumed. If you buy a bottle of water and then a second one, the utility gained from the second bottle of water is the marginal utility.
      Consumer’s equilibrium – one commodity (schedule and diagram)
      The Law of Diminishing Marginal Utility (DMU) can be used to explain consumers equilibrium in case of a single commodity. Therefore, all the assumptions of Law of DMU are taken as assumptions of consumer's equilibrium in case of single commodity. A consumer purchasing a single commodity will be at equilibrium, when he is buying such a quantity of that commodity which gives him maximum satisfaction. The number of units to be consumed of the given commodity by a consumer depends on 2 factors.
      1. Price of the given commodity.
      2. Expected utility from each successive unit.
      To determine the equilibrium point, consumer compare the price of the given commodity with its utility. Being a rational consumer, he will be at equilibrium when marginal utility is equal to price paid for the commodity.
      Consumer Equilibrium:
      Marginal Utility is equal to Price (Px) paid for the commodity, i.e. MU = Price.
      (i) If MUx > P, then consumer is not at equilibrium and he goes on buying because benefit is greater than cost. As he buys more, MU falls because of operation of the law of diminishing marginal utility. When MU becomes equal to price, consumer gets the maximum benefits and is in equilibrium.
      (ii) Similarly, when MUx < Px, then also consumer is not at equilibrium as he will have to reduce consumption of commodity x to raise his total satisfaction till MU becomes equal to price.
      Ordinal Utility Analysis:
      Indifference Curve:-
      An indifference curve is a graphical representation of a combined products that gives similar kind of satisfaction to a consumer thereby making them indifferent. Every point on the indifference curve shows that an individual or a consumer is indifferent between the two products as it gives him the same kind of utility.
      Properties of Indifference Curve
      (i) An indifference curve (IC) always slopes downward: This property implies that to increase the consumption of X-good, the consumer has to reduce the consumption of Y good so as to remain at the same level of satisfaction.
      (ii) Indifference curves are convex to the origin: This property is based on the principle of diminishing marginal rate of substitution. It implies that as the consumer substitutes X for Y, the marginal rate of substitution between them goes on diminishing
      Indifference map:
      The Indifference Map refers to a set of Indifference Curves that reflects an understanding and gives an entire view of a consumer’s choices.
      Consumer’s budget line:
      In consumer budget, the graphical representation of all such bundles which cost the consumer exactly his money income is called the budget line. The equation of the budget line is, therefore:
      P1.X1 + P2.X2 = M
      We measure the quantity of good 1 on the horizontal axis and that of good 2 on the vertical axis. We can depict the budget line by calculating the horizontal and vertical intercept. The intercepts are the maximum of each good the consumer can afford to buy.
      So, horizontal intercept = M/P1 (the consumer buys only good 1, X2 = 0)
      And, vertical intercept = M/P2 ¬(the consumer buys only good 2, X1 = 0)
      (i) IC and the budget line are tangent to each other, i.e. when the slope of IC equals the price ratio of the goods.
      (ii) IC is convex to the origin, at the point of equilibrium.

      LESSON PLAN:-02

      Elasticity of demand:
      The degree of responsiveness of demand to the changes in determinants of demand (Price of the commodity, Income of a Consumer, Price of related commodity) is known as elasticity of Demand.
      Types of Elasticity of Demand
      On the basis of different factors affecting the quantity demanded for a product, elasticity of demand is categorized into mainly three categories: Price Elasticity of Demand (PED), Cross Elasticity of Demand (XED), and Income Elasticity of Demand (YED).
      Let us look at them in detail and their examples.
      1. Price Elasticity of Demand (PED)
      Any change in the price of a commodity, whether it’s a decrease or increase, affects the quantity demanded for a product. For example, when there is a rise in the prices of ceiling fans, the quantity demanded goes down.
      This measure of responsiveness of quantity demanded when there is a change in price is termed as the Price Elasticity of Demand (PED).
      The mathematical formula given to calculate the Price Elasticity of Demand is:
      PED = % Change in Quantity Demanded % / Change in Price
      The result obtained from this formula determines the intensity of the effect of price change on the quantity demanded for a commodity.
      2. Income Elasticity of Demand (YED)
      The income levels of consumers play an important role in the quantity demanded for a product. This can be understood by looking at the difference in goods sold in the rural markets versus the goods sold in metro cities.
      The Income Elasticity of Demand, also represented by YED, refers to the sensitivity of quantity demanded for a certain good to a change in real income (the income earned by an individual after accounting for inflation) of the consumers who buy this good, keeping all other things constant.
      The formula given to calculate the Income Elasticity of Demand is given as:
      YED = % Change in Quantity Demanded% / Change in Income
      The result obtained from this formula helps to determine whether a good is a necessity good or a luxury good.
      3. Cross Elasticity of Demand (XED)
      In a market where there is an oligopoly, multiple players compete. Thus, the quantity demanded for a product does not only depend on itself but rather, there is an effect even when prices of other goods change.
      Cross Elasticity of Demand, also represented as XED, is an economic concept that measures the sensitiveness of quantity demanded of one good (X) when there is a change in the price of another good (Y), and that’s why it is also referred to as Cross-Price Elasticity of Demand.
      The formula given to calculate the Cross Elasticity of Demand is given as:
      XED = (% Change in Quantity Demanded for one good (X)%) / (Change in Price of another Good (Y))
      The result obtained for a substitute good would always come out to be positive as whenever there is a rise in the price of a good, the demand for its substitute rises. Whereas, the result will be negative for a complementary good.
      These three types of Elasticity of Demand measure the sensitivity of quantity demanded to a change in the price of the good, income of consumers buying the good, and the price of another good.
      Apart from these three types, we have some other types of Elasticity of Demand which we would look at now.
      Methods of Measuring Price Elasticity of Demand
      •Price elasticity of Demand: The degree of responsiveness of quantity demanded to changes in price of commodity is known as price elasticity of Demand.
      3. Percentage Method/Flux Method: According to this method, price elasticity of demand is measured by dividing the percentage change in quantity demand by the percentage change in price.
      •Unitary elastic demand: If percentage change in the quantity demanded is equal to percentage change in price of the commodity, then ED = 1 and the result is known as unitary elastic demand.
      •More than unitary elastic demand or elastic demand: If percentage change in quantity demanded is more than the percentage change in price of the commodity then, ED > 1 and result is known as more than unit elastic demand.
      •Less than unitary elastic demand or inelastic demand: If percentage change in quantity demanded is less than the percentage change in price of the commodity, then ED < 1 and the result is known as less than unit elastic demand.
      •Perfectly Elastic Demand: If quantity demand changes and price remains constant, then ED = a and the result is known as perfectly elastic demand.
      8. Perfectly Inelastic Demand: If price changes, and quantity demand remains constant, then ED = 0 and the result is known as perfectly Inelastic Demand.
      •Total expenditure method: It indicates the direction in which total expenditure on a product changes as a result of change in price of the commodity.
      •Geometric method or point method: According to point method, elasticity of demand at any point is measured by dividing the lower segment of demand curve with the upper segment of the demand curve at that point. It can be calculated by dividing the lower segment by upper segment.
      Factors affecting elasticity of demand
      1. Nature of commodities:
      A. Necessaries: Demand for necessaries is less elastic. Without these commodities we can’t think of our existence, whatever may be the price, demand for necessaries remain stable.
      B. Comforts: Price elasticity for comforts is a unitary elastic or equi proportionate change in price and demand.
      C. Luxuries: Demand for luxuries is relatively more elastic.
      2. Existence of substitutes: The greater ease with which substitute can be found for a commodity, the greater will be the price elasticity of demand and vice-versa.
      Numerical on percentage method:
      Question 1. If the price of a commodity rises by 40% and accordingly, its demand falls by 80%. What is Ped?
      Solution. Here everything is mentioned in percentage terms, so apply the percentage change method of Ped:
      Price Elasticity of demand = Percentage change in quantity demanded/ percentage change in price.
      Ped = 80%/ 40%
      Ped = (-) 2
      The minus sign of Ped reflects a negative relationship between price and quantity demanded. And Ped is a pure number, no unit is mentioned.
      •Income elasticity of demand
      Income elasticity of demand refers to the sensitivity of the quantity demanded for a certain good to a change in the real income of consumers who buy this good.
      The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income. With income elasticity of demand, you can tell if a particular good represents a necessity or a luxury.
      •Cross elasticity of demand:
      Cross elasticity demand is the sensitivity of the quantity demanded for good A against the change in the price of good B. Complementary goods are goods that are often bought together (negative XED). Substitute goods are goods that can be substituted between each other (positive XED)
      Degrees of elasticity of Demand
      •Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It is computed as the percentage change in quantity demanded—or supplied—divided by the percentage change in price.
      •Elasticity can be described as elastic—or very responsive—unit elastic, or inelastic—not very responsive.
      •Elastic demand or supply curves indicate that the quantity demanded or supplied responds to price changes in a greater than proportional manner.
      •An inelastic demand or supply curve is one where a given percentage change in price will cause a smaller percentage change in quantity demanded or supplied.
      •Unitary elasticity means that a given percentage change in price leads to an equal percentage change in quantity demanded or supplied.
      It refers to the quantity of a commodity that a firm is willing and able to offer for sale, at each possible price during a given period of time.
      Determinants of supply
      The factors on which the supply of a commodity depends are known as the determinants of demand. These are:
      Price of the Commodity
      Firm Goals
      Price of Inputs or Factors
      Government Policy
      Prices of other Commodities
      Number of Firms
      Natural Factors
      1. Price of the Commodity
      It is the main and the most important determinant of demand. When the price of the commodity is high, the producers or suppliers are willing to sell more commodities.
      Thus, the supply of the commodity increases. Similarly, when the price is low the supply of the commodity decreases owing to the direct relationship between the price of a commodity and its supply.
      2. Firm Goals
      The supply of goods also depends on the goals of an organization. An organization may have various goals such as profit maximization, sales maximization, employment maximization, etc.
      Where the firm’s objective is the maximization of profit, it will sell more goods when profits are high and less quantity of goods when the profits are low.
      3. Price of Inputs or Factors
      The price of inputs or the factors of production such as land, labor, capital, and entrepreneurship also determine the supply of the goods. When the price of inputs is low the cost of production is also low.
      Thus, at this point, the firms tend to supply more goods in the market and vice-versa.
      4. Technology
      When a firm uses new technology it saves the inputs and also reduces the cost of production. Thus, firms produce more and supply more goods.
      5. Government Policy
      The taxation policies and the subsidies given by the government also impact the supply of goods.
      When the taxes are high the producers are unwilling to produce more goods and thus, the supply will decrease.
      On the other hand, when the government grants various subsidies and gives financial aids to the producers, they increase the production of goods. Thus, the supply also increases.
      6. Expectations
      When the producers or suppliers expect that the price shall increase in future they hoard the goods so that they can sell them at higher prices later. This will result in a decrease in the supply of goods.
      Similarly, in case they expect a fall in price, they will increase the supply of goods.
      7. Prices of other Commodities
      When the price of complementary goods increases their supply also increases. Thus, this results in the increase in the supply of commodity also and vice-versa.
      Also, when the price of the substitutes increases their supply also increases. This results in a decrease in the supply of goods.
      8. Number of Firms
      When the number of firms in the market increase the supply of goods also increases and vice-versa.
      9. Natural Factors
      The factors like weather conditions, flood, drought, pests, etc. also affect the supply of goods. When these factors are favorable the supply will increase.
      Law of Supply
      The law of supply is the microeconomic law that states that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.
      Elasticity of supply
      The degree of responsiveness of quantity supplied due to the changes in determinants of supply (price of other commodity, price of factors of production, technology, etc) is known as elasticity of supply.
      The quantitative correlation between the price of a commodity and the quantity supplied of that commodity is known as the elasticity of supply. The above elasticity of supply definition stands perfect for all types of markets. Therefore, the mathematical alteration in supply with the change in the price can be derived from the concept of elasticity of supply. There are also a few other determinants of elasticity of supply.
      The most significant factor controlling the supply of a particular good is the price of the good. Mathematically, the value can be derived using the elasticity of the supply formula. The elasticity of the supply formula is as follows:
      Here, ?qstands for the change in quantity supplied q Stands for the quantity supplie
      ?p stands for the change in price
      p stands for the price
      Apart from the above-mentioned technique to calculate the elasticity of supply, there are another two methods to derive the elasticity of supply formula. Those two formulas are based on the supply curve. One is point elasticity in which elasticity can be calculated at a specific point of time and another is arc elasticity in which the same is calculated between two prices.
      Point elasticity of supply formula: Es= (dq/dp)
      Arc-elasticity of supply formula:
      Degrees of elasticity of supply
      1. Perfectly Elastic Supply:
      If there is infinite elasticity, then it is considered a perfectly elastic supply. In this scenario, with a minor fall in the price level, the supply will become zero and with a minor rise in the price, the supply will become infinite. The perfectly elastic supply example is that in such a market the suppliers desire to supply any quantity of the commodity if there is a higher level of price. A perfectly elastic supply curve is depicted as a straight line that is parallel to X-axis.
      2. Unit Elastic Supply:
      If the change amount supplied is exactly equal to the change in its price, then it is termed as unit elastic supply or unitary elastic supply. In the above-mentioned scenario, the price elasticity of supply is equal to 1.
      3. Relatively Greater-Elastic supply:
      Relatively greater elastic supply occurs when the change in supply is relatively greater as compared to the change in price. In this case, the value of price elasticity of supply is greater than 1.
      4. Relatively Less-Elastic supply:
      Relatively Less Elastic supply occurs when the change in supply is relatively lesser as compared to the change in price. In this case, the value of price elasticity of supply is less than 1.
      5. Perfectly Inelastic Supply
      A service or commodity is termed as perfectly inelastic when a certain quantity of the said commodity can be supplied irrespective of the price. The value of the price elasticity of supply is zero.
      Measurement of elasticity of supply by percentage method and geometric method.
      Percentage method
      Percentage method or proportionate method is the commonly used method of measuring price elasticity of supply.
      According to this method, elasticity is measured in terms of rate of percentage change in supplied quantity to percentage change in price.
      Under this method, price elasticity of supply can be measured
      For an example: A firm supplies 50 units of a commodity at Rs 8 per unit. When the price rises to Rs 11, the firm increased its supply to 75 units. Here, price elasticity of supply can be measured as
      Unlike price elasticity of demand, price elasticity of supply is always a positive number. It is because quantity supplied and price of the commodity share direct relationship.
      Geometric method.
      According to the geometric method, elasticity is measured at a given point on the supply curve. This method is also known as ‘Arc Method’ or ‘Point Method’.
      (i) Highly Elastic Supply (Es > 1): A supply curve, which passes through the Y-axis and meets the extended X-axis at some point. For example in fig. the supply is highly elastic. Since LQ is greater than OQ, the elasticity of supply at point A will be greater than one (highly elastic). In general, we can say that a straight line supply curve passing through the Y-axis or having a negative intercept on X-axis is highly elastic (Es > 1).
      (ii) Unitary Elastic Supply (Es = 1): If the straight-line supply curve passes through the origin (supply curve SS in fig.), then elasticity of supply will be equal to one.
      (iii) Less Elastic Supply (Es < 1): If a supply curve meets the X-axis at some point, say, L in Fig., then supply is inelastic
      (iv) Perfectly Elastic Supply: When there is an infinite supply at a particular price and the supply becomes zero with a slight fall in price, then the supply of such a commodity is said to be perfectly elastic. In such a case Es = Y and the supply curve is a horizontal straight line parallel to the X-axis.
      (v) Perfectly Inelastic Supply: When the supply does not change with change in price, then supply for such a commodity is said to be perfectly inelastic. In such a case, Es = 0 and the supply curve (SS) is a vertical straight line parallel to the Y-axis
      Supply function
      Supply function is a numerical portrayal of the association between the amount expected (quantity demand) of a product or service, its value, and other related factors, for example, related products costs and input costs. A supply function has numerous individual dependent variables and independent variables. A supply equation can be planned by inspecting the connection between the independent variable and the supply. It can likewise be formed by characterising whether the relationship is negatively related or positively related. For instance, as a general rule, the market cost or price and supply are contrarily associated. Then again, supply and innovative improvement are positively related; for instance, better innovation and technology demonstrate added supply.
      The supply function is expressed as, Sx = f (Px , P0 , Pf, St , T, O)
      Sx = Supply of the given commodity x.
      Px= Price of the given commodity x.
      P0 = Price of other goods.
      Pf = Prices of factors of production.
      St= State of technology.
      T = Taxation policy.
      O = Objective of the firm.
      Exceptions to the Law of Supply
      The following points highlight the four exceptions of the law of supply.
      1. Firstly, the supply curve of rare goods (such as the artwork of a dead painter) or non-reproducible goods is a vertical straight line.
      Supply Schedule
      Supply schedule is a tabular representation of the various quantities of commodities that are supplied by a supplier at different price levels over a period of time.
      Supply schedule shows the relationship between the price of goods and the quantity of goods supplied. It can also be said that supply schedule is a representation of the law of supply in a tabular form.
