BUSINESS ENVIRONMENT AND SUSTAINABLE DEVELOPMENT NOTES

MBA Semester 2/ BPUT/Y R Lakshmi

Module 1—BUSINESS AND ITS ENVIRONMENT

Meaning of business:

Modern business covers a complex field of industry and commerce which involve activities related to both production and distribution. These activities satisfy society’s needs and brings profits to business firms.

Nature of a Modern Business Enterprise

A modern business enterprise is characterized by the following patterns. Forced to change on a continuous basis; symbolized by largeness in size; taking up an oligopolistic character; presence of diversification in product categories;

1.      Change: Sustainability of a business depends largely on effective demand. To ensure this, businesses make changes in product quality, design or packaging. This creates an urge in consumers to replace old goods by new ones.Eg color TVs, motor cycles, frost free refrigerators. Through innovation a business can create synthetic wants and thus find space to produce new goods to satisfy them.

2.      Large Size: There are organizations whose revenues are bigger than the GDP of a few nations. Indian organizations have become substantially bigger in the last decade. The average revenue for a Fortune India 500 list stands @ Rs 7632.5 crores (as of 2010). While the number of US and Japanese organizations in the Fortune 500 list is coming down the number of Chinese and other BRIC nations are increasing.

3.      Oligopolistic Character: Oligopolistic business is characterized by a small number of firms selling a homogenous or a differentiated product. Businesses take up oligopolistic character in the following situations :

a.      absolute cost advantages;

b.      economies of large scale production;

c.       large financial capital requirement that prevents entry of competition

d.      mergers and acquisitions and

e.      product differentiation.

4.      Diversification: a modern day business enterprise in an attempt to grow takes up the diversification route. This need not follow a uniform pattern. This could in the form of Horizontal, Vertical or conglomerate diversification. For example, Philips Electronics diversifies into multiple product categories like software, television screens, electronic goods after starting out initially with lighting equipments in its business product portfolio.

5.      Global reach: Business enterprises have expanded their revenue and assets base across countries and engage in  cross border flows of capital goods and know-how. MNCs like Nestle, Unilever, Philips Electronics have over 2/3^rd of their activities outside their home country. In India, organizations like Reliance Industries, Sundaram Fasteners and Bajaj auto are examples of organizations having a global reach.

6.      Technology orientation: Customers expectations on improved quality of products and at lesser cost led to sophistication of technology. Increased liberalization and acute competition at global level forced rapid technological change as a pre-condition for survival.

7.      Government control: the interference from Government and its agencies are required for 3 reasons:

a.      Required to correct market failures manifested in the form of monopoly and pollution

b.      Creating stable business conditions through monetary and fiscal regulations

c.       Production of public goods cannot be efficiently left to private enterprises. For example, building of highways, education and public health do not interest profit maximizing business firms.

BUSINESS AND ITS ENVIRONMENT

Meaning of Business Environment: Business environment refers to all internal and external factors which have a direct or indirect bearing on the activities of business. It is divided into internal and external part of the environment. The internal environment includes factors that are controllable to a certain extent. A firm can change and modify these factors to improve its efficiency.

The external forces include economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them.

Importance of Business Environment

1.Enables firm to identify opportunities and get the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, MarutiUdyog became the leader in the small car market in the 90s because it was the first to recognize the need for small cars in India.

2.Enables firm to identify threats and  provide early warning signals: If an Indian firm finds that a foreign multinational is entering the Indian market it should give a warning signal and Indian firms can meet the threat by adopting through strategies as improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on.

3.Coping with rapid changes: All sizes and all types of enterprises are facing an increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.

4.Improving performance: The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

Dimensions of Business Environment

Factors in Internal environment:

1.      Value System: it refers to the ethical beliefs that guide the organization in achieving its mission and objective. This determines an organisation’s behavior towards its employees, customers and society at large. The most important factor contributing to the success is “the extent to which the value system is shared by all in the organization”. For example, after EID Parry was acquired by Murugappa Group, they sold off one of the most profitable businesses of the ailing Parry Group as liquor business did not fit into the value system of the Murugappas.

2.      Mission and Objectives: the business domain of the company, priorities, direction of development, business philosophy and policy are guided by the mission and objectives of the company. For example, “To become a research based International pharma company “ has been stated as the Mission of Ranbaxy Laboratories Limited.

3.      Management Structure and Nature: The organizational structures, the composition of Board of Directors, extent of professionalization of management are important factors influencing business decisions.Some management structures and styles delay decision making while some facilitate quick decision making. The quality of Board of Directors is a critical factor for the development and performance of the company.

The shareholding patterns-those held by promoters and by financial institutions and the stand of nominees of financial institutions could be decisive.

4.      Internal Power relationship: Factors like the amount of support the top management enjoys from different levels of employees, shareholders and board of directors have important influence on the decisions and their implementation.

The relationship between the members of the Board of Directors and between the Chief executive Officer and the Board are also critical factors.

5.      Human Resources: the characteristics of human resources like skill, quality, morale, commitment etc contributes to the strength and weakness of an organization. For example, resistance of employees while restructuring or modernization decisions. The involvement, initiative etc of people at different levels may vary from organization to organization and the organizational culture and the overall environment have a bearing on them.

6.      Company image and brand equity: the image of the company and its brand equity matters during  a) Raising finance; b) forming Joint ventures; c) soliciting market intermediaries; d) entering purchase or sale contracts

7.      Miscellaneous factors:  a number of other internal factors which contribute to the business success or failures or influence the decision making includes-

a.      Physical assets and facilities like production capacity, technology, technology, logistics etc.

b.      R& D and Technological capabilities: this determines a company’s ability to innovate and compete.

c.       Marketing resources:Quality of marketing men, brand equity, distribution network.

d.      Financial factors like financial policies, financial position and capital structure are important.

External Environment of Business

External environment of business consists of institutions, organisations and forces operating outside the company who exercise influence individually as well as collectively on the latter. It is broadly classified into micro and macro environment.

Micro environment refers to such players whose decisions and actions have a direct bearing on the company. The micro environment need not necessarily affect all the firms in a particular industry in the same way. Some micro factors may be particular to a firm. For example, suppliers of inputs are normally accommodating if the company is large and competitor initiates price war if the rival is small.

When competing firms in an industry have the same micro elements, the relative success of the firms depends, inter alia on their relative effectiveness in dealing with these elements.

MICRO ENVIRONMENT

1.      Suppliers of inputs: assured and uninterrupted supply of inputs or raw materials is very vital for continuous production. The absence of continuous supply puts financial burden and thus lowers profit margin. Therefore organisations have to keep adequate supply of raw materials to ensure uninterrupted production.Such dependence creates monopoly conditions for suppliers, especially for strategic raw materials. Similarly dependence on a single supplier is also to be avoided. Hence supply management has assumed more importance in these days of scarcity management. In many cases, outsourcing is beneficial in others, large players go for backward integration.

2.      Workers and their unions: Labour, an important input to production may be organized or unorganized. When unorganized, the bargaining position of the company vis-a vislabour is strong. The current business scenario involves labour unions which go for collective bargaining and is pro-labour. Hence a balance between the labour and management is required to ensure growth.

3.      Customers: Usually customers do not constitute a homogenous group. Demand for products could come from individual, business enterprises, institutions and Government. The loyalty towards a product depends on the degree of satisfaction. An intense competition force a lot of spends on advertising; to retain the existing ones and to create new ones. Globalization has brought more competition and technology has made customers global. Thus survival and sustenance for organisations depend on- (a) reaching new markets; (b) improving quality; (c) ensuring satisfaction. For example, Unilever keeps targeting new customers and attempts launching ‘recession-proof basic necessities’; this choice reduces the risk of losing customers during recession.

4.      Marketing Intermediaries: Intermediaries like wholesalers, retailers, distribution firms etc are an important element in a company’s micro environment. They are responsible for stocking and transporting goods from production site to reach the ultimate buyers. Other marketing service agencies such as marketing research firms, consulting firms, ad agencies assist business firms in targeting, promoting and selling its products to the right markets. Marketing intermediaries are vital links between the company and its consumers. A dislocation or disturbance of the link or a wrong choice of link may cost the company heavily. For example, Unilever’s business was severely affected when it faced a collective boycott in Kerala on issues of trade margin.

5.      Competitors: They may be classified into various forms:

a.      Firms which market the same or similar products and also those who compete for the discretionary income of the consumersarereferred to as desire competition. The task is to influence the basic desire of the consumer. Example, competition between TV, 2 wheeler, refrigerator, banks etc.

b.      Generic competition refers to competition among alternatives which satisfy a particular category of desire. Example, a consumer seeking recreation can be satisfied with a TV, MP3 player, movie show etc.

c.       Product form competition refers to competition among options available once the product that could satisfy the desire is known. For example, after deciding to buy a TV the competition is between color or bland and white TV, LCD/LED/Plasma and so on.

d.      Brand competition refers to the competition between different brands of the same product. Example, LG TV or Samsung TV or Sony.

For succeeding Indian firms need to improve not only on the quality of products but also enhance productivity, so that cost per unit can be reduced.

6.      Public: According to Philip Kotler, public is “Any group that has an actual or potential interest in or impact on a company’s ability to achieve its objectives”.This would include groups like environmentalists, media groups, women associations, consumer protection groups, local groups, citizen associations. Example, Women in certain villages in Haryana protested against liquor shops situated in their localities. However, it is inappropriate to say that public is a threat to business. Fruitful cooperation between a company and a local public may be established for the mutual benefit of the company and the local community.

EXTERNAL - MACRO ENVIRONMENT

The external macro environment determines the opportunities for a firm to exploit for promoting its business and presents the threats to it that can put restrictions on the expansion of business activities. They can be classified into: economic environment; social environment; technological environment; political and legal environment and demographic environment. These are uncontrollable by the management of a firm and force a firm to adjust or adapt it to these external forces.

1.      Economic environmentconsists of economic factors that influence the business in a countryincludes-

a.      The type of economic system that exists in the economy-socialist, capitalist or mixed economy

b.      Nature and structure of the economy.

c.       Phase of business cycle(boom/recession/recovery or depression)

d.      Fiscal, monetary and financial policies of the Government

e.      Foreign trade and Foreign investment policies.

f.        Other factors likegross national product, corporate profits, inflation rate, employment, balance of payments, interest rates consumer income etc.

These policies present both opportunities and threats for business firms. They also provide the framework within which business firms have to work. Pre 1991, Indian economy was a mixed economy with an orientation towards public sector. The private sector production and operation controlled by industrial licensing system. Post 1991 industrial licensing was abolished and private sector allowed into many industries. The new economic reform since 1991 has significantly changed the business environment. For example, liberalization of import policy may create difficulties for import competing industries.

2.      Social and Cultural Environment: Businesses must seriously consider the impact of its actions on the society. When a business firm, in their decision making, takes care of social interests, it is said to be socially responsible. Business practices may also violate cultural ethos of a society. For example, advertisements by business firms may be nasty and hurt the ethical sentiments of the people. Ford Fiera did not sell well in Spain where Fiera means “old lady”. Pepsi decided to go international with its “Come Alive with Pepsi campaign”. The literal translation in German meant “come alive from the graves” and hence the campaign failed. When McDonald’s entered India they had to modify their offerings by including McAlooTikki Burger which was an instant hit.