      The law of supply states that with fall in the price of commodity, there will be a decrease in the supply and similarly, when the price of a commodity rises, it will result in an increase in the supply of goods in the market, keeping all the other factors constant.
      Types of Supply Schedule
      Similar to the demand schedule, there are two types of supply schedule, which are
      1. Individual Supply Schedule
      2. Market Supply Schedule
      Let us know more about the types of supply schedules in the following lines.
      Individual Supply Schedule: Individual supply schedule is a tabular statement of the various quantities of product that is supplied by an individual or a firm at various price levels over a period of time, with all other factors being constant.
      Market Supply Schedule: Market supply schedule is a tabular statement of the various quantities of the product that all the suppliers in the market are willing to supply at various price levels during a specific time period.
      A market will be full of suppliers who will be supplying a particular commodity and all of these suppliers will be having their individual supply schedules. Therefore, the market supply schedule is a sum total of all the individual supply schedules of the suppliers of the market.
      Supply Curve
      The supply curve shows the relationship between price and quantity supplied. As price increases, suppliers offer more units for sale because each unit can be sold at a higher selling price. The higher selling prices are offset by the increased costs associated with making additional goods available to buyers or consumers. For example, assume that you are a supplier of widgets. You can sell each widget at a price of 10 dollars each. When you raise the price to11 dollars, then customers may demand that you produce more units before they buy from you.
      Derivation of market supply curve and individual supply curve
      A market supply schedule is expressed as Sm = SA + SB + ………
      Where Sm is the market supply and SA + SB +… are the individual supply of supplier A, supplier B and so on.

      LESSON PLAN:-03

      Market Mechanism:
      Market equilibrium: It refers to the situation when market demand is equal to the market supply.
      Market Disequilibrium: Market disequilibrium is an imbalance between supply and demand - such that supply exceeds the level of demand or demand exceeds the available supply. Types of disequilibrium are labor market disequilibrium and balance of payments disequilibrium.
      Equilibrium price and effect of changes in demand and supply on the equilibrium price.
      There can be three scenarios when the demand and supply increase simultaneously. The first scenario is when the increase in demand is more than the increase in supply. The second case is when an increase in demand is equal to the increase in supply. The third case is when an increase in demand is less than the increase in supply.
      Simple applications of tools of demand and supply.
      1. Price ceiling: When the government imposed upper limit on the price (maximum price) of a good or service which is lower than equilibrium price is called price ceiling.
      2. Price floor: When the government imposed lower limit on the price (minimum price) that may be charged for a good or service which is higher than equilibrium price is called price floor.
      3. Rationing: Under rationing system, a certain part of demand of the consumers is met at a price lower than the equilibrium price. Under this system, consumers are given ration coupons/ Cards to buy an essential commodities at a price lower than the equilibrium price from Fair price/Ration Shop.
      4. Black market: It is a market under which the commodity is bought and sold at a price higher than the maximum price fixed by the government.
      Concept of production and production function:
      The relationship between physical input and physical output of a firm is generally referred to as production function.
      The general form of production function is,
      q = f ( x1 ,x2)
      where, q = output, x1 = 1 input like labour, x2 = another input like machinery
      Short period: It refers to the period of time in which a firm cannot change some of its factors like plant, machinery, building, etc. due to insufficiency of time but can change any variable factor like labour, raw material, etc.
      Long period: It refers to a time period during which a firm can change all its factors of production including machines, building, organization, etc.
      Return to a factor: It states that change in the total output of a good when only the quantity of one input is increased, while that of other input is kept constant.
      Returns to a Scale:Returns to scale is a term that refers to the proportionality of changes in output after the amounts of all inputs in production have been changed by the same factor.
      Law of variable proportion: It states that as we increase the quantity of only one input, keeping other inputs fixed, the total product increases at an increasing rate in the beginning, then increases at diminishing rate and after a level of output ultimately falls.
      Law of diminishing marginal return: It states that when we applied more and more units of variable factor to a given quantity of fixed factor, total product increases at a diminishing rate and marginal product falls.
      Average Product:- It is per unit product of variable factors. It is calculated by dividing the total Product by the units of variable factor.
      Average Product=Total Product/Unit of Variable Factor
      Marginal Product: It is an addition to the total product when an additional unit of a variable factor is employed.
      MP=Change in output /Change in input =?q/?L
      Law of Variable Proportion three stages:-
      Law of Variable Proportion is regarded as an important theory in Economics. It is referred to as the law which states that when the quantity of one factor of production is increased, while keeping all other factors constant, it will result in the decline of the marginal product of that factor.
      Law of variable proportion is also known as the Law of Proportionality. When the variable factor becomes more, it can lead to negative value of the marginal product.
      The law of variable proportion can be understood in the following way.
      When variable factor is increased while keeping all other factors constant, the total product will increase initially at an increasing rate, next it will be increasing at a diminishing rate and eventually there will be decline in the rate of production.
      Assumptions of Law of Variable Proportion
      Law of variable proportion holds good under certain circumstances, which will be discussed in the following lines.
      1.Constant state of Technology: It is assumed that the state of technology will be constant and with improvements in the technology, the production will improve.
      2.Variable Factor Proportions: This assumes that factors of production are variable. The law is not valid, if factors of production are fixed.
      3.Homogeneous factor units: This assumes that all the units produced are identical in quality, quantity and price. In other words, the units are homogeneous in nature.
      4.Short Run: This assumes that this law is applicable for those systems that are operating for a short term, where it is not possible to alter all factor inputs.
      Stages of Law of Variable Proportion
      The Law of Variable proportions has three stages, which are discussed below.
      1.First Stage or Stage of Increasing returns: In this stage, the total product increases at an increasing rate. This happens because the efficiency of the fixed factors increases with addition of variable inputs to the product.
      2.Second Stage or Stage of Diminishing Returns: In this stage, the total product increases at a diminishing rate until it reaches the maximum point. The marginal and average product are positive but diminishing gradually.
      3.Third Stage or Stage of Negative Returns: In this stage, the total product declines and the marginal product becomes negative.
      Basic Concepts of Cost
      Fixed cost: Total Fixed costs are those costs of production which do not change with a change in output.
      Variable cost: The cost incurred on variable factors of production is known as TVC.
      Total cost: During production, the expenditure incurred on various factors of production is known as total cost.
      Marginal cost: The cost incurred on additional unit of output is known as Marginal cost.
      Average cost – The per unit cost incurred on various factors of production is known as average cost. In other words, it is the sum total of average variable cost and average fixed cost.
      Relationships Between Total cost , Average cost , Marginal Cost
      Both Average Cost and Marginal cost are derived from total cost. Average cost refers to total cost per unit output and marginal cost refers to addition to total cost when one more unit of output is produced. Also, both MC and AC curves are U-shaped due to the Law of Variable Proportions.
      Opportunity cost:
      Opportunity cost refers to the value of the next best alternative selected over another. For example, the producer can use the building for either manufacturing tables or producing gloves. The producer decides to use the building for manufacturing tables, then the income that the producer could have earned from using the building by producing gloves is the opportunity cost of producing tables.
      Opportunity cost is the sum of explicit cost and implicit costs.
      Short run: The short-run cost comprises both the fixed cost (that do not differ with the change in the degree of end results) and variable cost (that differs with the changes in the level of degree of end results). Some factors remain constant or fixed due to the time restrictions forced on an establishment.
      Long run: The long run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs, whereas in the short run firms are only able to influence prices through adjustments made to production levels. Additionally, while a firm may be a monopoly in the short term, they may expect competition in the long run.
      Cost curves: A cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms optimize their production process by minimizing cost consistent with each possible level of production, and the result is a cost curve. Profit-maximizing firms use cost curves to decide output quantities. There are various types of cost curves, all related to each other, including total and average cost curves; marginal ("for each additional unit") cost curves, which are equal to the differential of the total cost curves; and variable cost curves. Some are applicable to the short run, others to the long run.
      Revenue of a firm refers to receipts from the sale of output in a given period.
      Total Revenue: The total money receipt of a firm from the sale of given amount of output is known as total Revenue.
      3. Average Revenue: The per unit revenue received from the sale of given amount of output is known as Average Revenue.
      4. Marginal Revenue: Marginal revenue is the additional revenue when an additional unit of output is sold.
      Relationships Between Average Revenue , Marginal Revenue and Total Revenue under perfect competition
      Marginal revenue is the change in total revenue when one more unit of a commodity is sold.
      MR= change in TR/change in quantity sold
      Average revenue refers to revenue per unit of output.
      Relationship between AR and MR:
      a) When AR is decreasing, MR should be decreasing faster than AR. Thus, downward sloping MR curve is below the downward sloping AR curve
      Revenue curve under Imperfect competition market
      In the imperfect competition market, the price is not constant. It may increase or decrease due to market forces.
      In order to increase sales, the seller will have to reduce the price of the commodity. But, when the price decreases, Average Revenue and Marginal Revenue also decrease.
      In the imperfect competition market, both Average revenue curve and Marginal revenue curve slope downwards from left to right.
      Also, the Marginal revenue curve is always below the Average Revenue curve. At some point, marginal revenue may also be zero and then negative.
      However, Average revenue will always be positive.
      Note: In all the market situations, the price is always equal to the Average revenue. Thus, AR= P.
      Basic concepts –
      Private cost:- The private cost is any cost that a person or firm pays in order to buy or produce goods and services. This includes the cost of labour, material, machinery and anything else that the person of firm pays for. The private cost does not take into account any negative effects or harm caused as a result of the production.
      Economic cost:- Economic cost is the combination of losses of any goods that have a value attached to them by any one individual. Economic cost is used mainly by economists as means to compare the prudence of one course of action with that of another.
      Social cost: Social cost in neoclassical economics is the sum of the private costs resulting from a transaction and the costs imposed on the consumers as a consequence of being exposed to the transaction for which they are not compensated or charged. In other words, it is the sum of private and external costs
      Money cost: Money cost is also known as the nominal cost. It is nothing but the expenses incurred by a firm to produce a commodity. For instance, the cost of producing 200 chairs is Rs. 10000, and then it will be called the money cost of producing 200 chairs.
      Real cost:- The real cost is a cost as measured by the physical labor and materials consumed in production. For example, real costs would include, but not be limited to, production, market analysis, distribution, and advertising.
      Explicit cost:- It refers to the actual money expenditure of a firm on purchasing goods or hiring factor services and non-factor inputs (like raw material, electricity, fuel, etc.)
      Implicit cost. Implicit cost is the imputed or estimated value of inputs supplied by the owner of the firm himself.
      Cost concepts –
      Fixed cost: Fixed Costs are the costs which remain unchanged with the change in the level of output. These costs are incurred even when output is zero.
      Variable cost: Variable costs are those costs incurred on variable factors. These costs vary directly with the level of output. In other words, variable costs are those costs which rise when output expands and fall when output contracts. When output is nil, they are reduced to zero.
      Marginal cost: The marginal cost is the change in total production cost that comes from making or producing one additional unit. To calculate marginal cost, divide the change in production costs by the change in quantity. The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale to optimize production and overall operations. If the marginal cost of producing one additional unit is lower than the per-unit price, the producer has the potential to gain a profit.
      Average cost: Average cost is the cost per unit manufactured in a production run. It represents the average amount of money spent to produce a product. This amount can vary, depending on the number of units produced.
      Producer’s equilibrium (Profit maximization goal)
      A producer is said to be in equilibrium when it is producing a level of output at which his profit is maximum. Profits are defined as the difference between total revenue (TR) and total cost (TC). Thus, Profit = TR - TC. Profits will be maximum when the difference between total revenue and total cost is maximum.
      Conditions of Producer’s Equilibrium
      A producer is in a state of equilibrium when the following two conditions are satisfied:
      (i) MR=MC, and
      (ii) MC is rising (or MC is greater than MR beyond the point of equilibrium output
      (a) TR and TC approach along with diagram
      According to this approach, the producer’s equilibrium has two conditions:
      The difference between TR and TC is maximum
      Even if one more unit of output is produced, then the profit falls. In other words, the marginal cost becomes higher than the marginal revenue if one more unit is produced.
      MR – MC Approach
      The MR-MC approach is derived from the TR-TC approach. The two conditions of equilibrium under the MR-MC approach are:
      •MR = MC
      •MC cuts the MR curve from below
      MR = MC
      If one additional unit of the output is produced, then MR is the gain and MC is the cost to the producer. As long as MR is greater than MC, it is profitable to produce more. Therefore, the firm has not achieved an equilibrium level of output where the profit is maximum. This is because the firm can increase its profits by producing more.
      On the other hand, if MR is less than MC, then the benefit is less than cost. Therefore, the producer is not in equilibrium either. He can reduce the production to add to his profits. When MC = MR, the benefit is equal to cost, the producer is in equilibrium provided that MC becomes greater than MR beyond this level of output.
      Therefore, for producer’s equilibrium MC = MR is a necessary condition but not sufficient.
      MC cuts the MR curve from below
      While MC = MR is necessary for equilibrium but it is not sufficient. This is because the producer might face more than one MC = MR outputs. Out of these, only that output beyond which MC becomes greater than MR is the equilibrium output.
      This is because if MC is greater than MR, then producing beyond MR = MC will reduce the profits. Also, when it is no longer possible to add profits, the maximum profit level is reached.
      On the other hand, if MC is less than MR beyond the MC = MR output, then the producer can add profits by producing more. Therefore, for the producer’s equilibrium, it is important that MC = MR. Also, MC should be greater than MR if more output is produced.

      LESSON PLAN:-04

      Main market forms:
      The market is presented as a form that is for the cultural advantage of the general public. The market structure comprises different types of markets, and the structures are portrayed by the nature and the level of competition that exists for the goods and services in the market. The forms of the market, both for the products market and the factor market or the service market, is to be decided by the idea of rivalry that is winning in a specific kind of market.
      The Market structure is an expression that is resultant for the quality or the adequacy of the market competition that is winning in the market. There are seven primary market structures:
      •Perfect competition
      •Monopolistic competition
      Meaning of a Market:
      A market can be characterised as where a couple of parties can meet, which will expedite the trading of products and services. The parties involved in the market activities are the sellers and the buyers. A market is an actual structure like a retail outlet, where the dealers and purchasers can meet eye to eye, or in a virtual structure like an internet-based market, where there is the truancy of direct, actual contact between the purchasers and vendors.
      Types of the market:
      A monopolistic market is a market formation with the qualities of a pure market. A pure monopoly can only exist when one provider gives a specific service or a product to numerous customers. In a monopolistic market, the imposing business organisation, or the controlling organisation, has the overall control of the entire market, so it sets the supply and price of its goods and services. For example, the Indian Railway, Google, Microsoft, and Facebook.
      All Features of Monopoly
      There are four main features to understand Monopoly which will help you to create new ideas for your firms. The main features of a Monopoly are:
      Only One Seller and Various Buyers:-The major characteristics of the monopoly are to own one seller and various buyers. Since the individual firms build up all or the majority of the industry, there would be a small or no difference between the industry and sellers in these markets. Hence, the firm’s demand curve is identical to or almost similar to the industry’s demand curve. As there are various buyers, private buyers would affect the cost of the product in the monopoly market as the sellers’ regulation towards the market is too powerful.
      No Produce Replacement Option:-In the monopoly, the products produced through the monopolist pose no quicker replacement. These markets would only exist if the cross elasticity of the goods produced through the monopoly is zero. Hence the monopolist would find out the value of his option and cancel to sell below the asking price.
      Very Difficult to Enter in Market:-As the monopolists generate more and more profits the latest companies see various restrictions when it comes to the industry. Various causes are attached with that like current legal, technological, or substance barriers, which no one else would see. Many a time monopoly serves in the small market making it an economic challenge to insert a brand-slapping new business.
      Pricing Control:-In a monopoly, the companies have control over the good’s availability. However thanks to the bigger number of customers, small customer requests make up only a small portion of the total demand. Thus the buyer should furnish the cost of the product set through the monopolist.
      An oligopoly is a market form with a few firms, none of which can hold the others back from having a critical impact. The fixation or concentration proportion estimates the piece of the market share of the biggest firms. For example, commercial air travel, auto industries, cable television, etc.
      Features of Oligopoly
      1. Few Firms: There are few firms under an oligopoly market whose number is not exactly defined. But, each of the firms under this market produces a significant part of the total output. Each of the firms in the oligopoly market competes with each other severely and tries to manipulate their product’s price and volume to outsmart each other. Also, the number of firms in the market is so small that the action of one firm affects the rival firms. Therefore, every firm keeps an eye on the actions/activities of other rival firms. For example, the automobile industry in India comes under Oligopoly Market.
      2. Non-Price Competition: The firms under an oligopoly market can influence the price of the product; however, they try to avoid such influence as it can start a price war, which none of the firms wants. In other words, if one firm tries to reduce the price of their product, then the other firms will also have to reduce the price, and vice-versa because of which the firm can lose its customers, ultimately intended to increase the price. Therefore, these firms follow the policy of price rigidity, and hence prefer non-price competition. So, to compete with each other, the firms use different methods other than pricing, such as after-sales services, advertising, etc.