Social responsiveness is a phenomenon that has arisen due to this social environment. It refers to the ability of a corporate firm to relate its operations and policies to social environment in a way that are mutually beneficial to the company and society at large.

3.      Political and Legal environment: Businesses are closely related to the Government.  The Government assumes the role of planner, promoter and energizer of development in a nation like India. The political philosophy of the Government wields great influence over business policies and these policies are exercised through legislations. They can be on matters as wages and prices, employment opportunities, location, emissions, noise levels etc.For example, Bangalore established itself as the most important IT center of India mainly because of political support.

During pre-liberalization period, private business firms worked under various types of regulatory policies like-

a.      Industrial Regulation Act, 1951;

b.      Industrial Policy Resolution, 1956;

c.       Income Tax Act, 1961

d.      Foreign Exchange Regulation Act, 1973;

e.      Monopolies and Restrictive Trade Practices Act, 1969

f.        Consumer Protection Act, 1986

These were passed to influence the directions of private sector. However, the collapse of socialism in many countries brought about a change on the roles of public and private sectors in India’s industrial development. This brought in changes like encouraging foreign capital, both direct and portfolio; FERA being replaced by FEMA and so on.

4.      Technological environment:Technology consists of the type of machines and processes available for use by a firm and the way of doing things. Technology helps in:

a.      Raising total factor productivity ;

b.      Reduces unit cost of output;

c.       Gaining competitive advantage over rival firms.

Competition between domestic firms and international markets ensures that firms try to improve, because failure to do so would threaten their survival. A firm which is unable to focus on the technological changes may not survive. Differing technological environment of different markets or countries call for product modifications. For example, Ambassadors and Fiat cars did not focus on improving technology or modifying their products. The reason was absence of competition and protected environment. MarutiUdyog Limited and liberalization forced them aside, as new players came with attractive models and superior technology.

5.      Demographic environment: it includes the size and growth of population; its rural and urban distribution; life expectancy of people; technical skills; educational levels of labour force etc. Business firms will have to adapt to the changes in the workforce of the firm. For example, enabling child care services in metro cities would allow a major chunk of women workforce join organisations. The size of population and its rural-urban distribution determines the demand for the products. Business firms will have to consider all these demographic factors in planning for production of goods and services and formulation of marketing strategies for sale of their products.Multinational companies have found a strategic way of entering rural markets by offering shampoo sachets for Re 1 and exotic ice cream flavors for Rs 5.

Natural environment: this include the geographical and ecological factors such as- (1)minerals and oil reserves; (2)water and forest resources; (3) weather and climatic conditions; (4)port facilities etc. These factors determine the location of business units due to favorable infrastructure or climatic conditions. These also affect the demand for goods. For example, regions with hot and humid conditions have a good demand for products like air conditioners, refrigerators, chilled beverages etc. Moreover availability of natural resources supported with technology and ability to put them to use determines the growth of business and the economy.

ECONOMIC SYSTEM

An economic system is defined as “the sum total of the devices by which the preference among alternative purposes of economic activity is determined and by which individual activities are coordinated for the achievement of these purposes. The central problem of an economic system is allocation of resources.

It may also be defined as, “An organized way in which a state or nation allocates its resources and apportions goods and services in the national community.” This determines the nature of state intervention in the business. Generally there are three types of economic systems and these are capitalism, socialism and mixed economy.

CAPITALISM OR MARKET ECONOMY

“Capitalism is a system of economic organization featured by the private ownership and the use of private profit of manmade and nature made capital”. --- William Louks. It is a system of private property in both producer and consumer goods, freedom of contract and competition, with limited Government intervention in economic affairs. This form of economic system is prevalent in USA, Japan, Germany, France and UK.

Features of Capitalism

1.      Right to private property: Every individual has a right to acquire private property, to keep it and to pass it on to his heirs. Apart from this, factors of production, firm and factories are owned by private individuals.

2.      Freedom of enterprise: It implies 3 things; Freedom of enterprise, freedom to use one’s property and freedom to contract. Every citizen has the freedom to form any firm or company or business anywhere he likes provided he has the requisite capital, skill and risk taking capacity.

3.      Consumer’s Sovereignty: Every consumer enjoys a freedom to have the commodities and services that he wishes to consume. Thus, it means that production decisions are governed by the consumers desires which are reflected in their demand patterns.

4.      Profit Motive: It is the profit motive that governs business enterprises and induces people to undertake any productive activity and ensure optimum use of factors of production.

5.      Absence of Central Economic Plan: Resource allocation and investment decisions are guided by the market forces. The State has no role to play in the economic planning of the country. It is the consumer’s preferences which finally decide what should be and what should not be produced.

6.      Class Conflict: Capitalistic structure leads to inequal distribution of income and wealth. It further envisages inequality in economic and political power.

7.      Role Assigned to entrepreneurs: an entrepreneur directs all productive machinery of the country. He hires the other factors of production and compensates them.

8.      Competition: Producers in a capitalistic model, compete with one another to capture the consumer’s preferences or in selling their commodity as much as they can through advertisements, price cuts, concessions etc. similarly there is competition among workers for jobs. Prices are determined by the free play of market forces.

9.      Rate of price system: Price mechanism facilitates the working of capitalism. Price guides the producers as to what to produce and what not to and sends signals to the consumers as to what to consume and what not to. Thus capitalism is governed by price mechanism.

Merits of Capitalism:

1.      Optimum utilization of resources: There is a competition among producers to produce at lowest cost and control their wastes to their lowest levels. Thus capitalism ensures that every entrepreneur tries to make the optimum use of resources to maximize his profits.

2.      Price rectifies the distortions available in the economy and also rules out any expenditure incurred on the operating the system.

3.      Workers and entrepreneurs are induced to improve their efficiency and put in the best of their efforts.

4.      Capitalism encourages potential investors to invest more and more to earn profits. Higher investment also ensures higher level of employment opportunities.

5.      Profit motive induces entrepreneurs to innovate and assume more risks.

Limitations of Capitalism

1.      Capitalismdivides the society into categories who have conflicting interest. The workers want higher wages and less working hours which is against the philosophy of capitalists. Such class conflicts lead to strikes and lock outs which are not in the interests of the society or economy.

2.      Economic decisions of entrepreneurs are governed by self interest and not by social welfare. Thus consumers are exploited by unscrupulous entrepreneurs who use exploitative practices for their gain.

3.      Competition leads to increase in choice for a customer but at the same time it also leads to wasteful use of economic resources thereby encouraging wasteful expenditures.

4.      Excess competition and high saving rates encourage recurrence of trade cycles in the system and in turn add to the economic instability of the economy.

5.      Capitalism has its own priorities. It encourages investment where expected profit is at a higher level. Hence, goods and services required for the basic needs of the society is not the basic goal of production under capitalism.

SOCIALISM

A system of collectivization of means of production; there are no private profits, but incomes may differ according to individual skills and amount of work done; also personal property for consumption purposes is allowed. It is also referred to as Planned or Command economies.Examples of nations with a Socialist economy are Cuba and China.

Definition: H Morrison defined Socialism as” The system in which all the great industries and the land should be collectively owned, that they should be conducted for the common good instead of private profit.”

 "Our operations in China are completely at the discretion of the Chinese government," –Eric Schmidt, CEO and founderof Google

Features of Socialism:

1.      The means of production are the property of the State and not any private individual. The profit goes to the State Exchequer.

2.      Since means of production are owned and controlled by the State, it has the authority to direct the production of commodities and the utilization of the resources in the desired channels. Central authority is entrusted with price mechanism which lays down the objective of planning and to settle the targets and priorities of planning.

3.      No private enterprise: Production is to be initiated and conducted by the State which will pay wages and other costs and keeps profits to itself. However in certain fields like agriculture, handicrafts and the cottage industry, cooperatives are allowed.

4.      Economic planning: the State assumes control of production and distribution. It allocates the scarce resources in accordance with the central economic planning which is presumed to ensure an efficient and optimum allocation of resources in the national interest.

5.      Socialism believes in a classless society. Every individual enjoys equality of opportunity regardless of caste, creed, family and religion.

6.      Under Socialism, the consumer does not enjoy sovereign rights. It is the State which decides what to supply, how much and at what price. So the consumers do not have a choice in this respect.

7.      Socialism provides the consideration to social welfare which guides productive resources in the country. Central authority ensures effective actions for social development of society at large. The State takes necessary steps in ensuring that adequate medical aid, free education and basic amenities are made available.

Merits of Socialism

1.      Socialism ensures effective resource allocation of productive resources to different sectors of the economy.

2.      Under Socialism, production activities are undertaken to increase the social welfare. Central planning ensures availability of improved techniques of production and scientific research to all organizations to improve their productive efficiency. State control reduces the possibility of wasteful expenditure on competitive selling campaigns.

3.      Socialism eliminates trade cycles as means of production are owned and controlled by State. The Central planning authority effectively determines the level of investment and the level of aggregate demand and aggregate supply thereby preventing imbalances.

4.      Accelerating Economic Development: A planned socialist economy functions effectively according to the development programme and in a systematic manner. Economic planning raises the rates of savings and investment as these are essential to accelerate economic progress.

5.      The Socialist principle provides for a fair and equitable distributionof income for all. Inequalities of income are minimized and protection against uncertainties prevails.

Demerits of Socialism:

1.      All powers are concentrated in the State and the individuals have no roles or initiatives in the economic decision making.As a result, there is no incentive to hard work, stimulus to self-improvement, inventive ability, and enterprising spirit in the nation.

2.      Consumption in a Socialist state will have to adjust itself against available production from State agencies. Consumer’s consumption behavior is directed and governed by the State philosophy of consumption and production.

3.      Under socialism, bureaucracy runs state affairs. But bureaucracy does not believe in quick decision making and encourage red-tapism and corruption in the system. Conditions in the Government are not conducive to hardworking and effective people. .

4.      Central economic authority fails to ensure effective production system, viable allocation of resources and efficient working environment. Beside the government also lacks sufficient resources to run and expand these industrial units.

MIXED ECONOMY:

It may be defined as a form of economic system, which possesses the elements of both capitalistic and socialist economy. The so called capitalist economies are basically mixed capitalist economies. Here, the means of production are owned by private enterprises but the Government directly controls and regulates the working of the economy through its monetary and fiscal policies.

It is a combination of extremes, Socialism and capitalism, where both private and public sector exist and work together in the national interest. Example: In the 1970’s the US Government used quota system to save its domestic automobile industry from the threat of Japanese automobile industry.

Features of a Mixed Economy:

1.      Co-existence of public and private property: In a mixed economy, industries of the economy are classified into 2 categories. While industries in the infrastructure and strategic sectors like mining, oils, steel, aluminium, metals, public transport, defense, energy, space are under the control of the Government, the private sector is allowed to operate in the rest of the industries.

2.      Price system and Government directives: Prices are fixed or regulated by the Government as well as based on market forces such as demand and supply. In critical goods like oil, LPG the Government follows administered prices (as set by the Government) and market forces decide the price of other goods.

3.      Government regulates and controls the private sector: The State uses various methods like regulation, licences, permits and incentives to regulate and to decide the flow and direction of private investment. The State uses all these means so that private enterprises work in harmony with national priorities.

4.      Consumer’s Sovereignty is protected: consumers are free to buy commodities of their choice and producers produce commodities of consumers choice. The Government may control the prices of certain essential commodities in the public interest in certain situations. Government protects the consumer from exploitation by private enterprises.

5.      Government protects the labour class and other weaker sections from exploitation by capitalists.

Merits of mixed economy:

1.      Mixed economy secures the merits of both capitalism and socialism while avoiding the evils of both.

2.      Mixed economy protects individual freedom. Under this, individuals have the freedom of consumption, choice of occupation, freedom of enterprise and expression.

3.      Supremacy of price mechanism which is allowed to operate under mixed economy.

4.      Reducing the inequalities of wealth and class struggle is one of the aims of mixed economy.

5.      Economic fluctuations can be avoided due to a centrally planned economy.

Demerits of mixed economy:

1.      Balancing and adjusting the public and private sector in a mixed economy is often a difficult task.

2.      Excessive control and heavy taxes tend to prevail in a mixed economy and this tends to discourage production in the private sector.

3.      Problems of nepotism, red-tapism, favoritism etc are found in this type of economic system which leads to delays in good projects.

4.      The mixed economy framework generally tends to favor relatively rich on account of their strong economic position.

5.      Mixed economy leads to market imperfections in the like lack of mobility among production factors from one place to other and lack of specialisations which hinder optimum utilization of resources.

PHASES OF BUSINESS CYCLE

Prosperity: the economy expands in response to growing aggregate demand and business firms, have many options.

1.      Firms expand the scope of their activities.

2.      New products are introduced.

3.      New markets are created.

4.      Rapidly rising incomes allows increasing consumption.

5.      Overzealous business executives attempt to over-expand their business activities.

During prosperity there is narrowing down of profit margin due to increase in costs relative to prices. Aggressive marketing and extensive advertising allows a raise in prices to meet these costs. At higher prices demand falls and recession sets in.

Recession: Forces of contraction get strengthened during recession. Usually this is reflected in the form of stock market crash and some fall in prices. The aggregate demand gradually declines and thus incentive for investment comes down. New projects are abandoned resulting in sharp reduction in demand for capital equipment. Big players for consumer goods survive as they produce varieties with substantial demand in India and modify their products to suit the shrinking budget of people. For example, Unilever offers a large product profile-Dove, Clinic plus, Sunsilk.

Depression: When recession persists over a long period, economies get pushed into depression. The period is characterized by low economic activity, a notable fall in productionand employment; decline in general price level, deterioration in business prospects and continuous erosion of profits of producers and traders. Firms are reluctant to make new investments. Deteriorating business prospects and abandoning the investment activity further deepens the crisis. Sooner or later there is recovery in aggregate demand and with it depression comes to an end.

Stagflation: A new phenomenon characterized by inadequate growth, inflation and unemployment. Stagflation is more prominent in Latin American countries. It is a condition in which the price level is rising despite the existence of substantial unemployment. It is a result of wrong policies from the Government. When the Government attempts to achieve a high rate of economic growth by resorting to inflationary policies, the results may be encouraging in the short period. But in the long run it plunges into stagflation. Firms can do little to expand the market as most buyers attempt to defer purchases other than necessities. To correct this, economies have to work on:

a.      Wage control;

b.      Moderate price rise;

c.       Expansionary fiscal policy;

d.      Increase income and employment.

ECONOMIC POLICIES

Economic policy refers to the actions that Government take in the economic field. It covers up the system for setting interest rates and Government budget as well as labor market, national ownership and many other areas of Government interventions into the economy. The 4 essential kinds of economic policies can be classified into: 1. Industrial policy; 2. Monetary policy; 3. Trade policy and 4. Fiscal policy.

INDUSTRIAL POLICY: It defines the role and scope of different sectors like private, public, joint and co-operative or large, medium, small and tiny. It can influence the level of industrial activity, location of units, product portfolio, capacity utilization, capacity expansion, financial policies, diversification areas ie further investment or investment in R& D or investment overseas etc.

Ø  In India, since 1956 Industrial policy had recognized the importance of both private and public sectors.17 industries listed in the Schedule A of the Industrial Policy Resolution, 1956 were made the exclusive responsibility of the State.

Ø  Industrial Policy, 1973: Considerable concessions were given to private sector units and foreign MNCs

Ø  Industrial Policy, 1980: Government delicensed 28 broad categories of industries and 82 bulk drugs and their formulations and gave concessions to companies falling under MRTP Act and FERA.

Ø  New Industrial Policy, 1991: Deregulated industrial economy and abolished all industrial licensing, except for 5 industries related to strategic and social concerns. Industries reserved for public sector reduced to three. (Atomic energy, minerals specified in the Schedule to atomic energy control of production and use order, 1953 and rail transport. MRTP was replaced by a new law. It also liberalized import of foreign capital and technology.

Ø  The Five industries requiring licensing are: alcohol, cigarettes, hazardous chemicals, electronics aerospace and defence equipment and industrial explosives.

TRADE POLICY:Policies on balancing the business of import and export and the concerned economy. It can be classified into outward-oriented and inward-oriented.

Ø  Outward-oriented trade policy does not discriminate between production for domestic market and exports. It refers to a liberalized economic environment where the business is free to decide whether they wish to produce for exports or cater the domestic markets.

Ø  Inward-oriented trade policy favours domestic market. It is also known as import substitution strategy. It is characterized by protectionism. Firms under this, have no compulsion to raise efficiency; make big profits.

MONETARY POLICY: It is concerned with the measures taken to regulate the supply of money, the cost and availability of credit in the economy. It deals with both lending and borrowing rates of interests of the banks. Objective: a) ensuring price stability; b)to encourage economic growth; c) To ensure stability of exchange rate of the Rupee.

FISCAL POLICY: Influences the decisive forces of the economy-demand, supply, disposable income of people, savings rate etc. It refers to the process of shaping taxation and public expenditure to dampen the swings of business cycles and to contribute to rapid economic growth with high employment and stable prices. During recession, the Government increases its expenditure or cuts down taxes or uses both. On the other hand, to control inflation the Government cuts down expenditure or raises taxes.

NEO LIBERAL PROFILE OF THE ECONOMY

Washington Consensus:The consensus was formulated by John Williamson, with the other officials of World Bank, IMF and key US Government agencies aimed at promoting economic growth in developing countries and help them solve the problems of indebtedness, balance of payments difficulties, and high rate of inflation, came to be known as ‘Washington Consensus’. It views that poverty will be automatically removed if rapid economic growth is achieved.

Ten elements of Washington Consensus:

1.      Fiscal adjustment: Steps from the Government in reducing fiscal deficit by curtailing Government expenditure.

2.       Tax reforms: To promote savings and private investment

3.      Deregulation

4.      Privatization

5.      Trade liberalization: reduce tariffs to promote free trade.

6.      Competitive exchange rates: adopt flexible exchange rates.

7.      Removal of barriers to foreign investment.

8.      Financial reforms in banking and insurance sector and in capital markets.

9.      Protection of property rights: easy entry and exit of private enterprises.

10.  Redirection of public sector investment towards education, health and infrastructure.

Neo-Liberal Profile –Indian Economy- Basically characterized by LPG-Liberalisation, Privatisation and Globalisation, the process started in 1991.

Liberalisation:

(A)   Industrial regulations:

a.      Industrial Licensing abolished for most industries irrespective of level of investment.

b.      MRTP Act amended: Prior approval from Government no longer required for capacity creation, amalgamations, mergers and acquisitions.

c.       In Indian context, these developments have enabled large corporates to capture larger market share. For example, Shaw Wallace acquired by United Breweries; Ponds merged with Hindustan Unilever Limited and Lipton was acquired by HUL. All the above acquisitions were used as strategies where competition was eliminated or pre-empted.

(B)   Trade policy:

a.      Trade policy reforms have eliminated quantitative restrictions on imports and exports.

b.      Substantial reduction in tariffs on imports alongwith subsidies abolition on exports.

c.       It was aimed that in a relatively open environment firms will have to upgrade technology, reduce cost and improve quality of products.

(C)   Policy regime for foreign investment and foreign technology liberalized at a rapid pace.

(D)  Activities of public sector reduced:

a.      Focus of public sector is only on those sectors which are strategic or an integral part of infrastructure.

b.      Chronically sick public enterprises are referred to the Board of industrial and Financial Reconstruction (BIFR) which decides whether these units are to be revitalized or closed down.

c.       Disinvestment of government equity in Government enterprises is creating space for private sector.

(E)   Deregulation of financial sector:

a.      Reductions in SLR and CRR.

b.      Prior Government approval regarding size and price of equity issues in the primary capital market is not required.

c.       Market forces discipline the capital market, SEBI establishes rules and regulations to govern the stock market.

Privatisation: With the new industrial policy, the Government decided to disinvest the public enterprises. The Government, may sell its enterprises completely to the private sector or disinvest a part of its equity capital held by it to the private sector companies or in the open market.

This policy of public sector disinvestment is called the policy of privatization. Through privatization, the Government can mop-up a good amount of resources which can be used to restructure and strengthen the potentially viable public sector enterprises. It can also be used to pay back a part of public debt. They can be used to finance budget deficits.

Main elements of Government Policy towards Public sector units are:

1.      Disinvestment of Government equity in all non-strategic PSUs to 26% or lower if necessary.

2.      Reviving potentially viable PSUs and restructuring them.

3.      PSUs that cannot be revived would be closed down. For example, 100% stake in Modern Foods sold to HUL; 51% of BALCO sold to Sterlite Industries.

Globalisation refers to the efforts to integrate the Indian economy to the global economy.

A.      Welcoming private foreign investment and foreign technology: Prior to 1991, foreign technology agreements (TAs) sought by Indian firms, and as well as foreign investment, it was necessary to obtain specific prior approval from the government. This caused delays and hampered decision making in the import of technology by Indian firms.

Under New Economic Policy, a selected list of high technology and high investment priority industries, firms received automatic approval to make foreign technology agreements, within guidelines.

Automatic permission to private foreign investors to invest upto 51% of total equity shares in 34 high priority industries, if certain norms are fulfilled.

This facility were available to those firms which were able to finance their capital imports through foreign equity.

The Government also gave a guarantee of 16% return on foreign investment in priority sectors (which included power generation and petroleum refining)

B.      Trade liberalization:Quantitative restrictions on imports were removed. With the cheapening of imported goods, Indian firms will try to increase efficiency and reduce costs to compete with foreign products. Thus, with increased quality firms will be able to expand exports.

C.      Currency Convertibility: Indian Rupee was made fully convertible on Current Account since 1993. For the purpose of foreign trade one was able to convert Rupees into Dollars and vice-versa in the foreign exchange market at market determined rate. (it can appreciate or depreciate upon demand and supply conditions). To enable convertibility, in July 1991, the Indian Rupee was devalued by about 20%.

Impact of Government Policy Changes on Business and Industry

1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.

2.More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

3.Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.

4.Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

5.Threat from MNC: Massive entry of multi nationals in Indian market constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships.

THE INDIAN MONEY MARKET

Reserve Bank of India defines a money market as a “Centre for dealings, mainly of a short term character, in monetary assets; it meets the short term requirements of the borrowers and provides liquidity or cash to lenders. It is the place where short term surplus investible funds at the disposal of the financial and other institutions and individuals are bid by borrowers, …again comprising institutions and individuals and also by the Government.”