      Price rigidity is a situation in which the price of the product tends to stay the same or fixed irrespective of the changes in supply and demand of those products.
      3. Interdependence: The firms under an oligopoly market are interdependent, which means that the actions of one firm affect the actions of other firms. Every firm in this market considers the actions and reactions of their rival firms before deciding the price and output level of their products. A change in the price or output of one firm changes the reaction of other firms operating in the same market. For example, if Maruti makes any change in the price of its cars, then its rival firms such as Tata, Hyundai, etc., will also have to make respective changes in their activities.
      4. Barriers to Entry of Firms: There are only a few firms under oligopoly because of the barriers to the entry of the new firms in this market. The new firms prevent themselves from entering into the oligopoly market because of the large capital requirement, patents requirement, and many other factors. Therefore, the new firms, which can cross these barriers enter the market, which results in earning abnormal profits in the long run.
      5. Role of Selling Costs: Selling cost is the cost spent on the advertisement, sales promotion, and marketing of the product. As there is severe competition and interdependence among the firms, they take help of selling costs to sell their product in the market. Therefore, the firms under oligopoly market focus more on their advertisements and other sales promotion techniques. The role of selling costs in the sale of products is more than its role in a monopolistic competition market.
      Perfect competition:
      Perfect competition is an absolute sort of market form wherein all end consumers and producers have complete and balanced data and no exchange costs. There is an enormous number of makers and customers rivalling each other in this sort of environment. For example, agricultural products like carrots, potatoes, and various grain products, the securities market, foreign exchange markets, and even online shopping websites, etc.
      All firms sell an identical product (the product is a commodity or homogeneous).
      All firms are price takers (they cannot influence the market price of their products).
      Market share has no influence on prices.
      Buyers have complete or perfect information (in the past, present, and future) about the product being sold and the prices charged by each firm.
      Capital resources and labor are perfectly mobile.
      Firms can enter or exit the market without cost.
      Monopolistic competition:
      Monopolistic competition portrays an industry where many firms offer their services and products that are comparative (however somewhat flawed) substitutes. Obstructions or barriers to exit and entry in monopolistic competitive industries are low, and the choices made of any firm don’t explicitly influence those of its rivals. The monopolistic competition is firmly identified with the business technique of brand separation and differentiation. For example, hairdressers, restaurant businesses, hotels, and pubs.
      The main features of monopolistic competition are as under:
      1.Large Number of Buyers and Sellers
      2.Free Entry and Exit of Firms
      3.Product Differentiation
      4.Selling Costs
      5.Lack of Perfect Knowledge
      6.Less Mobility
      7.More Elastic Demand
      A monopsony is a market situation wherein there is just a single purchaser, the monopsonist. Just like a monopoly, a monopsony additionally has an imperfect market condition. The contrast between a monopsony and a monopoly is basically in the distinction between the controlling business elements. A solitary purchaser overwhelms a monopsonist market while a singular dealer controls a monopolised market. Monopsonists are normal to regions where they supply most of the locale’s positions in the regional jobs. For example, a company that collects the entire labour of a town. Like a sugar factory that recruits labourers from the entire town to extract sugar from sugarcane.
      Characteristics of Monopsonies
      Since a monopsonist has buying power, sellers have to accept the rules this company creates. Three main points can characterize the market model. Let’s review each of them.
      1.Single buyer. Firstly, it’s important to mention that in a monopsony, there’s only one buyer, a price maker. This buyer controls the market and demand. For instance, if anyone wants to sell products, the only option is to sell them to a single purchaser that exists in this market structure and comply with their terms.
      2.No alternatives. This means that a monopsony in its pure form creates a situation in which sellers of products have no other alternative buyers. That’s why they have to sell their goods to one company that sets the prices, usually quite low. Sellers agree with that because they want to sell their products and obtain at least the minimum profit.
      3.Barriers to entry. Monopsonies involve only one buyer because of the barriers this market structure creates for companies that want to enter the market. A single company sets certain restrictions and makes it impossible for other buyers to enter. These barriers are similar to those in a monopoly and oligopoly, including government license or franchise, resource ownership, patents, copyrights, and high start-up cost.
      Equilibrium of a firm in perfect competition under short run
      In a perfectly competitive market, a firm cannot change the price of a product by modifying the quantity of its output. Further, the input and cost conditions are given.
      Therefore, the firm can alter the quantity of its output without changing the price of the product. We know that a firm is in equilibrium when its profits are maximum, which relies on the cost and revenue conditions of the firm.
      These conditions can vary in the long and short-term. Before we take a look at the equilibrium states, let’s look at the demand curve of a product under perfect competition.
      Demand Curve of a Product in a Perfectly Competitive Market
      Let’s derive the firm’s demand curve with the help of the market’s demand and supply curve. In perfect competition, the equilibrium of the market’s demand and supply determines the price.
      Short-run Equilibrium of a Competitive Firm
      In the short-run, there the following assumptions:
      •The price of the product is given and the firm can sell any quantity at that price
      •The size of the plant of the firm is constant
      •The firm faces given short-run cost curves
      We know that the necessary and sufficient conditions for the equilibrium of a firm are:
      1.MC = MR
      2.MC curve cuts the MR curve from below
      In other words, the MC curve must intersect the MR curve from below and after the intersection lie above the MR curve. In simpler terms, the firm must keep adding to its output as long as MR>MC.
      This is because additional output adds more revenue than costs and increases its profits. Further, if MC=MR, but the firm finds that by adding to its output, MC becomes smaller than MR, then it must keep increasing its output.
      Three Possibilities in Short-run
      In a perfectly competitive market, a firm can earn a normal profit, super-normal profit, or it can bear a loss. At the equilibrium quantity, if the average cost is equal to the average revenue, then the firm is earning a normal profit.
      On the other hand, if the average cost is greater than the average revenue, then the firm is bearing a loss. However, if the average cost is less than average revenue, then the firm is earning super-normal profits.
      Normal Profit
      Super-normal Profit
      When the price is OP0, the corresponding MR0 curve cuts the MC curve at two points – A and B. At point ‘A’, none of the conditions of equilibrium are satisfied.
      At point ‘B’, the MC curve cuts the MR0 curve from below but AR is less than AVC. Therefore, the firm incurs a loss which is greater than its fixed cost if it decides to produce when the price is OP0. Hence, the firm closes down.
      If the price is equal to OP1 (equal to the least possible average variable cost), then the firm decides to produce. In this case, the MC curve cuts the MR1 curve from below at point C and AR1 is equal to AVC. Therefore, the firm either does not produce at all or produces equal to OM1.
      If the price is equal to OP2, it exceeds AVC but is less than ATC. The MR2 and MC curves intersect each other at point D. The firm produces an output – OM2. The firm still incurs a loss but it is less than its fixed costs.
      If the price rises to OP3, the firm can recover all its costs including the fixed costs. The MC curve cuts the MR3 curve from below at point E and AR3 is equal to ATC. Therefore, all the conditions of the equilibrium are satisfied and the firm produces an output – OM3.
      If the price rises even higher, the point of intersection of MR4 and MC curves moves to point F. In this case, the firm earns super-normal profits and produces OM4.
      Therefore, in the short-run, even if a firm incurs losses, it continues production until it loses start exceeding its fixed costs. On the other hand, if the firm earns super-normal profits, then new firms entering the market wipe it out.

      LESSON PLAN:-05

      Theory of Income and Employment
      Basic concepts and determination of Income and Employment
      The concept of demand (ex-ante): Ex-ante demand refers to the desired demand or planned demand during the period of one year. This is the market demand which is intended to be expected in the economy during the period of one year by the consumers.
      Effective (expost) demand: Ex-post demand refers to the actual demand in the economy during the period of one year. This aspect of demand is considered in the estimation of equilibrium price and output in the economy.
      Aggregate demand and its components:
      The word aggregate in the Aggregate Demand means ‘Total’, therefore, Aggregate Demand indicates the total demand of an economy. Aggregate Demand refers to the total demand for finished goods and services in the economy over a specific period. It also refers to a country’s Gross Domestic Product (GDP) demand. Aggregate demand is also known as Aggregate Expenditure (AE) as AE is the total expenditure incurred by all the sectors of the economy. The aggregate demand includes factors such as personal consumption, investment, government demand, and net exports. An economy’s aggregate demand increases when the variables’ sum increases.
      Note: Aggregate Demand is not the same as Market Demand. The former is the total demand for goods and services in an economy; however, the latter is the demand for one commodity in the market.
      Components of Aggregate Demand
      The Aggregate Demand of an economy is typically a sum of four components; viz., Government Expenditure (G), Consumption Expenditure (C), Investment Expenditure (I), and Net Export (X – M).
      1. Government Expenditure (G):
      Government Expenditure is the total expenditure made by the government on the acquisition of public goods and social services to satisfy the need of the overall economy. The government expenditure includes all the consumption (C) and investment (I) expenditures like infrastructure, investments, defence and military equipment, public sector facilities, healthcare services, government employees, etc. The government expenditure, however, does not include transfer payments like pension plans, subsidies, and aid transfers to other countries. The level of Government Expenditure of an economy is determined by the government’s policy which is usually guided by social welfare.
      2. Private (Household) Consumption Expenditure (C):
      Consumption Expenditure or Private/Household Consumption Expenditure refers to the total spending of an individual or a household on the purchase of goods and services in an economy during an accounting year. Even though the spending of a consumer is affected by several factors like disposable income, per capita income, debt, consumer expectations of future economic conditions, and interest rates; disposable income plays a major role in it. It refers to the total income a household spends on savings and the purchase of goods and services. The spending of the households is majorly affected by disposable income as when the income of the consumer increases, the expenditure increases and vice-versa. The consumption expenditure; however, does not include spending on residential structures.
      3. Investment Expenditure (I):
      Investment Expenditure refers to the company’s total expenditure on acquiring new capital goods and services like machinery and equipment, changes in inventories, and investments in non-residential and residential structures. The spending depends on factors such as interest rates, future expectations of the economy, and incentives of the government, such as tax benefits or subsidies.
      4. Net Export (X – M):
      The term total export refers to the demand for the products that are produced by domestic producers but are sold to the rest of the world, while total import refers to the demand for the products that are manufactured outside the domestic boundaries of the country but are imported to the country. Therefore, Net export refers to the difference between the Total Export (X) and Total Import (M) of the country.
      Aggregate Demand in a Two-Sector Model (AD = C + I)
      Although Aggregate Demand has four elements or components, the two-sector model of aggregate demand focuses on only two components; i.e., Investment Expenditure and Consumption Expenditure. According to this,
      Aggregate Demand = Consumption + Investment
      AD = C + I.
      Diagrammatic Representation of AD
      The Aggregate Demand depends on the income and expenditure of an economy. Generally, when the income of an economy rises, the expenditure also rises, and vice-versa. Considering this, it can be stated that income and expenditure have a positive relationship.
      Important points about AD (Aggregate Demand)
      1.Aggregate Demand is the measure of the aggregate income and expenditure of an economy, i.e., AD = C + I.
      2.There is always a minimum level of consumption irrespective of the income level, i.e., the consumption always remains positive irrespective of the income of the buyer/user. For example, in the above case, even though the Income is 0, there is a minimum level of consumption of 30. This consumption is known as Autonomous Consumption (OS). It is because people need some basic goods and services even at 0 Income to sustain themselves.
      3.The consumption expenditure curve in the aggregate demand represents that the consumption slope is always increasing. However, after reaching a certain level, i.e., the equilibrium point (300 in this case), the consumer starts saving a certain amount of their income.
      4.The investment expenditure curve remains constant and is assumed to be independent. For example, in the above case, the investment remains constant at ?30 crores and the level of autonomous investment is indicated by OR.
      5.The AD Curve never starts from the base value, i.e., 0 as there is always a minimum level of consumption.
      6.The AD Curve represents that there is a positive relationship between income and expenditure as when the income of the economy rises, the expenditure also rises, and vice-versa.
      The marginal propensity to consume
      It relates to the percentage of income spent, will fall between 0 and 1. The customer can spend none of it or all of it, but most of the time it falls somewhere in the middle. The Keynesian multiplier, which defines the effect of additional investment or government expenditure as an economic boost, is determined by MPC.
      Many economists believe that the marginal propensity to consume is the more important notion. The marginal propensity to consume affects the overall effect on national income of initial increases in investment or government expenditure via the multiplier process. There are several elements that go into calculating marginal propensity to consume.
      Average propensity to Consume
      Average propensity to consume (APC) measures the percentage of income that is spent rather than saved. This may be calculated by a single individual who wants to know where the money is going or by an economist who wants to track the spending and saving habits of an entire nation.
      Definition of Marginal Propensity to Save (MPS):
      Consumer demand and spending have historically fueled the economy of every nation. When consumers have more disposable income, they are more likely to spend some of it, resulting in economic development. Consumers may also decide to set aside a part of their surplus cash. These patterns are the foundation for the Marginal Propensity to Save (MPS) and the marginal propensity to consume (MPC).
      The MPS measures the amount of money saved or lost in the economy. The amount of revenue that is not reinvested in the economy through purchases of goods and services is referred to as leakage. As an individual's income rises, so do their capacity to meet their demands, resulting in a greater MPS. In other words, as a person's wealth grows, each extra penny is less likely to be spent.
      Average propensity to Save
      The average propensity to save (APS) is a macroeconomic term that refers to the proportion of income that is saved rather than spent on current goods and services. Also known as the savings ratio, it is usually expressed as a percentage of total household disposable income (income minus taxes).
      The inverse of APS is the average propensity to consume (APC). APS is also related to the marginal propensity to save (MPS), which expresses the proportion of a change in income that is saved rather than consumed.
      Equilibrium output:
      According to the Keynesian Theory, equilibrium condition is generally stated in terms of aggregate demand (AD) and aggregate supply (AS). An economy is in equilibrium when aggregate demand for goods and services is equal to aggregate supply during a period of time.
      So, equilibrium is achieved when:
      AD = AS … (1)
      We know, AD is the sum total of Consumption (C) and Investment (I):
      AD = C + I … (2)
      Also, AS is the sum total of consumption (C) and saving (S):
      AS = C + S … (3)
      Substituting (2) and (3) in (1), we get:
      vC + S = C + I
      Or, S = I
      It means, according to Keynes, there are Two Approaches for determining the equilibrium level of income and employment in the economy:
      It must be noted that Equilibrium level of income and employment can also be determined according to ‘Classical Theory’. However, the scope of syllabus is limited to the Keynesian theory.
      Two Approaches for Determination of Equilibrium Level:
      The two approaches to determine equilibrium level of income, output and employment in the economy are:
      1. Aggregate Demand-Aggregate Supply Approach (AD-AS Approach)
      2. Saving-Investment Approach (S-I Approach)
      It must be kept in mind that AD, AS, Saving and Investment are all planned or ex- ante variables.
      Before we proceed further, let us first state the various assumptions made in determination of equilibrium output:
      (i) The determination of equilibrium output is to be studied in the context of two-sector model (households and firms). It means, it is assumed that there is no government and foreign sector.
      (ii) It is assumed that investment expenditure is autonomous, i.e. investments are not influenced by level of income.
      (iii) Price level is assumed to remain constant.
      (iv) Equilibrium output is to be determined in context of short-run.
      Aggregate Demand-Aggregate Supply Approach (AD-AS Approach):
      According to the Keynesian theory, the equilibrium level of income in an economy is determined when aggregate demand, represented by C + I curve is equal to the total output (Aggregate Supply or AS).
      Aggregate demand comprises of two components:
      1. Consumption expenditure CC):
      It varies directly with the level of income, i.e. consumption rises with increase in income.
      2. Investment expenditure (I):
      It is assumed to be independent of the level of income, i.e. investment expenditure is autonomous. So, AD curve is represented by (C + I) curve in the income determination analysis. Aggregate supply is the total output of goods and services of the national income. It is depicted by a 45° line. Since the income received is either consumed or saved, the
      AS curve is represented by the (C + S) curve.
      When AD is less than AS:
      When AD < AS, then (C +1) curve lies below the 45° line. It means that consumers and firms together would be buying less goods than firms are willing to produce. As a result, the planned inventory would rise. To clear the unwanted increase in inventory, firms plan to decrease the employment and output until the economy is back at output level OY, where AD becomes equal to AS and there is no further tendency to change.
      It must be noted that equilibrium level may or may not be at the level of full employment, i.e. equilibrium is possible even at a level lower than the full employment level.
      Saving-Investment Approach (S-l Approach):
      According to this approach, the equilibrium level of income is determined at a level, when planned saving (S) is equal to planned investment (I).
      When saving is more than Investment:
      If planned saving is more than planned investment, i.e. after point ‘E’ in Fig. 8.2, it means that households are not consuming as much as the firms expected them to. As a result, the inventory rises above the desired level. To clear the unwanted increase in inventory, firms would plan to reduce the production till saving and investment become equal to each other.
      When saving is less than Investment:
      If planned saving is less than planned investment, i.e. before point ‘E’ in Fig. 8.2, it means that households are consuming more and saving less than what the firms expected them to. As a result, planned inventory would fall below the desired level. To bring the inventory back to the desired level, firms would plan to increase the production till saving and investment become equal to each other.