The money market does not deal in cash or money, but in short term financial assets like trade bills, promissory notes and treasury bills drawn for short periods. These short term bills are known as “Near Money”. The Reserve Bank of India is the apex organization on the Indian money market.

Functions of a Money market:

1.      A money market enhances the supply of funds by offering different kinds of credit instruments suitable and attractive for different sections. Thus helps availability of funds at cheaper rates.

2.      Helps avoid wide seasonal fluctuations in the interest rates.

3.      Efficient money market helps minimizing surplus and rigidity that arises due to the seasonal variations in the flow of and demand for funds.

4.      Enhances the amount of liquidity available in the entire country.

5.      Enhances the profits of financial institutions and individuals by providing profitable investment opportunities for short term surplus funds.

Classification of Money market

Money market can be classified into unorganized money market and organized money market.

Unorganised sector of money market:

1.      Unregulated non-bank financial intermediaries:

a.      Finance companies: generally gives loans to retailers, wholesale traders, artisans and self-employed persons. They usually charge high rates of interest ranging from 36 to 48% and even more.

b.      Chit funds: Saving institutions and basically lack a standardized form. Regular members make periodical subscriptions to the fund and the collection is given to a member of a chit fund selected on the basis of previously agreed criterion.

c.       Nidhis: Operate particularlyin South India. They are a kind of mutual benefit fund format whose dealings are restricted only to members.

2.      Indigenous bankers: Individuals or private firms which receive deposits and give loans and thereby operate as banks. Their activities are not regulated. In India, they are classified into 4 groups:

a.      GujratiShroffs: Operate primarily in Mumbai, Kolkata, and industrial and trading cities of Gujarat.

b.      Multani or ShikarpuriShroffs: Found mainly in Mumbai and Chennai.

c.       Chettiars: Concentrated in South India.

d.      Marwari Kayas: Active in Kolkata, Mumbai, tea gardens of Assam and other parts of North Eastern India.

These indigenous bankers faced stiff competition from commercial and co-operative banks and still survived.

3.      Moneylenders: classified into 3 types:

a.      Professional moneylenders-whose main activity is money lending.

b.      Itinerant (Travelling or Nomadic) moneylenders like Pathans and Kabulis.

c.      

Indian Money Market

Sub-markets Ø Call money market Ø Treasury bill market Ø The repo market Ø The commercial and trade bills market Ø Certificate of deposits markets Ø Commercial paper market Ø Money market mutual funds

Participants Ø RBI Ø Discount and Finance House of India Ø Banks Ø Development Financial Institutions Ø Investment finance companies Ø Mutual funds

Instruments Ø Treasury bills Ø Repos Ø Interbank call money Ø Commercial and trade bills Ø Commercial paper Ø Certificate of deposits Ø Participation certificates

Non Professional moneylenders whose main source of income is not moneylending.

Principal constituents of Indian Money Market

1.      Call Money market: Consists of overnight and money at short notice for periodsupto 14 days. The call money market has been playing an increasingly important role in equilibrating the banking system’s demand and supply of short term funds. Generally, the most sensitive part of the financial system, as any change in flow of funds is clearly reflected. This gives an indication to Central Bank to adopt an appropriate monetary policy.

2.      Treasury Bill Market: They are short term liability of the Central Government usually with a duration of 91 days sold by the Central Bank on behalf of the Government on the basis of competitive bidding. Types of Treasury Bills based on the periodicity :a) 91- days Treasury bills; b)182- days treasury bills; c)364- days treasury bills. Participants in the Treasury bills are RBI, SBI, Other commercial banks; State Governments; DFHI, STCI; Financial institutions like LIC, GIC, UTI, IDBI, ICICI, IFCI, NABARD, corporate customers and public.

3.      The repo market: (Repurchase Agreements Auctions): It is a money market instrument which helps in collateralized short term borrowing and lending through sale or purchase operations in debt instruments. Under repo transactions securities are sold by their holder to an investor with an agreement to repurchase them at a predetermined rate and date. Under reverse repo transactions, securities are purchased with a simultaneous commitment to resell at a pre- determined rate and date.

4.      The Commercial Bill Market: It is the sub market in which the trade bills or commercial bills are handled. A commercial bill is a bill drawn by a merchant firm on another and generally arise out of domestic transactions. Commercial Bills, basically of two types-treasury bills and bills of exchange are the most important short period papers dealt in the bill market.

5.      Certificates of Deposit (CDs): A certificate is issued by a bank to depositors of funds that remain on deposit at the bank for a specified period. Introduced in 1989, by RBI with the objective of widening the range of money market instruments and providing investors greater flexibility in the deployment of their short term surplus. They are similar to traditional term deposits but are negotiable and tradable in the short term money markets. Minimum issue size is Rs5 lakhs in multiples of Rs 1 lakh at present, to an investor. Normally maturity period is between 3 months to 1 year. Certificates of Deposits can be freely transferable by endorsement and delivery but only after 15 days from the date of issue. Banks are required to maintain CRR and SLR on the issue price of CDs. The DFHI also operates in the secondary market for CDs.

Six all India financial institutions IDBI, ICICI, IFCI, IRBI, SIDBI, EXIM Bank have been permitted to issue CDs with maturity of more than 1 year upto 3 years. Mutual funds are the major investors in CDs.

6.      Commercial paper (CP): It is a short-term instrument of raising funds by corporates. Introduced in 1990s, it enables highly rated corporate borrowers to diversify their sources of short term borrowings. The most preferred maturity of CP was for periods ranging from 61 days to 90 days and 181 days and above.Leasing and finance companies account for the bulk of CP. These companies accounted for 50.1% of total CP outstanding, while the share of manufacturing sector and financial institutions were 34.1% and 15.8% respectively as at June 2009.

7.      Collateral loan market: the market that deals with collateral loans, i.e loans backed up by collateral securities like stock and bonds etc is called collateral loan market. The collateral loans are given for a short period generally lasting for a few months. The borrowers in this market are generally brokers and dealers in stocks and shares and lenders are commercial banks.

8.      Money Market mutual funds: They were introduced by the RBI in April 1992. The objective of the scheme was to provide an additional short term avenue for investors. RBI allowed scheduled commercial banks and public financial institutions to set up MMMFs in April 1992. They invest the resources mobilized from the public in such money market instruments as treasury bills, Government dated securities and rated corporate bonds and debentures with a maturity upto a year, call/notice money, CDs or commercial papers.

MAJOR AGENCIES IN THE MONEY MARKET

DFHI-Discount and Finance House of India was set up in 1988 with own resources of Rs100 crores and financial support of RBI. The aim was to bring the entire financial system comprising the scheduled commercial banks, public and private, foreign and co-operative banks and non-banks in public and private sector into the fold of the Indian money market. It wanted to equilibrate short-term surpluses and deficits of the instruments at market related rates through interbank transactions and money market instruments. DFHI aimed at stabilizing the call money market rates by building up a large turnover, while retaining a small spread between the borrowing and lending rates.

Securities Trading Corporation of India Limited (STCI) was promoted by Reserve Bank of India (RBI) in 1994 (with a fully issued paid up capital of Rs 100 crores) along with Public Sector Banks and All-India Financial Institutions with the objective of developing an active, deep & vibrant secondary debt market.STCI was one of the first accredited Primary Dealers in the Indian government securities market and has contributed immensely to the development of the Indian fixed income market. RBI divested its stake in STCI to banks and financial institutions in 1999 and 2002. Having fulfilled its original mandate of developing an active secondary market for fixed income securities, STCI has now diversified into lending activities covering the entire gamut of retail and wholesale credit to HNIs and Corporates.

DEFECTS IN MONEY MARKET

1.      Unorganized Money market: The presence of unorganized sector in the money market is not subject to any regulation and control of the RBI and hence lacks standardized operations.

2.      Absence of Integration between the organized and unorganized sector brings hostility between different sections of money market as they lack a cohesive working relationship between themselves.

3.      Inadequate national market: The late entry of national players as DFHI and STCI allowed for retarded growth in the early days of the money market. Technological advancements have also been confined mostly to urban and semi-urban areas.

4.      Interest rate disparity from place to place from time to time and segment to segment. This poses hurdles for regulatory mechanisms to operate.

5.      There is a deficient bill market among traders due to limited transactions which constitute a small part of total money market operations relating to bill discounting and purchasing.

6.      Availability of limited funds due to factors like lower savings rate, inadequate banking facilities, poor banking habits, inadequate facilities for investment for small savings and existence of a parallel economy with black money ensures that a shortage of supply  of loanable funds arise.

7.      Existence of seasonality in the demand for money and short term funds due to variations in agricultural activities creates a time period when demand for money is at its peak and there is inadequate supply to meet it.

8.      Unstable conditions caused due to variations in rates of interests, demand and supply of funds etc, affects the ability of the Central Bank in monitoring various segments.

9.      Development in the area of commercial banking, though expanding has been uneven. These are inadequate, urban-centric and inefficiently organized. This inturn retards development in the Indian money market.

10.  Inadequate number of quality credit instruments especially for short periods.

11.  Inadequate foreign funds: Although liberalization has enhanced inflow of funds from abroad through routes as FDI, it is inadequate to meet the actual requirements of the market.

12.  Limited secondary market that is restricted to rediscounting of commercial and treasury bills and absence of sufficient credit instruments discourages big borrowers from entering money markets.

13.  The highly regulated regimen deters free entry and exit of a large number of players.

REFORMS AND RECENT DEVELOPMENTS IN MONEY MARKET

The RBI and the Government have taken various measures to strengthen the Indian money market. A few important ones are:

1.      Development of the Secondary market: the setting up of DFHI in 1988 and STCI in 1994 have led to the emergence of secondary market in treasury bills and Government of India securities. These agencies, apart from operating as repositories, ensure a high turnover in the money market instruments.

2.      De-regulation of interest rates- With effect from May 1, 1989, the RBI deregulated money market interest rates, which made interest rates flexible and provided transparency in the transactions.

3.      Introducing new money market instruments: Over the past two decades 4 new instruments-182-day treasury bills, 364-day treasury bills, Certificates of Deposits and Commercial Papers were introduced. The Treasury bills can be held by the commercial banks for meeting SLR while CDs have become the most preferred route for mobilizing resources for banks.

4.      Development of Repo market: To further develop and widen repos, RBI has introduced regulatory safeguards in April 1999 and this allows selected entities to enter the market of Repos in treasury bills and dated Government securities. The period of repo has been stabilized as 14 days.

5.      Negotiated Dealing System (NDS) established in 2001 in order to facilitate electronic bidding in auctions and transactions in the secondary markets in Government securities. It disseminates information on a real time basis and facilitates smooth operations also reducing cost and time. It enables expanding the transaction base of the money market and helps reduce idle funds.

6.      Clearing Corporation of India Limited (CCIL) was established in April 2001 under Companies Act, 1956 with SBI as the main promoter. Its basic function was to clear all transactions in Government securities and repos conducted through the NDS of RBI. The Government has made it mandatory to settle all trades in Government securities below Rs 20 crores through CCIL. Trades greater than Rs 20 crores may be settled through CCIL or the RBI.

7.      Liquidity Adjustment Facility introduced from June 2000, provided by RBI, involves absorption or injection of liquidity on a day-to day basis. LAF provided a mechanism of liquidity management through a mix of repos, export credit refinance and collateralized lending facilities supported by open market operations at pre-determined rates of interest.

8.      Developing call/notice money market: During 1990s the RBIs policy relating to the entry into call/notice money market was liberalized to provide more liquidity. Currently banks and primary dealers are operating as both lenders and borrowers while a number of non-bank financial institutions and mutual funds operate only as lenders.

INDIAN CAPITAL MARKET

Capital market deals with long term funds demanded and supplied to finance the creation or requisition of fixed assets.

IMPORTANCE OF CAPITAL ASSETS:

1.      Capital market serves as a reliable guide to the performance and financial position of the company.

2.      Continuous valuations of companies are reflected in the share price and this paves way possibilities for mergers and acquisitions.

3.      Promotes growth through the creation of liquidity.

4.      Attracts foreign investment, which leads to improved accounting, reporting standards and exposes domestic companies to advanced managerial techniques.

5.      Helps companies to obtain equity finance in the absence of loans from money market.

6.      Large, active and liquid stock market induces investors to research and monitor the firms enabling improved resource allocation and accelerate growth.

DIFFERENCE BETWEEN MONEY MARKET AND CAPITAL MARKET

BASIS	MONEY MARKET	CAPITAL MARKET
Functions or mechanisms	Channelizes funds for short period from surplus to deficit spending units	Channelizes long term funds.
Instruments	Bills of exchange, Certificate of Deposits, Commercial Papers, Treasury bills	Shares, bonds, government securities, UTI units
Sub-markets	DFHI, Treasury bill market, commercial bill market	New issues market, stock exchange, government securities market (gilt-edged market)
Transactors	Commercial banks	Non-bank financial intermediaries
Regulation	RBI	SEBI
Focus	Raising funds and investing in securities with a motive to earn profit for their customers.	Lending funds of financial and non-financial institutions to each other with motive to earn interest income for customers.

COMPONENTS OF CAPITAL MARKET

Gilt-edged market is the market in government securities or the securities guaranteed by the government. They are called gilt-edged as it means ‘of the best quality’ as they are risk –free and returns are guaranteed. The investors are predominantly institutions (like LIC, GIC, & provident fund) which are required statutorily to invest a certain portion of their funds in Government securities. They constitute the captive market for Government securities. The transactions in the Government securities are large and each transaction may run into several crores of Rupees.

Corporate securities market is a market where securities (also called industrial securities) are issued by firms (ie., shares, bonds and debentures ) can be bought and sold freely. It consists of New Issues Market (Primary market) and the Stock Exchange (Secondary market).

Primary market or New Issues Market is concerned with the issue of new securities. The firms floating new issues may be new companies or existing companies planning expansions. Companies seek advise from the merchant banking division of a commercial bank on the viability of floating an issue. They also approach the institutional underwriters like LIC, UTI, ICICI, IDBI to ensure marketability of the issue.

Methods of Raising Capital

(1) Public Issue by Prospectus. This is the most popular method of raising funds. The company issues a prospectus inviting applications direct from the public or through some intermediaries such as brokers, investment house and underwriters etc. for taking up the new shares or debentures. This is the cheapest way of disposing of securities and has an approach to a wider section of public. But in case of a new company that it may not get even the minimum subscription.

(2) Offer for Sale. This is a method usually adopted in the case of large issue. Under this, the company does not issue prospectus but it sells or agrees to sell the securities to the issue houses or to the financial institutions, at fixed price. Such issue houses or financial institutions in turn issue a statement like prospectus called 'offer for sale' as an advertisement the newspapers for inviting applications from the public at a price generally higher than the purchase price. The difference of purchases price and issue price is their remuneration for managing the issue. It relieves the company from the administrative work and the cost of the new issue and also ensures that the whole issue is sold even at a time when conditions in capital market are unfavorable.

(3) Private Placing Method. Under this method, the securities are sold to the issue house or broker or financial institutions privately and not by issuing prospectus. Alternatively, they act as an agent for selling the securities to their clients privately. It is called private placing.

The method is quite cheap because cost of issue is negligible but the shares under this method are available only to a selected group of investors.

(4) Right Issue. Such issues are generally offered by the company for cash to the existing equity shareholders only. There is a statutory provision under Companies Act to offer new issue by an existing company first to the existing shareholders in the ratio of their holdings, and if existing shareholders refuse to subscribe for their obligations, only then such shares can be issued to the public. It is also known as 'Privileged Subscription'.

(5) Bonus Issue. When a company has lack of funds to pay off dividends, but possesses sufficient reserves and accumulated balance of profits, it generally capitalizes such profits and reserves by issuing new shares to the existing shareholders in addition to the cash dividend.

(6) Subscription by Inside Coteries: Under this method, a certain percentage of new issue is kept in reserve for subscriptionby inside coteries such as workers, directors etc

NEW FINANCIAL INTERMEDIARIES IN THE CAPITAL MARKET

1.      MERCHANT BANKING: Are intermediaries between entrepreneurs and investors; players maybe subsidiaries of commercial banks or set up by private financial service companies; they manage and underwrite issues, undertake syndication of credit, advise corporate clients on fund raising. They are under the regulatory framework of SEBI.

2. LEASING AND HIRE PURCHASE: Popular financing method for acquiring plant and machinery for small and medium sized enterprises. Eg., Infrastructure Leasing and Financial Services Limited originally promoted by Central bank of India and HDFC.

Advantages : speed, less formalities and flexibility to suit individual needs

3.      MUTUAL FUNDS: A corpus fund collected by pooling of savings of a number of investors is managed by a team of investment specialists. Aims to optimize high returns, safety and liquidity for maximizing investor’s wealth.

4.      GDR-GLOBAL DEPOSITORY RECEIPTS: the shares of a company are held by a foreign branch of an international bank. The shares trade as domestic shares, but are offered for sale globally through various bank branches. They are primarily denominated in US $ or Euros.

5. VENTURE CAPITAL COMPANIES: aimed at giving financial support to new ideas and introduction and adaptation of new technologies. Involves high risk but useful for technocrat entrepreneurs who have technical competence and expertise but lack adequate capital.

GROWTH OF INDIAN CAPITAL MARKET

The Indian capital market has grown to be a developed one and the factors responsible for the same are as follows:(PICK ANY 8-9 POINTS FROM THESE AND USE FOR ANSWERING THE QUESTION)

1.      Growth in financial intermediation: financial intermediaries like GIC, LIC, UTI through ‘indirect financing’ were successful in mobilizing the savings of households to deploy in the secondary market. This contributed to the strengthening of capital market.

2.      Growth in underwriting:Underwriting is an agreement whereby the underwriter promises to subscribe to a specified number of shares or debentures or a specified amount of stock in the event of public not subscribing to the issue. Basically it acts as a guarantee for the marketability of shares.

In recent years, the volume and amount of securities underwritten have tremendously increased owing to increasing participation of specialized financial institutions like GIC, LIC, UTI and development banks like IFCI, ICICI, IDBI in the underwriting activities.

3.      Growth of merchant banking: Merchant banking divisions of the commercial banks advise the companies about the economic viability, financial viability and technical feasibility of the project and advise whether the company’s public issue would be fully subscribed or not. The emergence of merchant banking has strengthened the institutional base of Indian capital market.

4.      Growing Public Confidence: Since 1991, public response to corporate securities has been improving. Factors that influence public confidence are:

a.      Rates of return of industrial securities relative to rates of return on non-marketable financial assets and real assets.

b.      Government’s monetary policy and fiscal policy (withdrawal of tax on dividends)

c.       Legal protection of investors (banning insider trading)

5.      Increasing awareness of investment opportunities among general public: Business newspapers and financial journal have made people increasingly aware of long term investment opportunities in the securities market.

6.      Credit rating agencies: Credit Rating Information Services of India Limited (CRISIL) set in 1988, Investment Information and Credit Rating Agency of India Limited (ICRA) set up in 1991 and Credit Analysis and Research Limited (CARE) set up in 1993 for the purpose of providing guidance to investors/creditors for determining the credit risk associated with the debt instrument. This helps in the long term future development of the capital market.

7.      Mutual Funds: In 1994-95, the funds mobilized under mutual funds were 11275 crores and by 2006-07 it rose to 93985 crores and to 413365 crores in 2008. By 2012, it had risen to 607099 crores in 2012. Since mutual funds help mobilize small savings of relatively smaller savers to invest in industrial securities thus contributing to the growth of capital market.

8.      SEBI: It was set up in 1988 and given statutory recognition in1992. Since then SEBI has been evolving and implementing various measures and practices to infuse greater transparency in capital market in the interest of the investing public and orderly development of the securities market.

9.      Liberalization measures: FIIs have been allowed to access Indian capital market. Investment norms for NRI have been liberalized so that NRIs and overseas corporate bodies can buy shares and debentures without prior permission of RBI. This was expected to internationalise Indian capital market to a great extent.

10.  Book Building:  the mechanism through which an offer price of an IPO based on investors demand was introduced in 1995. This enabled small investors be able to subscribe to securities at prices arrived at through a transparent process.

11.  Electronic trading: all stock exchanges currently adopt online screen based electronic trading thereby bringing in transparency, more efficient price discovery and reduction in transaction costs. Many improvements in trading, clearing and settlement systems have also been implemented.

12.  Dematerialisation: to remove the problems involved in movement of physical security certificates, legislative changes were carried out for maintaining ownership records in an electronic book entry form.

13.  Circuit breakers: introduced in 1995 whereby trading automatically suspended if prices varied either side beyond a certain % (applies in 3 levels 10%, 15% and 20%) and further trading was allowed upto a price band (it varies and can range from 2 to 20% for any stock) after a cooling period. The objective was to contain abnormal price variations.

14.  Structure of informational flows: After a security is issued to the public and listed in a stock exchange all listed companies are required to furnish unaudited financial results on a quarterly basis.

STOCK MARKET AND ITS REGULATION

Meaning: A stock exchange or Secondary market is a highly organized market for the purchase and sale of second hand quoted and listed securities

Definition: “An association, organization or body of individual, whether incorporated or not, established for the purpose of assisting regulating and controlling business in buying, selling and dealing in securities”---- Securities Contract Regulation Act, 1956.

Origin and Growth : the oldest and first stock exchange in India was the Bombay Stock Exchange established in 1887 styled as ‘The Native Share and Stock Brokers Association’ it had 318 members on its list. This was followed by The Ahmedabad Share and Stock Brokers Association in 1894, Calcutta Stock Exchange in 1908 and Madras Stock Exchange in 1937.

A number of other stock exchanges that sprung up during the First and Second World War were of makeshift nature and collapsed soon. When Securities Contract Regulation Act, 1956 was passed only 7 Stock exchanges received recognition. This number has risen to 25 stock exchanges (as of May 2012). The objectives of Securities Contract Regulation Act, 1956 was

a.      To regulate stock market practices

b.      To create efficient securities market

c.       To ensure fair dealing and protection to investors

d.      To improve the working of stock exchanges

e.      To control the undesirable speculative practices.