      Investment Multiplier.
      Investment multiplier is an important part of economic theories suggested by notable economist John Maynard Keynes. According to this concept, in the event of an increase in the investment activities either public or private which can be in the form of private consumption spending, government spending in an economy, there is a corresponding increase in the Gross Domestic Product (GDP) of the economy by a value more than the amount invested.
      In simple words, investment multiplier refers to the increase in the aggregate income of the economy as a result of an increase in the investments done by the government in the form of new projects.
      The size of the investment multiplier is determined by the decisions of the households in an economy in the areas of spending (which is known as marginal propensity to consume) or saving (known as marginal propensity to save).
      The multiplier can be represented by the following formula.
      K = ?Y / ?I
      ?Y = Increase in GDP or National Income
      ?I = Increase in Investment
      k = 1/ 1- MPC
      Where k = Investment Multiplier
      MPC = Marginal Propensity to Consume
      And, k = 1/ MPS
      Where k = Investment Multiplier
      MPS = Marginal Propensity to Save
      Therefore, it can be concluded that
      K = 1/ 1- MPC = 1/ MPSIt can be said that in order to find the value of the investment multiplier, either the value of MPC or MPS should be determined or the value of the multiplier can be determined if MPC or MPS values are provided.
      Let us understand the mechanism of investment multiplier with an example.
      Suppose the government has made an investment of 100 crores in a road construction project. This will lead to hiring of labourers, engineers and suppliers of raw materials, logistics. In short such an investment will lead to job opportunities for many people. It will result in income generation, which will result in their tendency to consume and save.
      Let’s say the MPC of the labourers is 0.5, that means that for every 1 rupee earned they spend 0.50 rupees in consumption of goods and services.
      Therefore, the investment multiplier will become,
      K = 1/ 1-MPC
      K = 1/ 1-0.5
      K = 1/0.5
      K = 2
      It means that for every 1 rupee invested by the government, it will generate an income of 2 rupees.
      Similarly, we can find the value of multiplier when MPS = 0.2
      K = 1/MPS
      K= 1/0.2
      K= 5
      Therefore, it can be seen that if the MPS value is less than the multiplier, value increases and when the value of MPC is more than the investment multiplier becomes more.
      The value of MPS or MPC can be used to find the total increase in income obtained from the initial investment by using the following formula
      K = ?Y / ?I
      and, K = 1/MPS
      Therefore, in the above example an investment of 100 crores will bring total income of
      ?Y / ?I = 1/MPS
      ?Y / 100 = 1/0.2
      ?Y / 100 = 5
      ?Y = 500
      Therefore, the total increase in income will be 500 Crores.
      Full employment:
      Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time.
      True full employment is an ideal—and probably unachievable—situation in which anyone who is willing and able to work can find a job, and unemployment is zero. It is a theoretical goal for economic policymakers to aim for rather than an actually observed state of the economy. In practical terms, economists can define various levels of full employment that are associated with low but non-zero rates of unemployment.
      Problems of excess demand and deficient demand
      1. Full Employment Equilibrium In an economy, when AS = AD or S = I alongwith fuller utilisation of labour force, the economy is said to be in full employment equilibrium.
      2. Under Employment Equilibrium In an economy, when AS = AD or S = I but without the fuller utilisation of labour force, the economy is said to be in under employment equilibrium.
      3. Full Employment A situation when all those who are willing to or able to work are getting work, is termed as full employment. Full employment never means zero unemployment in an economy, because there may always exist voluntary unemployment.
      4. Voluntary Unemployment It is a kind of unemployment situation, when some people are not willing to work at all, or are not willing to work at the existing wage rate.
      5. Involuntary Unemployment It is a situation in the economy, when even if people are willing to work at existing wage rates, they are not getting work.
      6. Deficient Demand A situation when the Aggregate Demand is less than the Aggregate Supply in an economy, corresponding to full employment in the economy, is termed as deficient demand.
      Deficient demand —> AS > AD, corresponding to full employment condition.
      8. Deflationary Gap When there is involuntary unemployment in the economy, there is a short fall in Aggregate Demand from the level required to maintain a full employment equilibrium. This short fall is termed as deflationary gap.
      EF is deflationary gap
      8. Causes of Deflationary Gap
      (i) Reduction in private consumption expenditure.
      (ii) Reduction in private investment expenditure.
      (iii) Reduction in government consumption and investment expenditure.
      (iv) Rise in imports.
      (v)Reduction in exports.
      (vi) Increase in tax burden on people.
      9. Problems Due to Deficient Demand In case of deficient demand in an economy, AD < AS. It means all the goods and services produced in an economy cannot be sold at existing price levels. The inventory of producers start increasing and profits start shrinking with fall in price levels.
      This results in low income or output and under employment in an economy. Thus, deficient demand causes deflation and under employment. The economy gets trapped in low income equilibrium.
      10. Excess Demand The situation of an economy, when Aggregate Demand is more than the Aggregate Supply corresponding to full employment, it is termed as excess demand situation.
      Excess demand —> AD > AS, corresponding to full employment level of output or income.
      11. Inflationary Gap
      The excess of Aggregate Demand above the level that is required to maintain full employment level of equilibrium is termed as inflationary gap.
      In other words, when AD > AS it causes rise in prices and hence, leads to inflationary gap.
      12. Causes of Inflationary Gap
      (i) Increase in private consumption expenditure (C).
      (ii) Increase in private investment expenditure (I).
      (iii) Increase in government consumption and investment expenditure(G).
      (iv) Rise in exports (X).
      (v) Reduction in imports (M).
      (vi) Decrease in tax burden on people (T).
      13. Problems Due to Excess Demand
      In case of excess demand in an economy, AD > AS. It means the total demand for goods and services in an economy is more than that of production in the economy. Producers would start selling from their stocks to meet Aggregate Demand and hence, the inventory with producers starts decreasing and profits starts increasing with steep increase in price levels.
      This results in high level of output and income. The price levels and wage rates will keep on increasing. Thus, excess demand causes inflation in an economy.
      14. Measures for Correcting Deficient and Excess Demand
      (i) Fiscal measures relates to fiscal policy of the government.
      (ii) Monetary measures relates to monetary policy of the Central Bank.
      15. Fiscal Policy
      The revenue and expenditure policy of the government to correct the problem of deficient and excess demand is termed as fiscal policy.
      16. Components of Fiscal Policy
      (i) Government expenditure
      (ii) Taxes
      17. Monetary Policy
      The policy adopted by the Central Bank by regulating the cost of credit (i.e. rate of interest) and availability of credit (i.e. money supply) in the economy to control the problem of deficient and excess demand is termed as monetary policy.

      LESSON PLAN:-06

      Money and Banking
      Money is something which is generally acceptable as a medium of exchange and can be converted into other assets without losing its time and value.
      Functions of Money
      They share the three functions of money:
      •First: Money is a store of value. If I work today and earn 25 dollars, I can hold on to the money before I spend it because it will hold its value until tomorrow, next week, or even next year. In fact, holding money is a more effective way of storing value than holding other items of value such as corn, which might rot. Although it is an efficient store of value, money is not a perfect store of value. Inflation slowly erodes the purchasing power of money over time.
      •Second: Money is a unit of account. You can think of money as a yardstick-the device we use to measure value in economic transactions. If you are shopping for a new computer, the price could be quoted in terms of t-shirts, bicycles, or corn. So, for instance, your new computer might cost you 100 to 150 bushels of corn at today's prices, but you would find it most helpful if the price were set in terms of money because it is a common measure of value across the economy.
      •Third: Money is a medium of exchange. This means that money is widely accepted as a method of payment. When I go to the grocery store, I am confident that the cashier will accept my payment of money. In fact, U.S. paper money carries this statement: "This note is legal tender for all debts, public and private." This means that the U.S. government protects my right to pay with U.S. dollars.
      Supply of Money
      The concept of money supply can be defined as the total quantity of currency that can be included in a nation's economy. Money supply includes the total money both in the form of cash as well as deposits that can be used as cash easily.
      The money supply economics is associated with the government's direct power as it is the government that issues currency either in paper form or in the form of a coin as a combination of treasuries bills and demand drafts of banks. Similarly, the banks also have control over the money supply, and they exert such influence through reserves and credit controls.
      Money supply has a major impact on the economy of a country. The inflation of prices of commodities, their demand, and supply change the supply of money. In economics, money supply plays a role in the interest rates and cash flow prevalent throughout the country.
      It is important to note here that the money supply does not include the stock of money held by the government or the money under the possession of the banks. These institutions serve as the suppliers of money or are involved in the production of money rather than being a part of the money supply. The term money supply refers only to that share of capital or cash that is governed by the people of the country.
      Kinds of Money:
      1. Fiat Money
      Examples: Banknotes (paper money) and coins
      Fiat money (fiat currency) is money whose value is not based on its inherent value but is based on an authoritative decision (fiat) by the governing body. The government declares it as legal tender and it must then be accepted as a form of payment everywhere. Due to not having an intrinsic value, a partially destroyed bill can be replaced by the Federal Reserve Bank. On the other hand, commodity money can not be.
      2. Commodity Money
      Examples: Precious metals (i.e. gold), salt, beads, alcohol
      Unlike fiat currency, the value of commodity money is intrinsic; its value comes from the commodity it is made from. If the money is destroyed, it cannot be replaced. It is also probably the earliest form of money. These commodities are used as a medium of exchange and gain their value from the scarcity of the items. The use of this type of money is like using the barter system where goods and services are exchanged for the like. Unlike the barter system, using commodity money functions as a unit of account that allows you to compare the worth of goods and services.
      3. Representative Money
      Examples: Certificates, paper money, token coins
      Representative money, like fiat money, has no value of its own. Unlike fiat money, it is backed by a commodity. As a commodity-back money, it could be exchanged for precious metals (like gold) held within a bank vault. It was easier to carry a certificate around rather than a chest full of gold.
      4. Fiduciary Money
      Examples: Checks, bank drafts
      Deriving from the Latin word fiducia, to trust, fiduciary money works on the promise and trust that it will be exchanged for fiat or commodity money by the issuer (bank). People are not required to take it as a form of payment because it is not a government-ordered legal tender.
      5. Commercial Bank Money
      Example: Funds in a checking account
      Commercial money (also known as demand deposits) is a claim against a bank for the purchase of goods and services (through the means of withdrawing in person, check, ATMs, or online banking). It is a debt-created currency by the bank. They create more money through a process called fractional-reserve banking. In this, only a certain percentage of money the bank “has” is held within it. The other percent is given to others in the form of loans, in doing so, the bank makes back more money from the interest and fees charged to customers.
      In short, the bank is loaning out the money you deposit to give others debt and create more money from the interest placed on it.
      Functions of Money
      Money refers to a common medium of exchange that is issued under the law of government and acts as a legal tender for the whole country. The functions of money can be classified into the following three categories :-
      1. Primary function: The primary function of money includes money as a medium of exchange and money as a measure of value.
      (a) As a medium of exchange, it refers to a function of money in which money is considered as a mode of exchanging goods. This function of money solved the main problem of barter system which was double coincidence of wants.
      (b) As a measure of value, it refers to a function of money that helps in determining the value of goods and services. Money is taken as the common denominator while measuring the value of goods and services in monetary terms.
      2. Secondary function: The secondary function of money includes money as a store of value and money as a standard of deferred payment.
      (a) As a store of value, it refers to the function of money that helps individuals in storing their wealth in the form of money. Therefore, money acts as an asset that sustains value over a period of time
      (b) As a standard of deferred payment, it refers to one of the most important functions of money. Deferred payments refer to payments made on loans, salaries, pensions, insurance premium, interests, and rents. The necessary condition for deferred payment is that the amount of repaid money should be the same as it was at the time of purchase of the good. Since all the goods and services can be expressed in terms of money, it makes the future payments easy and functional.
      3. Contingent function:
      (a) Distribution of national income: Money helps in optimum distribution of national income among different factors of production by generating factor incomes like rent, interest, wage and profit.
      (b) Basis of credit creation: Credit creation by commercial banks is not possible without money. Money as a store of value has encouraged savings by people in the form of demand deposits in the banks which are used by the commercial banks to create credit.
      (c) Maximization of satisfaction: Money helps the consumers and producers in maximizing their satisfaction by measuring the value of everything in terms of money. A consumer derives maximum satisfaction by equating the price (expressed in terms of money) of each commodity with its marginal utility (satisfaction). Similarly, a producer maximizes his satisfaction (profit) by equating the marginal productivity of a factor with price of such factor.
      (d) Increases productivity of assets: Money increases the productivity of capital as it is the most liquid asset and can be put to alternative uses. Due to liquidity of money, capital can be easily transferred from less productive uses to more productive uses.
      Supply of Money:-
      The supply of money is closely related to inflation and consumption. Therefore, the government, especially a country’s central bank, controls the circulation of money through its monetary policy. The supply of money measurement include M0, M1, M2, M3, and M4 types, based on its liquidity.
      •M1 money supply: Also called the ‘narrow money,’ it includes M0 and other highly liquid deposits in the bank.
      •M2 money supply: It is perhaps the most commonly accepted measure because it consists of M1 in addition to marketable securities and less liquid deposits.
      •M3 money supply: Known as ‘broad money,’ it constitutes M2 and money market funds like mutual funds, repurchase agreements, commercial papers, etc.
      •M4 money supply: It comprises M3 and all other least liquid assets, usually outside commercial banks.
      Thus, the above types of money supply measurements and their formulas can be summarized as follows:
      M0 = Currency notes + coins + bank reserves
      M1 = M0 + demand deposits
      M2 = M1 + marketable securities + other less liquid bank deposits
      M3 = M2 + money market funds
      M4 = M3 + least liquid assets
      Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year. It may be one of the most familiar words in economics. Inflation has plunged countries into long periods of instability.
      Demand pull:-
      Inflation that occurs due to increase in aggregate demand is referred to as demand pull inflation
      Cost push:-
      Inflation that results from decline in aggregate supply due to external factors is referred to as cost push inflation.
      Commercial bank is a financial institution which performs the functions of accepting deposits from the public and making loans and investments, with the motive of earning profit.
      Functions of commercial bank:-
      Commercial Banks have both primary and secondary functions that as explained in detail below.
      Primary Functions
      •Accepting Deposits – Commercial banks accept deposits from their customers in the form of saving, fixed, and current deposits.
      •Savings Deposits – Savings deposits allow a customer to credit funds towards their accounts for up to a certain limit. These deposits are preferred by individuals with a fixed income, utilized to create savings over time.
      •Fixed Deposits – Fixed deposits come with a predetermined lock-in period. Fixed deposits are also referred to as time deposits as the funds are deposited for a specific time frame.
      •Current Deposits – Current deposits allow account holders to deposit and withdraw money whenever necessary. In some cases, current accounts also offer overdrafts until a pre-specified limit to individuals and businesses.
      •Providing Loans – One of the main functions of commercial banks is providing credit to organizations and individuals, and profit from the earned interest. Usually, banks retain a small reserve for their expenses while offering the remaining amount to customers as various types of short and long-term credits.
      •Credit Creation – A unique function of commercial banks is credit creation. Instead of offering liquid cash, banks create a line of credit and transfer the loan to a business or commercial body all at once.
      Categories of Secured and Unsecured Loans provided by Commercial Banks
      •Cash Credit – Commercial Banks and their Functions include extending advances to individuals and organizations against bonds, inventories, and other types of securities. This facility, commonly known as cash credit, provides a more substantial sum when compared to other forms of credit.
      •Short-Term Credits – Short-term loans are usually pledged without any security, offering a smaller loan amount and repayment tenor. These are also referred to as personal loans.
      Secondary Functions
      The following can be considered as the secondary functions of commercial banks –
      •Providing locker Facilities – Commercial banks provide locker facilities to customers who want to store valuables safely. Locker facilities eliminate the impending risk of theft or loss, which prevail when kept at home.
      •Dealing in Foreign Exchange – Commercial banks help provide foreign exchange to individuals and organizations that export or import goods from overseas. However, only certain banks which have the license to deal in foreign exchange are eligible for such transactions.
      •Exchange of Securities – Another function of commercial banks is to trade in bonds and securities. Customers can purchase or sell the units from the financial institution itself, which offers more convenience than alternate approaches.
      •Discounting Bills of Exchange – The main function of a commercial bank in today’s date is to discount bills of businesses. Bill discounting is considered a profitable investment for banks. Bills create a steady flow of funds, while not becoming a risky venture during payment as it is considered as a negotiable instrument. These also do not involve the financial institution in any litigation.
      •Bank as an Agent – Commercial Bank and its Function also require them to provide finance-related services to customers, fulfilling the role of an agent. These services usually include –
      •Acting as an administrator, trustee, or executor of a customer-owned estate.
      •Assisting customers with tax returns, tax refunds, and other similar tasks.
      •Serving as a platform to pay premiums, repay loan installments, etc.
      •Offering a platform for electronic transaction of funds, processing of cheques, drafts, bills, etc.