Major Stock Exchanges in the world: Year ended 31 December 2011 

Rank	Economy	Stock Exchange	Location	Market Capitalization (USD Billions)	Trade Value (USD Billions)
1	United States,  Europe	NYSE Euronext (US & Europe)	New York City	14,242	20,161
2	United States  Europe	NASDAQ OMX (US & North Europe)	New York City	4,687	13,552
3	Japan	Tokyo Stock Exchange	Tokyo	3,325	3,972
4	United Kingdom	London Stock Exchange	London	3,266	2,837
5	China	Shanghai Stock Exchange	Shanghai	2,357	3,658
6	Hong Kong	Hong Kong Stock Exchange	Hong Kong	2,258	1,447
7	Canada	Toronto Stock Exchange	Toronto	1,912	1,542
8	Brazil	BM&F Bovespa	São Paulo	1,229	931
9	Australia	Australian Securities Exchange	Sydney	1,198	1,197
10	Germany	Deutsche Börse	Frankfurt	1,185	1,758
11	Switzerland	SIX Swiss Exchange	Zurich	1,090	887
12	China	Shenzhen Stock Exchange	Shenzen	1,055	2,838
13	Spain	BME Spanish Exchanges	Madrid	1,031	1,226
14	India	Bombay Stock Exchange	Mumbai	1,007	148
15	South Korea	Korea Exchange	Seoul	996	2,029
16	India	National Stock Exchange of India	Mumbai	985	589

STATUTES/ ACTS CONTROLLING STOCK EXCHANGES:

1.      Securities Contract Regulation Act, 1956

2.      The Companies act, 1956,

3.      The Income Tax Act, 1961

4.      Foreign Exchange Management Act, 1999

Advantages of Stock Exchanges

Benefits to the community:

a.      Promotes industrial growth and economic development

b.      Encourages the habit of savings and fastens the process of capital formation.

c.       Ensures optimum utilization  of scarce financial resources

d.      Helps public sector raising funds.

Benefits to the company:

a.      Listed companies have a better reputation, goodwill and credit standing in the market

b.      Mobilizing large amount of resources made possible due to access to wider markets.

c.       The listed securities command higher prices than unlisted ones

d.      Listing acts as an incentive for organizations for maintaining and improving their performance.

Benefits to investors:

a.      Sound decisions enabled by communication of prices of securities

b.      Quick conversion to cash of securities that are easily marketable

c.       Regulations by stock exchanges safeguard the interest of the investors

d.      Safer investment vis-à-vis forms like chit funds.

Functions of  Stock Exchanges

The role of a stock exchange in a capital market is as follows:-

(1) READY AND CONTINUOUS MARKET: The stock exchange provides a ready and continuous market for the sale and purchase of securities.

(2) BANK BORROWING FACILITY: Securities listed on a stock exchange serve as a collateral security when an investor needs funds from a bank.

(3) PROMOTES CAPITAL FORMATION: Stock Exchanges promote capital formation as they encourage investors to save and invest in corporate securities.

(4) SAFETY AND FAIR DEALING: The Stock Exchange operates under rules and regulations framed by the Central Government which are in the interest to ensure safety of the investors.

(5) GOVERNMENT FUNDING: Stock Exchanges help the government to raise funds by selling shares and debentures.

(6) CREATION OF EMPLOYMENT OPPORTUNITIES: Stock Exchange creates a number of employment opportunities to a number of brokers, sub brokers as they are the intermediaries through which shares are being sold.

(7) EVALUATION OF SECURITIES: Stock Exchanges help to evaluate the worth of securities, as they are traded at a certain price on the stock market. Investors are able to determine the real worth of their holdings in the form of shares and debentures which are listed on the stock exchange.

(8) INDUSTRIAL DEVELOPMENT: The capital collected through shares and debentures can be put to industrial use. With the capital, new industries can be started, existing ones can be expanded and modernized and thereby enhancing the industrial development of a country.

(9) CLEARING HOUSE OF SECURITIES: The Stock Exchanges acts as a clearing house of securities. It facilitates easy and quick clearance of transactions of securities between the buyers and the sellers.

(10) FACILITATES FLOW OF CAPITAL: Stock Exchange facilitates the flow of capital to companies who have a high potential to raise substantial funds.

ROLE OF SEBI IN MONITORING THE STOCK EXCHANGE

SEBI stands for Securities and Exchange Board of India. It was set up in April, 1988, as a strong need was felt to protect the interest of the investors and to have a systematic and organized working of the securities market.

It started actually functioning when the SEBI Act was passed in 1992. The Act empowered SEBI with necessary powers to regulate the activities connected with marketing of securities and investment of Stock Exchanges, Portfolio Management, Stock Brokers, and Merchant Banking etc.

Objectives of Securities & Exchange Board of India

There are three basic objectives of SEBI. They are as follows:-

(1) Towards Investors: To protect the interest of the investors.

(2) Towards Capital Issuers: It aims at creating a good market environment where capital issuers can raise necessary funds.

(3) Towards Intermediaries: It wants to bring about professionalism among the brokers, stokers and sub – brokers.

Powers and Functions of SEBI

(1) To protect investors Interest: SEBI is formed to protect the interest of the investors. It monitors whether issuing companies, brokers, mutual funds are following the rules and regulations. It also gives a hearing to the investor's complaints and grievances, if any, against the issuing company’s brokers etc.

(2) Regulating Working of Mutual Funds: SEBI regulates the working of mutual funds. It has laid down certain rules and regulations that are needed to be followed. Failure to follow the regulations may lead to cancellation of the registration of a mutual fund.

(3) Regulates Merchant Banking: SEBI has laid down certain regulations in respect of registration, submission of half yearly results, code of conduct in respect of merchant banking, etc.

(4) Take over and Mergers: SEBI has issued guidelines to protect the interest of the investors in case of take over and mergers.

(5) Restriction on Insider Trading: SEBI restricts insider trading activity. Its regulation states that, no insider shall either on his own behalf or on behalf of any other person may deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information.

(6) Regulates Stock Brokers Activities: SEBI has laid down the regulations in respect of brokers and sub-brokers. Without being a registered member of SEBI, no broker or sub-broker can buy, sell or deal in securities.

(7) Research and Publicity: SEBI conducts survey and research in respect of investments and opportunities. It also undertakes to publish two monthly bulletins called SEBI market review and SEBI news letter.

(8) Guidelines on Capital Issues: SEBI has framed certain guidelines on capital issues which are applicable to first public issue of new companies, first public issue by existing private held companies, public issue by existing listed companies.

(9) Portfolio Management: SEBI has laid down certain regulations regarding portfolio management. Without proper registration with SEBI, no person or institution can work as a portfolio manager.

(10) Other functions: There are some other functions also which are as follows:-

(i) It prevents unfair trade practices relating to the securities market.

(ii) It gives training to intermediaries in the securities market.

(iii) It promotes investor's education.

(iv) It conducts audits of the stock exchanges.

(v) It also conducts inquiries, and inspections.

MAJOR STOCK EXCHANGES: Though a number of other exchanges exist, NSE and the BSE are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. While both have similar total market capitalization (about USD 1.6 trillion), share volume in NSE is typically five times that of BSE. Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions.

NSE: THE NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange (NSE) RashtriyaŚhareBāzaār is a stock exchange set up in 1992 and located at Mumbai, India. It is the 16th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. NSE has a market capitalization of around US$985 billion and over 1,646 listings as of December 2011. The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange Fifty), an index of fifty major stocks weighted by market capitalisation.

NSE is mutually owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities. There are at least 2 foreign investors NYSE Euronext and Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSE VSAT terminals, 2799 in total, cover more than 1500 cities across India. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities.  It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%.

·         It was promoted by IDBI (lead promoter) along with ICICI, IFCI, GIC, LIC, SBI, SBI Capital Markets, SHCIL, IL&FS as a joint stock company registered under Companies Act, 1956.

·         The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange Fifty), an index of fifty major stocks weighted by market capitalisation.

Some of NSEs pioneering efforts of NSE include:

·          Being the first national, anonymous, electronic limit order book (LOB) exchange to trade securities in India.

·         Setting up of S&P CNX Nifty.

·         NSE was the first exchange in the world to use satellite communication technology for trading, using a client server based system called National Exchange for Automated Trading (NEAT). For all trades entered into NEAT system, there is uniform response time of less than one second.

·         NSE pioneered commencement of Internet Trading in February 2000. (which led to the wide popularization of the NSE in the broker community)

·         NSE has also launched the NSE-CNBC-TV18 media centre in association with CNBC-TV18.

THE BOMBAY STOCK EXCHANGE

The Bombay Stock Exchange (BSE) (Bombay ŚhareBāzaār) (formerly, The Stock Exchange, Bombay) is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. It was organized under the name “The Native Stock and Share Brokers Association” as a voluntary and non-profit association.The equity market capitalization of the companies listed on the BSE was US$1 trillion as of December 2011, making it the 6th largest stock exchange in Asia and the 14th largest in the world. The BSE has the largest number of listed companies in the world.

Though many other exchanges exist, BSE and the National Stock Exchange of India account for the majority of the equity trading in India. While both have similar total market capitalization (about USD 1.6 trillion), share volume in NSE is typically two times that of BSE.

·        The BSE SENSEX (SENSitiveindEX), also called the "BSE 30", is a widely used market index in India and Asia. This index provides an evaluation of the comprehensive performance of BSE and is very much tracked throughout the world.

·        As of March 2012, there are over 5,133 listed Indian companies and over 8,196 scrips on the stock exchange, the Bombay Stock Exchange has a significant trading volume.

ORGANIZATION OF A STOCK EXCHANGE

MANAGEMENT: the stock exchanges are managed by an Executive committee / Council of Management/ Governing body. The government is empowered to nominate not more than three members on the Governing body.

Functions of the Governing body:

a.      To protect the interest of investing public;

b.      To ensure rules and regulations are observed by its members

c.       To approve quotation of shares.

MEMBERSHIP: is a highly restricted one and governed by stringent regulations.

Only Members can transact business listed in listed securities at the stock exchange. The governing body ensures that the member is a person of good moral character, experienced, and financially sound.

Non-members For convenience purpose non-members are allowed to enter and transact the business on behalf of the members.  

1. Remisieres: act as agents for members and receive commission on the business procured by them. Also known as half commission men.

2. Authorized clerks: act on behalf of their member employer and do not get any commission.

CLASSIFICATION: Stock brokers: agents of investors and act under their instructions.

Stock – jobbers: independent dealers in securities and work for profit.

Indian classification: taravaniwallas- comparable to jobbers; and commission brokers comparable to stock brokers who execute contracts for the investors.

LISTING OF SECURITIES: it implies permission for trading of securities at the stock exchange. Following this, the prices of the securities are officially quoted at the stock exchange. A company must fulfill certain requirements and must complete certain formalities to get its securities listed.

TYPES OF DEALINGS:

Ready Delivery Contracts/ cash trading: involve investment transactions and the settlement is done within a fixed period, not exceeding 7 days from the date of contract. When these are settled on the same day as that of the contract, they are designated as spot delivery contracts.

Forward Delivery Contracts or Forward Trading: involve speculative transactions and settlement takes place on fixed settlement days at the end of every month through the clearing house only.

What is a CLEARING HOUSE?

An institution, where accounts of brokers are settled and the resultant position is ascertained, after taking into account all transactions. Thus the parties have to pay or receive net amount and not the total amount due for each and every transaction.

àWhat is Speculation and categorize speculators?

Speculation refers to making quick profits by anticipating the changes in the prices of shares

Speculators are divided into 4 categories:

Bulls (also called tejiwala) optimistic speculators who expect a rise in prices and therefore purchase shares. For Example:  Suppose the current market price of NTPC is Rs 270 and you expect it to touch Rs 300 in three months.  This means that you are bullish on NTPC.

Bears:(also called mandiwala) speculators who sell shares in anticipation of a fall in prices.If the market is dominate by buyers over sellers the market may be termed bullish and in case of the opposite termed as bearish

Stags: Speculators who buy a large amount of a new issue of shares expecting their prices to increase once they are listed in the exchange, enabling them to sell the shares at a profit. He selects those companies whose shares are most in demand and are likely to carry a premium.

For  instance,  the  Reliance  Power  IPO  is  priced  at  Rs  450/-.   A stag subscribes to say 1000 shares and gets an allotment of say 100.  The stock on the day of listing quotes 525. Immediately the stag sells all his 100 shares and makes a profit of Rs 7,500.

A Lame Duck is nothing but a stressed bear. When a bear finds it difficult to complete his promise he is labeled as a lame duck. A  stock  player who makes  a  series  of  bad  purchases will  end up with  losses over a period of  time.  In that case he would be struggling to meet his debt obligations.

OTCEI

·         OTCEI- Over The Counter Exchange of India(OTCEI) was incorporated in October 1990 under Section 25 of the Companies Act, 1956 with the objective of setting up a national, ringless, screen-based, automated stock exchange.

·         It is recognised as a stock exchange under Section 4 of the Securities Contracts (Regulations) Act, 1956.

·         It was set up to provide investors with a convenient, efficient and transparent platform for dealing in shares and stocks; and to help enterprising promoters set up new projects or expand their activities, by providing them an opportunity to raise capital from the capital market in a cost-effective manner.

·         Trading in securities takes place through OTCEI’s network of members and dealers spanning the length and breadth of India. OTCEI was promoted by a consortium of financial institutions including : UTI, ICICI, IDBI, IFCI, LIC, GIC and its subsidiaries, SBI Capital Markets Limited, Canbank Financial Services Ltd.

PROCEDURE FOR DEALING IN STOCK MARKET

1.      Selection of broker through whom the purchase or sale is to be made. The investor may approach his bank who have own brokers appointed at exchanges. On recommendation from the bank (who also assures on the financial condition of the client) the broker opens the client’s account.

2.      Placing an order: the client places an order for sale or purchase of securities. The broker advises the client regarding the type of securities and the time to buy or sell it. The broker purchases or sells the security at the nearest possible price offered by the client.

3.      Marketing the contract: the trading floor of the stock exchange is divided into parts called as trading posts. The authorized clerk of the broker goes to the concerned post and expresses his intention to buy or sell the securities.

4.      Contract note: the buying and selling brokers prepare notes after their mutual consent the next day. The seller is sent a selling note and the buyer is sent a buying note. The details of securities traded are given mentioning the number, price, etc.

5.      Settlement: the spot dealings are settled in full. The selling broker hands over the transfer form and share certificates to the buying broker after receiving the price.

REFORMS IN THE CAPITAL MARKET BY SEBI:

SEBI brought in major reforms in the capital market with the prime objective of protecting the interests of investors. These reforms can be classified into primary market reforms and secondary market reforms.

Primary Market Reforms by the SEBI:

The Securities and Exchange Board of India (SEBI) has introduced various guidelines and regulatory measures for capital issues for healthy and efficient functioning of capital market in India.

1.      The issuing companies are required to make material disclosure about the risk factors, in their offer documents and also to get their debt instruments rated.

2.      Steps have been taken to ensure that continuous disclosures are made by firms so as to enable to investors to make a comparison between promises and performance.

3.      The merchant bankers now have greater degree of accountability in the offer document and the issue process. The due diligence certificate by the lead manager regarding disclosure made in the offer document, has been made a part of the offer document itself for better accountability and transparency on the part of the lead managers.

a.      Lead managers are independent financial institutions appointed by the company going public to manage the IPO.

b.      Lead managers are responsible to write the Red Herring Prospectus (RHP) and get it approved by SEBI. SEBI contacts the lead managers for any irregularities or lapses in RHP and asks them to clarify, add or review certain sections of the document.

4.      New reforms by SEBI, in the primary market, include improved disclosure standards. Introduction of prudential norms and simplifications of issue procedures were implemented.

5.      SEBI has also introduced a code for advertisement for public issues for ensuring fair and true picture.

6.      In order to reduce the cost of issue, the underwriting of issues has been made optional subject to the conditions that if the subscription is less than 90% of the amount offered, the entire amount collected would be refunded to the investors.

7.      The book-building process in the primary market has been introduced with a view to further strengthen the price fixing process. Indian companies have been allowed to raise funds from abroad by issue of ADR/GDR etc.

Secondary Market Reforms by the SEBI:

1.      Since the establishment of Securities and Exchange Board of India (SEBI) in 1992, the decades old trading system in stock exchanges has been under review. The main deficiencies of the system were found in two areas :

(i)           The clearing and settlement system in stock exchanges whereby physical delivery of shares by the seller and the payment by the buyer was made, and

(ii)         Procedure for transfer of shares in the name of the purchaser by the company. The procedure was involving a lot of paper work, delays in settlement and non-transparency in costs and prices of the transactions.

2.      The prevalence of ‘Badla’ system had often been identified as a factor encouraging speculative activities. As a part of the process of establishing transparent rules for trading, the ‘Badla’ system was discontinued in December 1993. The SEBI directed the stock exchanges at Mumbai, Kolkata, Delhi and Ahmadabad to ensure that all transactions in securities are concluded by delivery and payments and not to allow any carry forward of the transactions.

3.       The floor-based open outcry system has been replaced by on-line electronic system.

4.      The period settlement system has given way to the rolling settlement system.

5.      Physical share certificates system has been outdated by the electronic depository system.

6.      The risk management system has been made more comprehensive with different types of margins introduced.

7.      FII’s have been allowed to participate in the capital market.

8.      Stringent steps have been taken to check insider trading.

9.      The interest of minority shareholders has been protected by introducing takeover code.

10.  Several types of derivative instruments have been introduced for hedging.

11.  As a result of the reforms/initiatives taken by Government and the Regulators, the market structure has been refined and modernized. The investment choices for the investors have also broadened.

12.  The securities market moved from T+3 settlement period to T+2 rolling settlement with effect from April 1, 2003.

13.  Real time gross settlement has also been introduced by RBI to settle inter-bank transactions online real time mode.

SECURITIES CONTRACT (REGULATION ACT), 1956-(SCR Act, 1956)

Important provisions of the Act—Section 4, deals with the recognition of a stock exchange, allows the Central government to grant recognition to stock exchanges after satisfying certain conditions.

Power to obtain information and institute enquiry: Section 6 relates to the power of Central government and SEBI to obtain information from the stock exchanges and its members and also conduct enquiry if necessary. Every stock exchange is required to furnish a copy of its annual report to the Central Government.

Bye-Laws of Stock exchange: Section 9 relates to the power of stock exchanges to make bye-laws, subject to approval of SEBI. These bye-laws may provide for opening of closing of the markets, regulation of the hours of trade, the regulation of entering into, making, altering and termination of contracts, the levy and recovery of fees and fines, fixing the scale of brokerage and other charges etc.

Section 10 empowers the SEBI to make or amend bye-laws of recognized stock exchanges. Such bye-laws amended shall be published in the Gazette of India and also in the State Gazette.

Power to Supersede Governing body: Section 11 empowers the Central government to supersede the governing body of a stock exchange if it has reasons to do so. It may appoint any person or persons to exercise and perform all powers and duties of the governing body

Power to suspend business of a stock exchange: Section 12 empowers the Central Government to suspend the business of stock exchange, under certain circumstances for a period not exceeding 7 days.

Power to prohibit contracts in certain cases: Section 16 empowers SEBI to prevent undesirable speculation in specified securities in the State or area. The central Government can prohibit any person in the state or area from trading in specific securities.

Compel listing of securities: Section 21 empowers the central government to compel any public company to list itself on a recognized stock exchange

Right to appeal: Section 22 confers a right of appeal to the government on any public limited company which has been refused quotation of its securities by a recognized stock exchange; the government may vary or set aside the decision of the stock exchange.

LISTING REQUIREMENTS AND OBLIGATIONS

A company has to satisfy certain requirements for listing on the stock exchange. A few important ones are as follows:

1.      The Memorandum and Articles of Association must contain prescribed provisions;

2.      The company must offer for public subscription through a prospectus atleast the prescribed minimum percentage of its issued capital.

3.      The company should inform the exchange authorities about the dividend distribution immediately after the Board meeting.

4.      The company should give an undertaking that it will comply with the provisions of the Companies Act and the Securities Contracts Regulation Act as well as the rules made thereunder.

5.      The company should notify to the stock exchange without delay, of the date of meeting of the Board of Directors regarding major issues and the information on the decisions taken must be communicated.

6.      Companies have to promptly forward to the stock exchange copies of annual reports, resolutions, circulars sent to shareholders to ensure uniform communication in the market.

7.      The companies should publish in a form approved by the stock exchange, periodical interim statements on its workings and earnings.

8.      The company shall inform the stock exchange on events such as strikes, lockouts, closing of accounts on power cuts, both at the time of the event and after to enable shareholders to appraise the position of the company.

EXCHANGE RATE MANAGEMENT

The exchange rate refers to the value of a nation’s currency against the values of
currencies of other countries. Transactions in the foreign exchange market are carried out at foreign exchange rates.

How is exchange rate computed?

There are two ways of determining the value of currency:

The system of exchange rate in which the value of a currency is allowed to adjust freely or to float as determined by demand for and supply of foreign exchange is called a ‘flexible exchange system or the floating exchange system’

On the other hand, if the exchange rate instead of being determined by demand for and supply of foreign exchange is fixed by the government, it is called the fixed exchange rate system. So if there is disequilibrium in the balance of payments giving rise to excess demand or excess supply of foreign exchange, the Central bank of the country has to buy and sell the required quantities of foreign exchange to eliminate the excess demand or supply.

Appreciation and Depreciation of Currencies

Appreciation of a currency is the increase in its value interms of another foreign currency. i.e if the value of Indian Rupee increases from Rs54.50 to Rs 53 to a dollar, Indian Rupee is said to appreciate (also called as the strengthening of Indian rupee). At the same time the other currency, dollar is said to depreciate. On the other hand, if the value of Indian Rupee falls, say from 54.50 to 56 to a dollar, then Indian Rupee is said to depreciate (called as the weakening of the Indian Rupee) and the dollar appreciates.

Normally a change in fixed exchange rates is technically called ―devaluation or ―revaluation, while a change in floating exchange rates is called either ―depreciation or ―appreciation. A one-time lowering of the value of currency in terms of foreign exchange occasionally by a country is called devaluation. If the country raises the value of its currency in terms of foreign currency, it is called revaluation.

What Does Balance Of Payments - BOP Mean?

A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.