      High powered money:-
      High powered money is the liability of the monetary authority of the country. This is also called the monetary base and is created by the RBI. High powered money includes currency (notes and coins), deposits with the government and reserves of commercial banks with RBI. So, to sum up, high powered money is. H = C + R.
      Credit creation by commercial banks:
      The process of credit creation is considered one of the most important functions performed by a commercial bank.
      The central bank of a country is responsible for ensuring the supply of money in the economy by circulating the currency. It also ensures that for fulfilling all the transactions, there should be appropriate currency in the system.
      This process cannot be implemented by the central bank alone. For this, they require the help of commercial banks and their reserves. Commercial banks perform the function of credit creation in an economy.
      Therefore, the money that is created by commercial banks is known as credit money. This is achieved by the commercial banks in the form of purchasing securities and providing loans. The commercial banks facilitate the loans by utilising the deposits that are obtained from the public.
      There are restrictions on the amount of money that can provide credits from the total deposits that a bank obtains from the public. As per the rule, the commercial banks need to maintain a certain portion of the public deposits as reserves with the central bank that will be used for meeting the immediate cash requirements of the depositors.
      Only after keeping aside the required amount of those reserves the commercial banks are permitted to lend those amounts to individuals or businesses.
      Central Bank: functions:
      i)Currency regulator or bank of issue: Central banks possess the exclusive right to manufacture notes in an economy. All the central banks across the world are involved in issuing notes to the economy.
      This is one of the >most important functions of the central bank in an economy and due to this the central bank is also known as the bank of issue.
      Earlier all the banks were allowed to publish their own notes which resulted in a disorganised economy. To avoid this situation the government around the world authorised the central banks to function as the issuer of currency, which resulted in uniformity in circulation and balanced supply of money in the economy.
      ii)Bank to the government: One of the important functions of the central bank is to act as the bank to the government. The central bank accepts deposits and issues funds to the government. It is also involved in making and receiving payments for the government. Central banks also offer short term loans to the government in order to recover from bad phases in the economy.
      In addition to being the bank to the government, it acts as an advisor and agent of the government by providing advice to the government in areas of economic policy, capital market, money market and loans from the government.
      In addition to that, the central bank is instrumental in formulation of monetary and fiscal policies that help in regulation of money in the market and controlling inflation.
      iii)Custodian of Cash reserves: It is a practice of the commercial banks of a country to keep a part of their cash balances in the form of deposits with the central bank. The commercial banks can draw that balance when the requirement for cash is high and pay back the same when there is less requirement of cash.
      It is for this reason that the central bank is regarded as the banker’s bank. Central bank also plays an important role in the credit creation policy of commercial banks.
      iv)Custodian of International currency: An important function of the central bank is to maintain a minimum balance of foreign currency. The purpose of maintaining such a balance is to manage sudden or emergency requirements of foreign reserves and also to overcome any adverse deficits of balance of payments.
      v)Lender of last resort: The central bank acts as a lender of last resort by providing money to its member banks in times of cash crunch. It performs this function by providing loans against securities, treasury bills and also by rediscounting bills.
      This is regarded as one of the most crucial functions of the central bank wherein it helps in protecting the financial structure of the economy from collapsing.
      vi)Clearing house for transfer and settlement: Central bank acts as a clearing house of the commercial banks and helps in settling of mutual indebtedness of the commercial banks. In a clearing house, the representatives of different banks meet and settle the inter bank payments.
      vii)Controller of credit: Central banks also function as the controller of credit in the economy. It happens that commercial banks create a lot of credit in the economy that increases the inflation.
      The central bank controls the way credit creation by commercial banks is done by engaging in open market operations or bringing about a change in the CRR to control the process of credit creation by commercial banks.
      viii)Protecting depositors interests: Central bank also needs to keep an eye on the functioning of the commercial banks in order to protect the interests of depositors.
      Credit Creation Process with Limitation:-
      The process of credit creation is considered one of the most important functions performed by a commercial bank.
      The central bank of a country is responsible for ensuring the supply of money in the economy by circulating the currency. It also ensures that for fulfilling all the transactions, there should be appropriate currency in the system.
      This process cannot be implemented by the central bank alone. For this, they require the help of commercial banks and their reserves. Commercial banks perform the function of credit creation in an economy.
      Therefore, the money that is created by commercial banks is known as credit money. This is achieved by the commercial banks in the form of purchasing securities and providing loans. The commercial banks facilitate the loans by utilising the deposits that are obtained from the public.
      There are restrictions on the amount of money that can provide credits from the total deposits that a bank obtains from the public. As per the rule, the commercial banks need to maintain a certain portion of the public deposits as reserves with the central bank that will be used for meeting the immediate cash requirements of the depositors.
      Only after keeping aside the required amount of those reserves the commercial banks are permitted to lend those amounts to individuals or businesses.
      Formula for determining the Credit creation
      The following formula can be used to determine the total credit creation.
      Total credit creation = Original deposit ? Credit multiplier coefficient
      Credit multiplier coefficient = 1/r
      r = Cash reserve requirement also known as cash reserve ratio (CRR)
      Let us understand this with an example.
      If the money deposited in a bank is ?10,000 and the bank has a CRR of 10%, then what will be the credit multiplier coefficient?
      Credit multiplier coefficient = 1/10%
      = 1/0.1
      = 10
      Total credit creation = 10,000 ? 10 = 1,00,000
      Similarly, if CRR = 20%
      Credit multiplier coefficient = 1/20%
      = 1/0.2
      = 5
      Therefore, total credit creation = 10,000 ? 5 = 50,000
      From the given values we can understand that, a low CRR value results in high credit creation and a high CRR results in low credit creation. Therefore, with the help of credit creation, the money gets multiplied in the economy.
      However, the commercial banks face many challenges and limitations while performing the credit creation in an economy are further discussed.
      Limitations of Credit Creation
      The following are some of the limitations that are experienced by the commercial banks during the credit creation process.
      1.ash amount present in the bank
      The higher the amount of deposits made by the public, the higher credit creation from the commercial banks can be seen. However, there is a certain limit on the amount of cash that can be held by the banks at a time.
      This limit is determined by the central bank, as the central bank may contract or expand this limit by selling or purchasing the securities.
      2.Cash reserve ratio or CRR
      It refers to the amount of money in the form of reserve that needs to be kept with the central banks by the commercial banks. This amount is used for meeting the cash requirements of the users. Any fall in the CRR will lead to more credit creation.
      3.Excess reserve
      This takes place when a country faces recession, at that time the banks find it conducive in maintaining reserves in place of lending that leads to less credit creation.
      4.Currency drainage
      It refers to the situation when the public is not depositing money in the banks. This results in reduced credit creation in the economy.
      5.Borrower availability
      Credit creation will flourish if there are borrowers. The credit creation will not be done if there are no borrowers of the money in an economy.
      6.Prevalent business conditions
      If an economy is witnessing a depression, then the businesses will not be seeking credit that leads to contraction of credit creation. Whereas, if a nation is prospering, then the businesses will seek new funds in the form of credit from the banks that would lead to credit creation.
      The regulatory role of the Central Bank:-
      The two tiered system puts the central bank in control of the commercial banks. Therefore, the government authorities have delegated some of the regulatory responsibilities to the central bank. It is the job of the central bank to ensure that commercial banks are conducting their business in a manner which is considered ethical as well as safe. In order to do so, the central bank has to undertake certain regulatory functions. In this article, we will describe the regulatory functions performed by the central bank.
      i)Deposit Insurance
      Financial stability is of paramount importance for any economy to be able to prosper. Thus, it is essential that people park their excess funds in banks and that banks are able to lend this money out to businesses which plan to use it productively. This process gets hindered when the average person loses trust in the solvency of the bank. This is where central banks step in. Central banks all over the world guarantee the deposits held by commercial banks up to a certain amount. They may do so directly or they may create a separate body backed by them, thereby insuring the deposits indirectly.
      This is called deposit insurance and it indirectly helps in ensuring that the commercial banks use their deposits judiciously. Since the central bank is guaranteeing the deposits, the central bank keeps a keen eye on the utilization of the proceeds in order to minimize their own liability.
      ii)Granting Charter to New Banks
      The central bank also plays an important part in the regulatory role as it decides whether or not to grant charters to new banks. In most countries around the world, charters are granted by judicial bodies and not by central banks. For instance, in the United States a banking charter can be granted either by federal authorities or by state authorities. However, the Federal Reserve cannot grant a banking charter on its own.
      The central banks do play an important role in advising the judicial bodies while such charters are being granted. Therefore, indirectly central banks can have an influence over the number of new banks entering the market. This puts them in a position to ensure healthy competition that is beneficial to the consumers but not detrimental to the banks themselves.
      iii)Reserve Requirements
      The most important regulatory power that a central bank has is that it can modify the reserve requirements. “Reserves” is the percentage of deposits that any commercial bank has to maintain with the central bank. Thus if this percentage is increased, commercial banks have to deposit a larger portion of their money with the central bank and have a smaller percentage to lend out to the market. Hence, a scarcity of funds is created and interest rates begin to rise. On the other hand, if this reserve requirement is relaxed, banks will have more funds to lend and as a result the interest rates will go down given the abundance of funds.
      Since the central bank sets the reserve requirements, it is in a position to have a significant influence on the operations and profits of member commercial banks. The central bank can simply regulate the behavior of the commercial banks to suit the national interests by modifying the reserve requirement rates.
      iv)Monitoring Risk
      It is the duty of central banks to monitor the risks that the commercial banks under their purview are taking. Therefore, central banks have the power to conduct audits at regular intervals. These audits consist of a thorough investigation of the assets, liabilities and even the treasury operations of any bank. Risk is measured using complex models like Value at Risk (VaR) which have been specifically designed for this purpose.
      Commercial banks have to ensure that their risk profile is within the limits prescribed by the central banks. They also have to ensure that they have enough capital on hand to meet the needs of the depositors, if required. Without central banks regulating commercial banks, competition would drive them to excessive risk taking. It is the central banks that help maintain the balance between risk and reward even in highly competitive markets.
      v)Anti Discrimination Laws
      Central banks also enforce anti-discrimination laws to ensure that the access to money and credit is not affected by communal and racist agendas. Central banks enforce laws which make it impossible for the banks to exclude communities from the banking system. For instance, in the United States, there were allegations that banks were “redlining” certain neighborhoods. This meant that banks would not make loans to residents of certain neighborhoods. Since the majority of the residents in these neighborhoods were Hispanics or African Americans, it was considered to be discrimination.
      Hence, the Fed i.e. the central bank of the United States had to intervene to ensure that the credit was not being apportioned based on the racial profile of the creditors. It is the job of the central banks to ensure that money and credit are equally available to anyone worthy of it.
      vi)Conflict Of Interest
      The central bank carefully monitors the activities of commercial banks and scans them for conflict of interest. This means that if the senior officials on the boards of commercial banks are making loans to themselves or to entities controlled by them, then the central bank can and must take action to control such embezzlement. Loans which have an inherent conflict of interest have been a major reason behind the existence of non-performing assets (NPA’s) and central banks, through their regulatory functions, ensure that depositors’ money is not jeopardized by such risky and biased loans.
      i)CRR:- : It refers to the minimum percentage of a bank’s total deposits, which it is required to keep with the central bank.
      ii)SLR:-It refers to minimum percentage of net total demand and time liabilities, which commercial banks are required to maintain with themselves.
      iii)Bank Rate policy (repo rate and reverse repo rate):
      •Repo rate: It is the rate at which commercial bank borrow money from the central bank for short period by selling their financial securities to the central bank.
      •Reverse Repo rate: It is the rate at which the central bank (RBI) borrows money from commercial bank.
      iv)Open Market Operations: It consists of buying and selling of government securities and bonds in the open market by central bank
      v)Qualitative methods: It is used to understand people's beliefs, experiences, attitudes, behavior, and interactions. It generates non-numerical data. The integration of qualitative research into intervention studies is a research strategy that is gaining increased attention across disciplines.

      LESSON PLAN:-07

      Balance of Payment and Exchange Rate Balance of Payment –
      The balance of payments of a country is a systematic record of all economic transactions between its residents and residents of the foreign countries during a given period of time.
      Components of Balance of Payment:-
      The components of the balance of payment are as follows:
      1. Current account: The current account of BOP records the transactions related to exports and imports of goods and services and unilateral transfers from and to the rest of the world. The current account of BOP records the following components:
      (i) Visible trade: Visible trade is the net export and import of goods. The balance of visible trade is referred to as the trade balance.
      When imports of goods are higher than the export of goods, there is a trade deficit. When the export of goods are higher than the import of good, there is a trade surplus.
      (ii) Invisible trade: Invisible trade accounts for net exports and imports of services. Services include shipping, banking and insurance etc.
      (iii) Unilateral transfers to and from abroad: Unilateral transfers refer to payments that are provided to or received from the rest of the world as financial aid, gifts and remittances. Unilateral transfers are not factor payments.
      (iv) Income receipts and payments: Income receipts and payments include factor payments and receipts. For examples, it includes rent on the property, profits on investments and interest on capital.
      2. Capital account: The capital account of BOP records all transactions of a country that alter the status of assets and liabilities of a country. The capital account of BOP records the following components:
      (i) Loans to and borrowings from abroad: This component consists of all loans and borrowings given to or received from the rest of the world. It includes both private sector loans and public sector loans.
      (ii) Investments to and from abroad: This component includes investments made by non-residents in shares and equities in a country or investment in real estate in any country. The former investment does not provide any control over the asset and is known as portfolio investment. The latter investment provides control over the asset and it is known as foreign direct investment.
      3. Autonomous and accommodating items: Autonomous and accommodating items are used to ensure that BOP balances are maintained. These are used to account for errors and discrepancies in BOP account.
      Foreign exchange – Meaning, Determination of Exchange rate (Flexible)
      Foreign exchange refers to exchanging the currency of one country for another at prevailing exchange rates. Let us take a close look at the meaning of foreign exchange. Different countries have different currencies. Foreign exchange converts the currency of one country into another.
      Flexible rate of exchange is the rate which is determined by the supply-demand forces in the foreign exchange market. It is also called 'free exchange rate' as it is determined by the free play of supply and demand forces in the international money market.
      The flexible exchange rate is determined by the interaction of the forces of demand and supply. The equilibrium exchange rate is determined at a level where demand for foreign exchange is equal to the supply of foreign exchange. This will be clear from the given Diagram.
      As seen in the diagram, demand and supply of foreign exchange are measured on the X-axis whereas the rate of foreign exchange on the Y-axis. DD is the downward sloping demand curve of foreign exchange and SS is the upward-sloping supply curve of foreign exchange. Both the curves intersect each other at point ‘E’. The equilibrium exchange rate is determined at OR and the equilibrium quantity is determined at OQ.
      Causes of disequilibrium
      Causes of Disequilibrium in the Balance of Payment (BOP):
      (i) Fall in foreign demand: BOP deficit may arise due to a shift in foreign demand away from domestic goods to foreign products because of changes in preference or lower prices of foreign products. This leads to decreases in exports making the BOP unfavourable.
      (ii) Inflationary pressure in the economy: A high rate of inflation at home encourages imports by making it relatively cheaper leading to decrease in the country’s competitiveness in the world market and reduces exports.
      (iii) Developmental expenditure: Developing countries are poor. Hence they have to depend upon the developed nations for the supply of machines, technology etc. However, they cannot step up their exports to finance the increased imports, leading to a deficit.
      (iv) Increase in the cost structure of export industries: It reduces the volume of exports by reducing the competitiveness of these industries in the world market (it may arise due to higher wages, higher prices of raw materials or inflation). Fall in exports makes the BOP unfavourable.
      (v) The decrease in supply: A fall in supply at home say agricultural production due to crop failure say, or labour strike, shortage of raw materials etc. leads to fall in exports and imports may increase to overcome the scarcity resulting an adverse BOP.
      (vi) Appreciation in the exchange rate: Appreciation increases the external value of a currency, making imports cheaper and exports dearer, leading to an adverse BOP.
      (vii) Increase debt burden: Developing countries import capital largely in the form of portfolio investment, creating a large debt burden. Hence these countries are required to make large payments to the developed countries.
      (viii) Demonstration effect: People of underdeveloped countries try to imitate the consumption pattern of developed countries regarding luxuries, leading to an increase in imports and hence a deficit.
      (ix) Population pressure: A rapid increase in population in underdeveloped countries increase the demand for consumer goods. Hence exports surplus has fallen resulting in an adverse effect on the BOP.
      (x) Political factors: They are also responsible for making BOP unfavourable. Political turmoil and instability in a number of countries-gulf countries, African countries, Afghanistan etc. have an adverse effect on their BOP.
      How the disequilibrium can be corrected:-
      A number of steps can be taken to solve the problem of deficits in the balance of payments. The main methods of correcting the adverse balance of payments are:
    (i) Depreciation: Under the flexible exchange rate system, changes in the rate of exchange will automatically adjust the balance of payments. Depreciation of the country’s currency will wipe out deficits in the balance of payments. Depreciation of currency means rise in the price of foreign currency or, which is the same thing, fall in the price of domestic currency.
      (ii) Devaluation: A country can devalue its currency to wipe out deficit in the balance of payments. This makes imports expensive to domestic consumers and its exports cheaper in foreign countries. If demand and supply elasticities are fairly high, this will definitely lead to a fall in imports and a rise in exports and thereby an elimination or reduction of balance of payments deficit.
      (iii) Import Control: I reports may be kept in check through fhe adoption of a wide variety of import control measures such as quotas and tariffs. Quotas limit the volume of imports by applying quantitative restrictions. The government may for example, decide that only 90 per cent of last year’s volume of imports can be imported this year. The government may also increase the import duties or tariffs. This will raise the prices of imported goods and reduce imports. As a consequence, balance of payments deficit is reduced.
      (iv) Production of Import Substitutes: Steps may be taken to encourage the production of import substitutes. This will save foreign exchange in the short- run by replacing the use of imports by their import substitutes. If the industries producing import substitutes develop ultimately because of various incentives provided to these industries, they may turn out to be export earners as well.
      Meaning of fixed exchange rate
      A fixed exchange rate is a regime applied by a government or central bank that ties the country's official currency exchange rate to another country's currency or the price of gold. The purpose of a fixed exchange rate system is to keep a currency's value within a narrow band.
      Determination of exchange rate in a free market:-
      Foreign exchange rate is determined by the market forces of demand and supply in foreign exchange market. Equilibrium rate of exchange is established at a point where the quantity demanded and quantity supplied of foreign exchange market, if disequlibrium occurs ,it may lead to a situation of excess demand or excess supply.
      The market mechanism will drive the echange rate back to the equilibrium level. This implies that the free market forces of demand and supply will operate in such a manner that the equilibrium rate of exchange is automatically restored.
      Concepts of-
      •Depreciation:- The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset's value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time.
      •Appreciation:- Appreciation can be used to refer to an increase in any type of asset, such as a stock, bond, currency, or real estate. For example, the term capital appreciation refers to an increase in the value of financial assets such as stocks, which can occur for reasons such as improved financial performance of the company.
      •Devaluation:- Devaluation is the deliberate downward adjustment of the value of a country's money relative to another currency, group of currencies, or currency standard. Countries that have a fixed exchange rate or semi-fixed exchange rate use this monetary policy tool.
      •Revaluation:- A revaluation is a calculated upward adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can include wage rates, the price of gold, or a foreign currency. Revaluation is the opposite of devaluation, which is a downward adjustment of a country's official exchange rate.
      Public Finance
      (i) Fiscal Policy:The expenditure and revenue policy taken by the general government to accomplish the desired goals is known as fiscal policy.
      Instruments of fiscal policy:-
      The tools of fiscal policy are taxes, expenditure, public debt and a nation’s budget. They consist of changes in government revenues or rates of the tax structure so as to encourage or restrict private expenditures on consumption and investment.
      Public expenditures include normal government expenditures, capital expenditures on public works, relief expenditures, subsidies of various types, transfer payments and social security benefits.
      Government expenditures are income-creating while taxes are primarily income-reducing. Management of public debt in most countries has also become an important tool of fiscal policy. It aims at influencing aggregate spending through changes in the holding of liquid assets.
      During inflation, fiscal policy aims at controlling excessive aggregate spending, while during depression it aims at making up the deficiency in effective demand for raising the economy from the depths of depression. The following considerations may be noted in the adoption of proper policy instruments.
      •A Contra cyclical Budgetary Policy:
      The policy of managed budgets implies changing expenditures with constant tax rates or changing tax rates with constant expenditures or a combination of the two. Budget management may be used to tackle depression and inflationary situations. Deliberate attempts are made under this policy to adjust revenues, expenditures and public debt to eliminate unemployment during depression and to achieve price stability in inflation.
      Contra cyclical policy implies unbalanced budgets. An unbalanced budget during depression implies deficit spending. To make it more effective, the government may finance its deficits by borrowing from the banks. During periods of inflation, the policy is to have a budget surplus by curtailing government outlays.
      The government may partly utilize the budget surplus to retire the outstanding government debt. The belief is that a surplus budget has deflationary effect on national income while a deficit budget tends to be expansionary. During depression when we need an increase in the flow of income, deficit budgets are desired. Conversely, in inflation when we need to check the overflow of income, surplus budgets are favoured.
      However, following a contra cyclical budgetary policy is not an easy task. Predicting a recession or an inflationary boom is a difficult job. Adjusting the budget to the fast changing economic conditions is still more difficult especially when budget is a political decision to be taken after a good deal of delay and discussion. Therefore, emphasis has also to be laid on adjustment of individual items of the budget in order to make it more effective as a contra cyclical fiscal policy weapon.
      •Taxation Policy:
      The structure of tax rates has to be varied in the context of conditions prevailing in an economy. Taxes determine the size of disposable income in the hands of general public and therefore, the quantum of inflationary and deflationary gaps. During depression tax policy has to be such as to encourage private consumption and investment; while during inflation, tax policy must curtail consumption and investment.
      During depression, a general reduction in corporate and income taxation has been favoured by economists like Prof. A H. Hansen, M. Kalecki, and R.A. Musgrave on the ground that this leaves higher disposable incomes with people inducing higher consumption while low corporate taxation encourages ‘venture capital’, thereby promoting more investment.
      But there are others who express grave doubts about the supposed stimulating effect of taxation reliefs on investment. It has been argued that even a heavy reduction in taxes does not alter an entrepreneur’s decisions.
      Mr. Kalecki expressed the view that the policy of reducing taxes for increasing consumption and stimulating private investment is not a practical solution of the unemployment problem because income-tax cannot be changed so often. The government will have to evolve a long-term fiscal policy.
      During inflation, new taxes can be levied to wipe off the surplus purchasing power. Caution, however, should be taken not to raise the taxes so high as to stifle new investment and generate a business recession. Expenditure tax and excise duties are anti-inflationary in character. During inflation fiscal authority should aim at levying such taxes as reduce current excessive demand for specific commodities rather than aggregate demand.Redistributive taxation is probably the best measure for raising and stabilising the consumption function. Redistributive taxation implies a progressive tax structure. This implies taxing the high-income groups at higher rates, and the middle and low-income groups at lower rates with a view to raising consumer spending.
      •Public Debt:
      A sound programme of public borrowing and debt repayment is a potent weapon to fight inflation and deflation. Government borrowing can be in the form of borrowing from non-bank financial intermediaries, borrowing from commercial banking system, drawings from the central bank or printing of new money.
      Borrowing from the public through the sale of bonds and securities which curtails consumption and private investment is anti-inflationary in effect. Borrowing from the banking system is effective during depression if banks have got excess cash reserves.
      During war, borrowing becomes necessary when inflationary pressures become strong. In a period of inflation, therefore, public debt has to be managed in such a way as reduces the money supply in the economy and curtails credit. The government will do well to retire debt through a budget surplus.
      During depression, on the opposite, taxes are reduced and public expenditures are increased. Deficits are financed by borrowings from the public, commercial banks or the central bank of the country. The public borrowing of otherwise idle funds will have no adverse effect on consumption or on investment. When budgets are deficit, it is very difficult to retire debts.
      Actually, it pays to accumulate debt during depression and redeem it during a period of expansion. Along with this, the monetary authority (the central bank) must aim at a low bank rate to keep the burden of debt low. Thus, ‘public debt becomes an important tool of anti-cyclical policy.
      •Public Expenditure:
      Public expenditure can be used to stimulate production, income and employment. Government expenditure forms a highly significant part of the total expenditure in the economy. A reduction or expansion in it causes significant variations in the total income. It can be instrumental in adjusting consumption and investment to achieve full employment.
      During inflation, the best policy is to reduce government expenditure in order to control inflation by giving up such schemes as are justified only during deflation. While expenditures are reduced, attempts are made to increase public revenues to generate a budget surplus.
      Though it is true that there is a limit beyond which it may not be possible to reduce government spending (say on account of political, and military considerations), yet the government can vary its expenditure to some extent to reduce inflationary pressures.
      It is during depression that public spending assumes greater importance. A distinction is made between the concepts of public spending during depression, that is, the concepts of pump priming and the ‘compensatory spending’. Pump priming means that a certain volume of public spending will help to revive the economy which will gradually reach satisfactory levels of employment and output. What this volume of spending may be is not specific. The idea is that, when private spending becomes deficient, then a small dose of public spending may prove to be a good starter.
      Compensatory spending, on the other hand, means that public spending is undertaken with the clear view to compensating for the decline in private investment. The idea is that when private investment declines, public expenditure should expand and as long as private investment is below normal, public compensatory spending should go on. These expenditures will have multiplier effects of raising the level of income, output and employment.
      The compensatory public expenditure may take the forms of relief expenditure, subsidies, social insurance payments, public works etc.
      Public Revenue:
      Public revenue’ (or Government revenue) is concerned with the Income of the Government through various sources. The Government collects/earns money through various forms of tax and non-tax revenue, and use this money to meet its administrative and other expenditures. Tax revenue are the ones which are derived by the process of direct and indirect taxation, whereas non-tax revenue are the ones which are derived from various kinds of public undertakings and other forms of miscellaneous receipts.
      Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional, or national. Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare.
      Types of Taxes
      The Tax has been divided into two types such as Direct Taxes and Indirect Taxes.
      (A) Direct Taxes: Direct taxes are those taxes which are paid by the same person on whom it has been imposed. The impact and incidence of tax fall on the same person, because the tax burden cannot be shifted to others. Direct taxes include the following taxes.
      i) Personal Income tax is a tax imposed on the excess income earned by an individual over and above the limit decided by the finance ministry form time to time. It is progressive in nature.
      ii) Corporate Tax is a tax levied on the profits earned by registered companies.
      iii) Capital Gains Tax is a tax imposed on the net profits earned through capital investment in stock market ,Rreal estate, Gold and Jewelry etc.
      iv) Wealth Tax (or) Property Tax is a tax levied upon the property owned by individuals. The property includes Land, Building, shares, Bonds, Fixed Deposits, Gold and Jewelry etc.
      v) Other taxes :These taxes include taxes like Gift tax and Estate duty.
      (B) Indirect Taxes: Indirect taxes are those taxes which are imposed on one group of people, but the ultimate burden will fall on another group of people. The impact of tax and incidence of tax are on different people. In case of Indirect taxes tax burden can be shifted. There are middlemen between the Government and the tax payer.
      The important Indirect Taxes are as follows:
      i) Excise Duty is a tax imposed on the manufacturers as per the value of goods produced but the ultimate burden will fall on the final consumers.
      ii) Customs Duty is a tax imposed on import and export of Goods. Customs duty may be specific or advalorem. Advalorem duty is a tax imposed on the basis the value of goods imported while specific duty is imposed as per the number of units imported.
      iii) Value Added Tax (VAT) is a part of a sales tax imposed by the state government.
      iv) Sales Tax revenue goes to the state government when sale or purchase takes place within the state. Sales tax revenue on interstate transactions goes to the central government.
      v) Service Tax is tax imposed on services provided. The impact is on the service provider and the incidence of tax false on the customers. Service tax is the fastest growing tax in India.
      vi) Octroi is a tax levied on transfer of goods from one state to another or from one region to another.
      Public Expenditure:
      Expenses incurred by the public authorities—central, state and local self- governments—are called public expenditure. Such expenditures are made for the maintenance of the governments as well as for the benefit of the society as whole.
      There was a misbelief in the academic circles in the nineteenth century that public expenditures were wasteful. Public expen¬ditures must be kept low as far as practicable. This conservative thinking died down in the twentieth century, especially after the Second World War.
      Importance of Public Expenditure:-
      i. Economic Development:
      Without government support and backing, a poor country cannot make huge investments to bring about a favourable change in the economic base of a country. That is why massive investments are made by the government in the development of basic and key industries, agriculture, consumable goods, etc.
      Public expenditure has the expansionary effect on the growth of national income, employment opportunities, etc. Economic development also requires development of economic infrastructures. A developing country like India must undertake various projects, like road-bridge-dam construction, power plants, transport and communications, etc.
      These social overhead capital or economic infrastructures are of crucial importance for accelerating the pace of economic development. It is to be remembered here that private investors are incapable of making such massive investments on the various infrastructural projects. It is imperative that the government undertakes such projects. Greater the public expenditure, higher is the level of economic development.
      ii. Fiscal Policy Instrument:
      Public expenditure is considered as an important tool of fiscal policy. Public expenditure creates and increases the scope of employment opportunities during depression. Thus, public expenditure can prevent periodic cyclical fluctuations. During depression, it is recommended that there should be more and more governmental expenditures on the ground that it creates jobs and incomes.
      On the contrary, a cut-back in government’s expenditure is necessary when the economy faces the problem of inflation. That is why it is said that by manipulating public expenditure, cyclical fluctuations can be lessened greatly. In other words, variation of public expenditure is a part of the anti- cyclical fiscal policy.
      It is to be kept in mind that it is not just the amount of public expenditure that is incurred which is of importance to the economy. What is equally, if not more, important is the purpose of such expenditure or the quality of expenditure. The quality of expenditure determines the adequacy and effectiveness of such expenditure. Excessive expenditures may cause inflation.
      Moreover, if the government has to impose taxes at high rates there will be loss of incentives. So, it is necessary to avoid unnecessary expenditure as far as practicable, otherwise benefits of better economic development may not be reaped. As a fiscal policy instrument, it may be counter-productive.
      iii. Redistribution of Income:
      Public expenditure is used as a powerful fiscal instrument to bring about an equitable distribution of income and wealth. There are good much public expenditure that benefit poor income groups. By providing subsidies, free education and health care facilities to the poor people, government can improve the economic position of these people.
      iv. Balanced Regional Growth:
      Public expenditure can correct regional disparities. By diverting resources in backward regions, government can bring about all-round development there so as to compete with the advanced regions of the country.
      This is what is required to maintain integration and unity among people of all the regions. Unbalanced regional growth encourages disintegrating forces to rise. Public expenditure is an antidote for these reactionary elements.
      Thus, public expenditure has both economic and social objectives. It is necessary to ensure that the government’s expenditure is made solely in the public interest and does not serve any individual’s interest or that of any political party or a group of persons.
      Public Debt:
      Modern governments need to borrow from different sources when current revenue falls short of public expenditures. Thus, public debt refers to loans incurred by the government to finance its activities when other sources of public income fail to meet the requirements. In this wider sense, the proceeds of such public borrowing constitute public income.
      However, since debt has to be repaid along with interest from whom it is borrowed, it does not constitute income. Rather, it constitutes public expenditure. Public debt is incurred when the government floats loans and borrows either internally or externally from banks, individuals or countries or international loan-giving institutions.
      Redemption of Public Debt:
      Redeemable public debt refers to that debt which the government promises to pay off at some future date. After the maturity period, the government pays the amount to the lenders. Thus, redeemable loans are called terminable loans
      Deficit Financing:
      Deficit financing refers to a situation in the government budget where the government expenditure exceeds government revenue and the difference in made up by borrowings or minting new funds.
      Government Budget:
      A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year.
      Types of Government Budget
      Union budget of India is the annual financial statement of the central government for the upcoming financial year—from April 1 to March 31—which is tabled before both houses of the parliament by the government. In other words, the budget of India is the statement of revenue and expenditure of the government.
      State Budget of the estimated receipts and expenditure of the State for a financial year. This estimated statement of receipt and expenditure for a financial year named in the. Constitution as the “Annual Financial Statement” is commonly known as “Budget”.
      Budget has two parts:
      (a) Receipts; and (b) Expenditure.
      Budget may be of two types:
      (a) Balanced Budget (b) Unbalanced Budget
      Let us discuss them in detail:
      (a) Balanced Budget: If the government revenue is just equal to the government expenditure made by the general government, then it is known as balanced budget.
      (b) Unbalanced Budget: If the government expenditure is either more or less than a government receipts, the budget is known as Unbalanced budget.
      It may be of two types:
      (i) Surplus budget (ii) Deficit budget
      Let us discuss them in detail:
      (i) Surplus Budget: If the revenue received by the general government is more in comparison to expenditure, it is known as surplus budget.
      In other words, surplus budget implies a situation where government income is in excess of government expenditure.
      (ii) Deficit Budget: If the expenditure made by the general government is more than the revenue received, then it is known as deficit budget.
      In other words, in deficit budget, government expenditure is in excess of government income.
      Components Of Government Budget, Budget Receipts Its Types
      1. Components of a government budget: Government budget, comprises of two parts—
      (a) Revenue Budget and (b) Capital Budget.
      (a) Revenue Budget: Revenue Budget contains both types of the revenue receipts of the government, i.e., Tax revenue and Non tax revenue ; and the Revenue expenditure.
      (i) Revenue Receipts: These are the receipts that neither create any liability nor reduction in assets of the government. It includes tax revenues like income tax, corporation tax and non-tax revenue like fines and penalties, special assessment, escheat etc.
      (ii) Revenue Expenditure: An expenditure that neither creates any assets nor cause reduction of liability is called revenue expenditure.
      (b) Capital Budget: Capital budget contains capital receipts and capital expenditure of the government.
      (i) Capital Receipts: Government receipts that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts. Capital receipts include items, which are non-repetitive and non-routine in nature.
      (ii) Capital Expenditure: This expenditure of the government either creates physical or financial assets or reduction of its liability. Acquisition of assets like land, machinery, equipment, its loans and advances to state governments etc. are its examples.
      2. Budget receipts (government receipt): Budget receipt refers to the estimated receipts of the government from various sources during a fiscal year. It shows the sources from where the government intends to get money to finance the expenditure. Budget receipts are of two types:
      (a) Revenue receipts
      (i) Meaning:
      • Government receipts, which
      -> Neither create any liabilities for the government; and
      -> Nor cause any reduction in assets of the government, are called revenue receipts.
      In revenue receipts both the conditions should be satisfied.
      • Revenue receipts include items which are Repetitive and routine in nature.
      (ii) Revenue receipts are further classified into:
      • Tax Revenue:
      -> Tax revenue refers to receipts from all kinds of taxes such as income tax, corporate tax, excise duty etc.
      -> A tax is a legally compulsory payment imposed by the government on income and profit of persons and companies without reference to any benefit. Taxes are of two types: Direct taxes and Indirect taxes.
      • Non-Tax Revenue:
      -> Non-tax revenue refers to government revenue from all sources other than taxes.
      -> These are incomes, which the government gets by way of sale of goods and services rendered by different government departments.
      -> Components of Non-Tax Revenue:
      Commercial Revenue (Profit and interest):
      It is the revenue received by the government by selling the goods and services produced by the government agencies.
      For example, profit of public sector undertakings like Railways, BHEL, LIC etc.
      Government gives loan to State Government, union territories, private enterprises and to general public and earns interest receipts from these loans.
      It also includes interest and dividends on investments made by the government.
      Administrative Revenue: The revenue that arises on account of the administrative function of the government. This includes:
      Fee: Fee refers to a payment made to the government for the services that it renders to the citizens. Such services are generally in public interest and fees are paid by those, who receive such services. For example, passport fees, court fees, school fees in government schools.
      License Fee: License fee is a payment to grant a permission by a government authority. For example, registration fee for an automobile.
      Fines and penalties for an infringement of a law, i.e., they are imposed on law breakers.
      Special Assessment: Sometimes government undertakes developmental activities by which value of nearby property appreciates, which leads to increase in wealth. So, it is the payment made by owners of those properties whose value has appreciated. For example, if value of a property near a metro station has increased, then a part of developmental expenditure made by government is recovered from owners of such property. This is the value of special assessment.
      Forfeitures are in the form of penalties imposed by courts that a person needs to pay in the court of law for failing to comply with court orders.
      Escheat refers to the claim of the government on the property of a person who dies without having any legal heir or without leaving a will.
      External grants: Government receives financial help in the form of grants, gifts from foreign governments and international organisations (IMF, World Bank). Such grants and gifts are received during national crisis such as earthquakes, flood, war etc.
      (b) Capital receipts:
      (i) Meaning:
      • Government receipts, that either creates liabilities (of payment of loan) or reduce assets (on disinvestment) are called capital receipts.
      In capital receipts any one of the conditions must be satisfied.
      • Capital receipts include items which are non-repetitive and non-routine in nature
      (ii) Components:
      • Borrowing (Domestic and External): Borrowings are made to meet the financial requirement of the country. A government may borrow money:
      -> Domestically: General Public (By issuing government bonds in the open market). Reserve Bank of India.
      -> Externally: Rest of the world (foreign government and international institutions)
      • Recovery of Loans and Advances: Loans offered to others are assets of the government. It includes recovery of loans granted by the central government to state and union territory governments. It is a capital receipt because it reduces financial assets of the government. For example, The Government of India may give Rs. 1000 crore as a loan to The Government of Delhi. Here the value of asset is Rs. 1000 crore. When The Government of Delhi repaid Rs. 100 crore, the value of The Government of India assets reduces to Rs. 900 crore. Since, recovery of loan reduces the value of assets, it is termed as a capital receipts.
      • Disinvestment: A government raises funds from disinvestment also. Disinvestment means selling whole or a part of the shares (i.e., equity) of selected public sector enterprises held by government. As a result, government assets are reduced.
      Concept of deficit budget:
      A budget deficit occurs when expenses exceed revenue and can indicate the financial health of a country. The term is commonly used to refer to government spending rather than businesses or individuals.
      Budget deficits affect the national debt, the sum of annual budget deficits, and the cumulative total a country owes to creditors.
      Types of Deficit
      There are 3 Types of Deficits, namely -
      1.Revenue Deficit
      2.Fiscal Deficit
      3.Primary Deficit
      What is Revenue Deficit?
      In simple words, a Revenue Deficit can be defined as the excess of Revenue outflow over Revenue receipts.
      In other words, when the government tends to spend more on Revenue expenditure than earn from its Revenue receipts, it is subjected to Revenue Deficit.
      It can also be expressed as – Revenue Deficit = Revenue Expenses – Revenue Receipts
      Such a Deficit also signifies that the Government's earnings are not enough to keep the operations of its departments and other services actively running. Furthermore, such a Deficit leads to more borrowing. Since loans have to be paid with interest, it further increases the bulk of Revenue expenditure. In turn, it leads to a greater Revenue Deficit and implies a repayment burden for the future.
      Implications of Revenue Deficit
      •It indicates the government’s inability to meet its regular and recurring expenditure in the proposed budget.
      •It implies that the government is using up the savings of other sectors of the economy to finance its expenditure.
      •It means that the government has to make up for this Deficit from capital receipts, through disinvestments and borrowings. This leads to an increase in liability and a reduction in assets.
      •The use of capital receipts for meeting the expenditure leads to inflation in the economy. High borrowings increase the future burden.
      •A high Revenue Deficit is a warning signal that the government is unable to curtail its expenditure or increase its Revenue.
      According to the far-sighted approach, Revenue receipts should always be more than Revenue expenditures so that surplus can be used for development projects. However, the Indian Budget has been facing a Revenue Deficit for the past several years.
      What is Fiscal Deficit?
      Typically, the Fiscal Deficit meaning can be described as the situation, wherein, a government's total expenditure exceeds its total receipts, minus the borrowings within a financial year. It serves as a measure of the amount of money that the government needs to borrow to meet its expenses, especially at a time when its resources are insufficient. It can be expressed as –
      Gross Fiscal Deficit = Total Expenditure – (Revenue Earning + Non-Debt Creating Receipts)
      A higher Fiscal Deficit indicates that the government has to borrow a substantial amount of money to meet its expenses. Resultantly, such Deficits often lead to debt traps and create inflationary pressure. Thus, from the financial point of view,
      Gross Fiscal Deficit = Net Borrowing at Home + Total Borrowing from RBI +Total Borrowing from Abroad
      However, depending on the use, the Fiscal Deficit can prove to be beneficial for an economy if it leads to the creation of new capital assets and sustainable sources of revenue. Contrarily, it may have an unfavourable impact on the economy if it is used only to tide over the revenue Deficit.
      Note: The economy can go through a Fiscal Deficit even when there is no revenue Deficit. Usually, when the revenue budget is well balanced, but there is a Deficit in the capital budget, it leads to a Fiscal Deficit. Similarly, a Fiscal Deficit can occur when there is an excess of revenue budget, but it is still less than the capital budget Deficit.
      Implications of Fiscal Deficit
      •Debt Trap: Fiscal Deficit indicates the total borrowing needs of the government. Borrowings involve not only the principal amount but also interest payments. The revenue expenditure rises as these payments increase, leading to further revenue Deficit. This creates a vicious circle of Fiscal and revenue Deficits, where the government has to take more loans to repay the earlier ones, leading the country into a debt trap.
      •Inflation: When the government borrows from the Reserve Bank of India (RBI) to meet its Fiscal Deficit, RBI has to print new currency to meet the requirements of the Deficit. This increases the money supply in the economy but creates inflationary pressure.
      •Foreign Dependence: It increases the government’s dependence on other countries if it resorts to borrowing from outside.
      •Hampers the Future Growth: Borrowings directly increase the financial burden for future generations, creating an adverse effect on the future growth and development of the country.
      What is a Primary Deficit?
      It can be explained as the fiscal Deficit of a given year without the payment of interest on previous borrowings.
      In simple words, it can be said that fiscal Deficit tends to indicate the borrowing requirement of the government inclusive of loan interest payment. On the other hand, the primary Deficit indicates the borrowing requirement that excludes loan interest payment.
      Primary Deficit helps the government to figure out the amount of money they need to borrow to meet all expenses other than loan interest payment. Notably, when this type of government Deficit is zero, it indicates that the government just needs to borrow an amount that would suffice to meet the interest payment.
      It can be expressed as – Primary Deficit = Fiscal Deficit – Loan Interest Payments
      Implications of Primary Deficit
      •It indicates how much of the government borrowings are going to meet expenses other than the interest payments.
      •The difference between primary Deficit and fiscal Deficit indicates how much of the interest payments on the borrowings have been made in the past. A low or zero primary Deficit indicates that interest payment on earlier loans has forced the government to borrow.

      LESSON PLAN:-08

      National Income
      National income means the value of goods and services produced by a country during a financial year. Thus, it is the net result of all economic activities of any country during a period of one year and is valued in terms of money.
      (i) Circular flow of Income
      Let us make in-depth study of the circular flow of income in two sector, three sector and four sector economy.
      Circular Income Flow in a Two Sector Economy:
      Real flows of resources, goods and services have been shown in Fig. 6.1. In the upper loop of this figure, the resources such as land, capital and entrepreneurial ability flow from households to business firms as indicated by the arrow mark.
      In opposite direction to this, money flows from business firms to the households as factor payments such as wages, rent, interest and profits.
      In other words, the flow of money income will not always continue at a constant level. In year of depression, the circular flow of money income will contract, i.e., will become lesser in volume, and in years of prosperity it will expand, i.e., will become greater in volume.
      This is so because the flow of money is a measure of national income and will, therefore, change with changes in the national income. In year of depres¬sion, when national income is low, the volume of the flow of money will be small and in years of prosperity when the level of national income is quite high, the flow of money will be large.
      In order to make our analysis simple and to explain the central issues involved, we take many assumptions. In the first place, we assume that neither the households save from their incomes, nor the firms save from their profits. We further assume that the government does not play any part in the national economy.
      In other words, the government does not receive any money from the people by way of taxes, nor does the government spend any money on the goods and services produced by the firms or on the resources and services supplied by the households. Thirdly, we assume that the economy neither imports goods and services, nor exports anything. In other words, in our above analysis we have not taken into account the role of foreign trade. In fact we have explained above the flow of money that occurs in the functioning of a closed economy with no savings and no role of government.
      Circular Income Flow with Saving and Investment:
      In our above analysis of the circular flow of income we have assumed that all income which the households receive, they spend it on consumer goods and services. A result, circular flow of money speeding and income remains undiminished. We will now explain if households save a part of their income, how their savings will affect money flows in the economy.
      When households save, their expenditure on goods and services will decline to that extent and as a result money flow to the busi¬ness firms will contract. With reduced money receipts, firms will hire fewer workers (or lay off some workers) or reduce the factor payments they make to the suppliers of factors such as workers.
      This will lead to the fall in total incomes of the households. Thus, savings reduce the flow of money ex¬penditure to the business firms and will cause a fall in economy’s total income. Economists therefore call savings a leakage from the money expenditure flow.
      But savings by households need not lead to reduced aggregate spending and income if they find their way back into flow of expenditure. In free market economies there exists a set of institutions such as banks, insurance companies, financial houses, stock markets where households deposit their savings. All these institutions together are called financial institutions or financial market. We as¬sume that all the savings of households come in the financial market. We further assume that there are no inter-households borrowings.
      It is business firms who borrow from the financial market for investment in capital goods such as machines, factories, tools and instruments, trucks. Firms spend on investment in order to expand their productive capacity in future.
      Thus, through investment expenditure by borrowing the savings of the households deposited in financial market, are again brought into the expenditure stream and as a result total flow of spending does not decrease.
      Condition for the Constancy of Circular Income Flow:
      Now the question arises what is the condition for the flow of money income to continue at a steady level so that it makes possible the production and subsequent flow of a given volume of goods and services at constant prices. To explain this we have to introduce saving and investment in the analysis of circular flow of income.
      Saving a part of income means it is not spent on consumer goods and services. In other words, saving is withdrawal of some money from the income flow. On the other hand, investment means some money is spent on buying new capital goods to expand production capacity. In other words, investment is injection of some money in circular flow of income.
      For the circular flow of income to continue unabated, the withdrawal of money from the income stream by way of saving must equal injection of money by way of investment expenditure. Therefore, planned savings must be equal to planned investment if the constant money income flow in an economy is to be obtained.
      Now, what will happen if planned investment expenditure falls short of the planned savings? As a result of fall in planned investment expenditure, income, output and employment will fall and therefore the flow of money will contract.
      If the equality between planned savings and planned investment is disturbed by increase in savings, then the immediate effect will be that the stocks of goods lying in the shelves of the shops will increase (as some of the goods will not be sold due to the fall in consumption i.e., increase in savings). Owing to the deficiency of demand for goods and the accumulation of stocks, retailers will place small orders with the wholesalers. Consequently, smaller amount of goods will be produced and therefore fewer capital goods like ma¬chinery will be indeed with the result that fixed investment will tend to fall.
      Thus the ultimate effect of either the fall in planned investment or the increase in planned savings is the same, namely, the fall in income, output, employment and prices with the result that the flow of money will contract.
      On the other hand, if the equality between planned savings and planned investment is disturbed by the increase in investment demand, the result will be increase in income, output and employment. Consequently, the flow of money income will expand.
      It is thus clear from the above analysis that the flow of money income will continue at a constant level only when the condition of equality between planned saving and investment is satisfied. It was believed by classical economists that financial market provides a mechanism which coordinates the savings of households and the investment expenditure, by the firms. Rate of interest, which is the price for the use of savings, is determined by saving and investment.
      If savings exceed investment expenditure, rate of interest falls so that, at a lower rate of interest, investment increases and both become equal. On the contrary, if investment expenditure is greater than savings, rate of interest will rise so that at a higher rate of interest savings increase and become equal to planned investment expenditure.
      However, an eminent British economist J.M. Keynes refuted the above argument that changes in rate of interest will cause saving and investment to become equal. According to him, since in a free market capitalist economy, investment is made by business enterprises and savings are mostly done by households and for different reasons, there is no guarantee that planned investment will be equal to planned savings and thus fluctuations in income, output and employment are inevitable.
      As a result, circular flow of income does not continue at a steady level in a free-enterprise capital¬ist economy unless certain corrective and preventive steps are taken by the government to maintain stability in the economy.
      Saving-Investment Identity in National Income Accounts in a Two Sector Economy:
      Despite the fact that people who save are different from the business firms which primarily invest, in national income accounts savings are identical or always equal to investment in a simple two sector economy having no roles of Government and foreign trade. This is a basic identity in national income accounts which needs to be carefully understood.
      Of course, in our above analysis of circular flow of income, we explained that planned investment by business firms can differ from savings by household. But in that analysis we referred to planned or intended investment and savings which often differ and affect the flow of national income.
      However, in national income accounts we are concerned with actual saving and actual investment. It is these actual or realised saving and invest¬ment that are identical in national income accounts. We can prove their identity in the following way.
      In a simple economy which has neither government, nor foreign trade, the value of output produced which we denote by Y is equal to the value of output sold. Since the value of output sold in a simple two sector economy is equal to the sum of consumption expenditure and investment expenditure we have y= C+ I where Y = Value of aggregate output, C = Consumption expenditure and I = Investment expenditure.
      A pertinent question which arises here is what happens to the unsold output. The unsold output leads to the increase in the inventories of goods and in national income accounting increase in inven¬tories of goods is treated as a part of actual investment. This may be considered as the firms selling the goods to themselves to add to their inventories. Thus, gross national product (GNP) produced is used either for consumption or for investment.
      Now, look at the gross national product or income in the simple economy from the viewpoint of its allocation between consumption and saving. Since national income (which is equal to GNP) can be either consumed or saved,. We have Y ? C+ S
      From the identities (i) and (ii) we get
      C+ I ? Y ? C+ S
      The left hand side of the identity (iii), namely C + I = Y shows the components of aggregate demand (that is, aggregate expenditure on goods and services produced) and the right-hand side of the identity (iii) namely Y = C + S shows the allocation of national income to either consumption or saving. Thus, the identity (iii) shows that the value of output produced or sold is equal to the total income received. It is income received that is spent on goods and services produced.
      Now subtracting the consumption (C) from both sides of the identity (iii) we have
      I ? Y ? S
      or I = S
      Thus, in our two sector simple economy with neither government, nor foreign trade, investment is identically equal to saving.
      Circular Income Flow in a Three Sector Economy with Government:
      In our above analysis of money flow, we have ignored the existence of government for the sake of making our circular flow model simple. This is quite unrealistic because government absorbs a good part of the incomes earned by households. Government affects the economy in a number of ways.
      Here we will concentrate on its taxing, spending and borrowing roles. Government purchases goods and services just as households and firms do. Government expenditure takes many forms including spending on capital goods and infrastructure (highways, power, communication), on defence goods, and on education and public health and so on. These add to the money flows
      Another method of financing Government expenditure is borrowing from the financial market. This can be represented by the money flow from the financial market to the Government and is labelled as Government borrowing (To avoid confusion we have not drawn this money flow from financial market to the Government). Government borrowing increases the demand for credit which causes rate of interest to rise.
      The government borrowing through its effect on the rate of interest affects the behaviour of firms and households. Business firms consider the interest rate as cost of borrowing and the rise in the interest rate as a result of borrowing by the Government lowers private investment. However, households who view the rate of interest as return on savings feel encouraged to save more.
      It follows from above that the inclusion of the Government sector significantly affects the overall economic situation. Total expenditure flow in the economy is now the sum of consumption expendi¬ture (denoted by C), investment expenditure (I) and Government expenditure (denoted by G). Thus
      Total expenditure (E) = C + I + G …..(i)
      Total income (K) received is allocated to consumption (C), savings (S) and taxes (T). Thus
      Y = C + S + T … (ii)
      Since expenditure) made must be equal to the income received (Y), from equations (i) and (ii) above we have
      C + I + G = C + S + T … (iii)
      Since C occurs on both sides of the equation (iii) and will therefore be cancelled out, we have
      I + G = S + T …(iv)
      By rearranging we obtain
      G – T = S – I … (v)
      Equation (v) is very significant as it depicts what would be the consequences if government budget is not balanced, that is, if Government expenditure (G) is greater than the tax revenue (7), that is, G >T, the government will have a deficit budget. To finance the deficit budget, the Government will borrow from the financial market.
      For this purpose, then private investment by business firms must be less than the savings of the households. Thus Government borrowing reduces private investment in the economy. In other words, Government borrowing crowds out private investment.
      Money Income Flows in the Four Sector Open Economy: Adding Foreign Sector:
      We now turn to explain the money flows that are generated in an open economy, that is, economy which have trade relations with foreign countries. Thus, the inclusion of the foreign sector will reveal to us the interaction of the domestic economy with foreign countries. Foreigners interact with the domestic firms and households through exports and imports of goods and services as well as through borrowing and lending operations through financial market. Goods and services produced within the domestic territory which are sold to the foreigners are called exports.
      On the other hand, purchases of foreign-made goods and services by domestic households are called imports. Figure 6.4 illustrates additional money flows that occur in the open economy when exports and imports also exist in the economy. In our analysis, we assume it is only the business firms of the domestic economy that interact with foreign countries and therefore export and import goods and services.
      A flow of money spending on imports have been shown to be occurring from the domestic business firms to the foreign countries (i.e., rest of the world). On the contrary, flow of money expenditure on exports of a domestic economy has been shown to be taking place from foreign countries to the business firms of the domestic economy.
      If exports are equal to the imports, then there exists a balance of trade. Generally, exports and imports are not equal to each other. If value of exports exceeds the value of imports, trade surplus occurs. On the other hand if value of imports exceeds value of exports of a country, trade deficit occurs.
      In the open economy there is interaction between countries not only through exports and imports of goods and services but also through borrowing and lending funds or what is also called financial market. These days financial markets around the world have become well integrated.
      When there is a trade surplus in the economy, that is, when exports (X) exceed imports (M), net capital inflow will take place. By net capital inflow we mean foreigners will borrow from domestic savers to finance their purchases of domestic exports. In this way as a result of net capital inflow domestic savers will lend to foreigners, that is, acquire foreign financial assets.
      On the contrary, in case of import surplus, that is, when imports are greater than exports, trade deficit will occur. Therefore, in case of trade deficit, domestic consumer households and business firms will borrow from abroad to finance their excess of imports over exports. As a result, foreigners will acquire domestic financial assets.
      From the circular flows that occur in the open economy the national income must be measured by aggregate expenditure that includes net exports, that is, X-M where X represents exports and M represents imports. Imports must be subtracted from the total expenditure on foreign produced goods and services to get the value of net exports. Thus, in the open economy
      National Income = C + I + G + NX
      where NX represents net exports, X-M.
      Since national income can be either consumed, saved or paid as taxes to the Government we have
      C + I + G + NX = C + S + T
      Concepts and definition of-
      GNP:- Gross National Product (GNP), total market value of the final goods and services produced by a nation's economy during a specific period of time (usually a year), computed before allowance is made for the depreciation or consumption of capital used in the process of production.
      GDP:- Gross domestic product (GDP) is the standard measure of the value added created through the production of goods and services in a country during a certain period. As such, it also measures the income earned from that production, or the total amount spent on final goods and services (less imports).
      NNP:- Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period.It is the equivalent of gross national product (GNP), the total value of a nation's annual output, minus the amount of GNP required to purchase new goods to maintain existing stock, otherwise known as depreciation.
      Private income:- Private income is the income generated by any private individual or a household from engaging in any occupational activities or any type of income that is not received as salary or commission
      Personal income:- Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.
      Personal disposable income:- Disposable income or disposable personal income is an economic term for the money that is available for household consumption, savings, and spending after accounting for income tax. It is an important indicator that is used by economists in determining the demand in an economy.
      National Disposable Income:- National Disposable Income is the sum of the disposable incomes of all resident institutional units. Gross National Disposable Income measures the income available to the nation for final consumption and gross saving.
      Per capita income:- The per capita income of a geographical location (say, a country, state, city, or others) measures the amount of money earned by every person in that area. It determines the average income of a person in a country, a state, or a specific region.
      Relationship between the income concepts:
      Disposable Income consists of personal outlays and personal saving. Disposable Income = Personal Income – Personal Taxes = Personal consumption + Personal saving. The concept of Disposable Income is especially useful in estimating the likely demand for goods and services for personal use by individuals.
      National Income Aggregates
      National Income is the aggregate value of all goods and services produced by firms in a given financial year. It can be stated that when the aggregate revenue generated by the firms is paid out to factors of production, it equals aggregate income or National Income. There are different variants or aggregates of National Income and each of the aggregates has a specific meaning, use, and method of measurement. These aggregates are as follows:
      1.Gross Domestic Product at Market Price (GDPMP)
      2.Gross Domestic Product at Factor Cost (GDPFC)
      3.Net Domestic Product at Market Price (NDPMP)
      4.Net Domestic Product at Factor Cost (NDPFC)
      5.Gross National Product at Market Price (GNPMP)
      6.Gross National Product at Factor Cost (GNPFC)
      7.Net National Product at Market Price (NNPMP)
      8.Net National Product at Factor Cost (NNPFC)
      Basic Aggregates of National Income
      A number of goods and services are produced in a year by different production units within an economy. It is not possible to add those goods and services in terms of their quantity; therefore, these are added in terms of money. There are eight aggregates in National Income for measuring the value of goods and services in terms of money. These are as follows:
      1. Gross Domestic Product at Market Price (GDPMP)
      GDPMP refers to the gross market value of all the final goods and services produced during a year within the domestic territory of a country.
      Gross in GDPMP means that the total value of final goods and services includes depreciation, i.e., no provision has been made for it.
      Domestic in GDPMP means that the final goods and services produced are located within the domestic boundaries of the country.
      Product in GDPMP indicates that only final goods and services are included.
      Market Price in GDPMP means that the amount of indirect taxes paid is included in GDP; however, the subsidies are excluded from it.
      The rest of the aggregates are determined by making some adjustments in GDPMP.
      2. Gross Domestic Product at Factor Cost (GDPFC)
      GDPFC refers to the gross money value of all the final goods and services produced during a year within the domestic territory of a country. It can be determined as:
      GDPFC = GDPMP – Net Indirect Taxes
      3. Net Domestic Product at Market Price (NDPMP)
      NDPMP refers to the net market value of all the final goods and services produced during a year within the domestic territory of a country. It can be determined as:
      NDPMP = GDPMP – Depreciation
      4. Net Domestic Product at Factor Cost (NDPFC)
      NDPFC refers to the net money value of all the final goods and services produced during a year within the domestic territory of a country. It can be determined as:
      NDPFC = GDPMP – Net Indirect Taxes – Depreciation
      NDPFC is also known as Domestic Factor Income or Domestic Income.
      Relationship between the four Domestic Aggregates (GDPMP GDPFC NDPMP and NDPFC)
      Domestic in each of these aggregates states that the contribution of only those producers whether they are resident or non-resident will be included who are producing within the domestic territory of the country.
      5. Gross National Product at Market Price (GNPMP)
      GNPMP refers to the gross market value of all the final goods and services produced during a year by the normal residents of a country. It can be determined as:
      GNPMP = GDPMP + Net Factor Income from Abroad
      GNPMP of a country can be less than its GDPMP if NFIA is negative. However, it can be more than GDPMP if NFIA is positive.
      6. Gross National Product at Factor Cost (GNPFC)
      GNPFC refers to the gross money value of all the final goods and services produced during a year by the normal residents of a country. It can be determined as:
      GNPFC = GNPMP – Net Indirect Taxes
      7. Net National Product at Market Price (NNPMP)
      NNPMP refers to the net market value of all the final goods and services produced during a year by the normal residents of a country. It can be determined as:
      NNPMP = GNPMP – Depreciation
      8. Net National Product at Factor Cost (NNPFC)
      NNPFC refers to the net money value of all the final goods and services produced during a year by the normal residents of a country. It can be determined as:
      NNPFC = GNPMP – Net Indirect Taxes – Depreciation
      NNPFC is also known as National Income.
      Relationship between the four Domestic Aggregates (GNPMP GNPFC NNPMP and NNPFC)
      National in each of these aggregates states that the contribution of only those producers who are normal residents of a country will be included. It does not matter if the production is being held outside the domestic territory of the country.
      Steps to Calculate Practicals of Basic Aggregates of National Income
      There are eight basic aggregates of National Income among which four are of Domestic
      Concept (GDPMP GDPFC NDPMP and NDPFC) and four are of National
      Concept (GNPMP GNPFC NNPMP and NNPFC). To determine the National Income of a country, it is required to first calculate one of the basic aggregates of national income out of the rest of the seven. To better understand, let us take an example where we have to determine NDPMP from GNPFC.
      Step 1:
      Prepare an equation by placing the aggregate to be determined on the left side of the equal-to sign and the aggregate given on the right side.
      For example, NDPMP = GNPFC ± Adjustments.
      Step 2:
      Identify the Adjustments required and then calculate the answer.
      In the above example, as we have to determine NDPMP from GNPFC, there are three adjustments required.
      1.G in GNPFC refers to Gross. It means that it includes Depreciation. Therefore, depreciation will be subtracted from GNPFC to arrive NNPFC
      2.N in GNPFC refers to National. It means that it includes Net Factor Income from Abroad (NFIA). Therefore, NFIA will be subtracted from NNPFC to arrive NDPFC
      3.FC in GNPFC refers to Factor Cost. It means that it does not include Net Indirect Taxes (NIT). Therefore, NIT will be added to NDPFC to arrive NDPMP
      Hence, the final equation to determine NDPMP will become NDPMP = GNPFC – Depreciation – NFIA + NIT.
      Example 5:
      The Net Domestic Product at Factor Cost of an economy is ?5,000 crores. Its capital stock is worth ?3,000 crores and it depreciates @20% per annum. The Subsidies, Indirect Taxes, Factor Income to the rest of the world, and Factor Income from the rest of the world are ?70 crores, ?150 crores, ?400 crores, and ?400 crores respectively. Find out the Gross National Product at Market Price.
      Gross National Product at Market Price = Net Domestic Product at FC + Depreciation + Net Indirect Taxes (Indirect Taxes – Subsidies) + Net Factor Income from Abroad (Factor Income from the rest of the world – Factor Income to the rest of the world)
      Nominal GDP Definition
      Nominal gross domestic product is GDP that is evaluated at the present market prices. GDP is the financial equivalent of all the complete products and services generated within a nation in a definite time.
      The nominal varies from the real and incorporates changes in cost prices due to an increase in the complete cost price. Generally, economists utilise a gross domestic factor to change the nominal GDP to the real GDP, which is also known as current dollar GDP or chained dollar GDP.
      Real GDP Definition
      Real GDP is an inflation-adjusted calculation that analyses the rate of all commodities and services manufactured in a country for a fixed year. It is expressed in foundation year prices and referred to as a fixed cost price.
      It is also known as inflation-corrected GDP or constant price GDP. The real GDP is regarded as a reliable indicator of a nation’s economic growth as it solely considers production and is free from currency fluctuations.
      GDP as an indicator of Economic welfare:- GDP estimates both the economy's total income and expenditure on goods and services, one may have a question is GDP a good measure of economic welfare or not. Well, GDP cannot be considered as a perfect measure of economic well-being.
      Precautions and difficulties of measuring National Income for each method:-
      Precautions of measuring national income
      A. Value Added Method
      1.Intermediate goods are not to be included in the national income because such goods are already included in the value of final goods.
      2.Sale and purchase of second-hand goods are not included because they were included in the year in which they were produced and they do not add to the current flow of goods and services.
      3.Production of services for self-consumption is not included because these services are produced and consumed at home and never enter the market place that is why they are called a non-market transaction.
      4.Production of goods for self-consumption will be included as they contribute to the current output of goods and services.
      5.The imputed value of owner-occupied houses should be included like rent is to be included in the calculation of national income.
      6.Change in the stock of goods will be included because it is a part of capital formation.
      B. Income Method
      1.Transfer income like scholarships, donations, old-age pensions, charity, etc. are not to be included in the national income because such receipts are not connected with any productive activity and there is no value addition in the economy.
      2.Income for sale of second-hand goods is not included in national income because they are already counted in the original sale. But brokerage or commission will be included.
      3.Income from the sale of shares and debentures will not be included because such transactions do not contribute to the current flow of goods and services. These assets are just paper claims, involving a change of titles only.
      4.Windfall gains like income from lotteries, horse race, etc. are not included because there is no productive activity with them.
      5.The imputed value of services provided by owners of production units will be included.
      6.Change in the stock of goods will be included because it is a part of capital formation.
      C. Expenditure Method
      1.Expenditure on intermediate goods will not be included in national income because it is already included in the value of final expenditure.
      2.Transfer payments are not included because they are not connected with any productive activity and there is no value addition.
      3.The purchase of any second goods will not be included as such expenditure has already been included when they were originally purchased.
      4.Purchase of final assets like shares, debentures, bonds, etc. will not be included as such transactions do not contribute to the current flow of goods and services.
      5.Expenditure on own account production like self-consumption, rent, etc. will not be included in national income as these are a part of productive activity.
      The measurement of national income in any country is beset with many problems.
      Problems are more acute in LDCs like India than advanced countries.
      These problems are grouped into two: (i) conceptual or theoretical problem, and (ii) practical or statistical problem. However, as there is no escape route to avoid all the conceptual problems, we set aside these problems and consider only practical problems.
      Some of the difficulties in measuring national income are as follows:
      1. Lack of Reliable Data:
      The reliability of data relating to national income estimation is often questioned (in India). National income estimate is made on the basis of primary data relating to incomes and values of goods produced. It is observed that many producers —particularly petty producers and traders— do not maintain any accounts of their incomes and even goods produced. Obviously, the primary data collected from this source is supposed to be vague. The reason behind this is illiteracy. Further, many people are reluctant to cooperate with the data collectors. Above all, data collectors often ‘fabricate’ data even without approaching the door of producing sectors or economic units. If this information is considered to be the basis of judgement, then the judgement will suffer from inaccuracy.
      2. Existence of Non-Monetised Sector:
      The soundness of national income estimates is affected badly if there exists a large non- monetised sector. This creates valuation problem. In an LDC, there exists an unorganised barter economy where money is not used for transaction purposes.
      In each transaction, the problem of valuation of goods transacted crops up. Further, poor farmers of these countries retain large chunks of their output for self-consumption. Naturally, a large amount of output does not come to the market and is not subject to the valuation process. By imputing values to these goods, the problem of valuation can be partially removed. But considering the vastness of a country like India, such imputation is an uphill task. Even if imputation is possible, its reliability is also doubted.
      Various non-market and domestic activities like child care by mothers and sisters are not taken into account while estimating national income of a country, for the said reasons. In fact, these activities add to production when we engage the services of a lady ayah who takes care of a child against some monetary payments. But these are not considered in view of the difficulties of estimating such income.
      Further, in national income estimation, looses or social ills do not get reflected. C02 emission from automobile car pollutes the environment resulting in fewer ‘outputs’ for future generations. Such is not adjusted usually, although attempts are often made to measure ‘green GNP’.
      3. Difficulties in the Classification of Working Population:
      In India, working population is not clearly defined. For instance, agriculturists in India are not engaged in agriculture round the year. Obviously, in off¬season they engage themselves in alternative occupations. In such a case, it is very difficult to identify their incomes to a particular occupation.
      4. Illegal Income:
      Finally, illegal incomes are not reported in national income accounts. In other words, illegal forms of economic activity and illegal activities that are not reported to the authority for the purpose of paying taxes are left out from national income accounts.
      = 5,000 + 20% of 3,000 + (150 – 70) + (400 – 400) = 5,000 + 600 + 80 + 0 = ?5,680 crores