The relationship between the BOP and exchange rates can be illustrated by use of a simplified equation that summarizes BOP data:

BOP = (X-M) + (CI-CO) + (FI-FO) +FXB

    * Where: X is exports of goods and services,

    * M is imports of goods and services,

    * (X-M) is known as Current Account Balance

    * CI is capital outflows,

    * CO is capital outflows,

    * (CI-CO) is known as Capital Account Balance

    * FI is financial inflows,

    * FO is financial outflows,

    * (FI-FO) is known as Financial Account Balance

  * FXB is official monetary reserves such as foreign exchange and gold

The effect of an imbalance in the BOP of a country works somewhat differently depending on whether that country has fixed exchange rates, floating exchange rates, or a managed exchange rate system.

DEMAND FOR AND SUPPLY OF FOREIGN EXCHANGE

The demand for dollars by Indians arises due to the following factors:

1.      The Indian individuals, firms or Government who import goods from USA to India;

2.      The Indians travelling and studying in USA would require Dollars to meet their travelling and education expenses;

3.      The Indians who want to invest in equity shares and bonds of the US companies and other financial instruments.

4.      The Indian firms who want to invest directly in building factories, sales facilities, shops in the USA.

The supply of US dollars

1.      The individual firms and Government which export Indian goods to the USA will earn Dollars from the American residents

2.      Firms and individuals who want to buy assets in India, such as bonds and equity shares of Indian companies or wish to make loans to the Indian firms or individuals will supply US dollars.

3.      Indians working in USA send their earnings in dollars to friends and relative, popularly known as remittances.

4.      American tourists travelling India.

FACTORS AFFECTING EXCHANGE RATE

1.      International Trade: the value or strength or weakness of a country’s currency in terms of other currencies depends on its trade with those countries. If a country’s imports are higher, the demand for foreign currency will be higher. High demand for foreign currency implies depreciating domestic currency and this is more prevalent in underdeveloped countries which are dependent on imports for development needs

2.      Capital movements: Countries which attract large capital inflows through foreign investments in the form of FDI and FII, will witness an appreciation in its domestic currency as its demand rises. Similarly outflow would mean a depreciation of domestic currency. The stock exchange operations in foreign securities, debentures, stocks and shares influence the demand and supply of related currency, thus influencing exchange rates.

3.      Inflationary or deflationary conditions affect the prices of goods imported or exported. For example, if prices in India go up the demand for Indian goods comes down. This in turn affects the exports and the demand for rupee will fall.

4.      Speculative Actions affects the exchange rates. When speculators expect a currency to decline, they sell it (say Rupee) and buy the other currency (say dollars) that they expect to appreciate. This selling of increases the supply of Indian Rupees and thus contributes to its depreciation. At the same time the other currency appreciates when there is an increase in demand for it.

5.      Interest rates in a country relative to the other countries with which it trades. Suppose the interest rate on securities  or bonds in USA is 5% while in India it is 8%. This will induce a flight of capital into India as there will be a demand for Indian Rupees and thus leads to appreciation of Indian Rupee. The bank rate also influences the exchange rate by influencing the investments and the demand and supply of the domestic currency.

6.      Political and Economic factorsthat are prevalent in a country decides the strength of the country and its strength or weakness decides the inflow or outflow of currency thereby affecting the exchange rates. Hence countries having stable economic conditions and stable government tend to attract a lot of foreign currency, thereby appreciating the value of domestic currency in comparison.

EQUILIBRIUM EXCHANGE RATE

The equilibrium price of dollar in terms of rupees is equal to the point at which the demand for and supply of dollars intersect. At higher price of Dollars, say Rs 56, the quantity supplied exceeds quantity demanded (eg exports of Indian goods exceed imports) and with this excess supply the exchange rate falls. Similarly, if the exchange rate is lower, say Rs 55, there will be a demand for dollar. The excess demand will push up the price of dollar to Rs 55.50 per dollar.

d

c

Excess in supply

Quantity of Dollars

Price of Dollar (Rs/Dollar)

Y

R 55.50

S

a

b

R’’55

D

Excess demand

R 56.00

 

FIXED EXCHANGE RATE SYSTEM:

Merits of fixed exchange rate system:

1.      Reduces the Risk of uncertainty in international transactions where the buyer or seller does not have to worry about the fluctuation on the amount one has to pay.

2.      Promotes Capital movements: foreign investment is an important source of economic growth and hence an instable currency has lesser capacity in attracting foreign firms to invest into nations.

3.      Prevents capital outflows: at times of difficult economic situations nations may face ‘flight of capital’ causing serious balance of payments problem. A stable exchange rate ensures this does not occur.

4.      Prevents speculation in the forex market: Flexible and unstable exchange rates encourage speculative activities in the forex market and these tend to cause greater fluctuations in exchange rates. Fixed exchange rates eliminate speculation and thereby ensure stability.

5.      Serves as an anchor against inflation: Governments often pursue undue expansionary and monetary fiscal policies to lower unemployment and create boom conditions. This creates inequalities of income and inflationary conditions. Incase of a fixed exchange rate, inflation will cause balance of payments deficits and losses in international reserves and Governments are thus forced to check inflationary conditions using counter measures.

6.      Promotes economic integration of the world: fixed exchange rates between the currencies of various countries serves approximately as a single common currency among nations. Thus it encourages forming economic unions between various countries.

7.      Promotes growth of internal money and capital market: flexible exchange rates cause uncertainties because of which individuals, companies and institutions are reluctant to lend to and borrow from the internal money and capital markets. This uncertainty is present in the case of fixed exchange rates.

Demerits of fixed exchange rate system

Fixed exchange rates posed problems in countries having large balance of payments deficits due to which they were losing gold and other foreign assets. This forced these countries to devalue their currencies, in turn leading to inflationary conditions.

Another problem with this system is the level at which exchange rate would be fixed. If it is fixed at the equilibrium level, which is the rate at which the quantity demanded equals the quantity supplied, no problem arises. But finding such equilibrium is difficult in changing economic conditions. If the exchange rate of foreign currency in terms of the national currency is fixed at a higher than equilibrium level, there will be surplus in balance of payments.

For example if the Indian Government fixes the exchange rate at Rs.57 per US Dollar (when the equilibrium level is Rs 55{assume}) the quantity supplied of dollars by other countries will exceed the quantity demanded by Indians. This causes surplus BOP. This implies that Indian rupee is undervalued.

If the Indian Government fixes the exchange rate at Rs 53 per US Dollar, the quantity demanded of dollars by Indians would exceed the quantity supplied, hence there would be a deficit in the BoP. This implies that at Rs 53 Indian Rupee is Overvalued. As a result India’s stock of foreign exchange and other foreign assets decline. To cut this the government would resort to devaluation of its currency under this system.

Price of Dollar (Rs/Dollar)

O

X

Quantity of dollars

Y

55

S

a

b

57

D

Surplus in BoP

Y

55

S

a

b

53

D

Deficit in BoP

O

X

Quantity of dollars

Merits of Flexible Exchange Rate system

1.      Problems of Undervaluation and Overvaluation are Avoided: under this system whenever there is deficit BoP implying overvaluation of the national currency, it will depreciate and this will make exports cheaper and imports costlier thus bringing in automatic correction in the BoP.

2.      Promotes growth of multilateral trade: promotion of world trade under flexible exchange rates would not interfere in the adoption of policies to achieve domestic economic stability.

3.      Does not necessarily have large fluctuations: fluctuations arise only when economic conditions underlying the demand and supply of currency change and these would be smoothened out by operators in this area.

4.      Ensures individual freedom: unlike fixed exchange rate system where government interference is involved, this system operates where individuals are free to pursue their economic interests.

5.      Frees government from problems of BoP: floating exchange rate system work automatically to restore BoP equilibrium, Government need not pay attention to BoP and instead focus on solving domestic problems.

Demerits of Flexible Exchange Rate system

1.      Frequent fluctuations create uncertaintyabout the exact amount of receipts and payments of Foreign exchange transactions.

2.      Dampening effect on Foreign trade: the price of foreign exchange or international value of the national currency is uncertain. Hence, proper decisions regarding exports and imports are affected thereby dampening the effect on volume and growth of foreign trade.

3.      Widespread speculation regarding the exchange rates of currencies has a large destabilizing effects on these rates.

4.      Provides an inflationary bias to the economy: whenever due to deficit in BoP, the currency depreciates, the prices of imports go up. The higher prices of imported materials raise the prices of industrial products and thus generate cost-push inflation.

Crawling Pegged Exchange System:

Combining the advantages of the fixed exchange rate with flexibility of floating exchange rate is said to be crawling peg or (dirty float). The national currency is pegged to a foreign currency and it moves in line with that currency against other currencies.

CURRENCY CONVERTIBILITY

It refers to the free conversion of a currency into foreign exchange at market determined rate of exchange.

Current Account: a transactions arising out of export, imports, tourism, medical expenses, education, currency gifted overseas(or received from overseas) are called current account transactions.

Transactions arising out of FDI into a country or outside the country, to borrow overseas, and to lend overseas are called capital account transactions.

Convertibility of Rupee in India was recommended by :

Rangarajan Committee Report, 1993

Tarapore Committee Report, 1997;

Fuller Capital Account Convertibility, 2006

Convertibility of a currency: implies that a currency can be transferred into another currency without any limitations or any control. A currency is said to be fully convertible, if it can be converted into some other currency at the market price of that currency.

Current account convertibility refers to currency convertibility required in current account transactions.

On the other hand, Capital account convertibility refers to convertibility required in capital account transactions.

Convertibility of Indian Rupee: as part of the new economic reforms initiated in 1991 Rupee was made partly convertible from March 1992 under the “Liberalized Exchange Rate Management” scheme in which 60 % of all receipts on current account could be converted freely into Rupees at market determined exchange rate quoted by authorized dealers, while 40 % was to be surrendered at the RBI at the official fixed exchange rate.

è These 40% was meant for meeting the Government needs for foreign exchange and for financing imports of essential commodities (so that essential imports could be made available at lower exchange rate to ensure stability in prices).

è Full convertibility of Rupees was considered risky in view of large Balance of Payments on current account.

è Even after the partial convertibility of Rupee foreign exchange, value of Rupee remained stable, and hence full convertibility on current account of Rupee was announced in the budget for 1993-1994. However, on capital account Rupee remained non-convertible.

è In 1997, the Tarapore Committee on Capital Account Convertibility (CAC), constituted by the RBI, had indicated the preconditions for Capital Account Convertibility. The three crucial preconditions were fiscal consolidation, a mandated inflation target and strengthening of the financial system.

è In 2003, the RBI Governor outlined issues related to capital account convertibility in India.

è Prime Minister Manmohan Singh on 18th March 2006 said there was merit in India moving towards fuller capital account convertibility. He asked Finance Minister and the Reserve Bank of India to revisit the subject and come out with a road map on capital account convertibility based on current realities.

è In response to Prime Minister's statement, Reserve Bank of India on 20th March 2006, announced Committee to set out Roadmap towards Fuller Capital Account Convertibility.

EXCHANGE RATE CONCEPTS

Nominal Exchange Rate (NER): there is a forex value for Rupees and US Dollar, Rupees and Pound Sterling, Rupees and Japanese Yen and this exchange rate is called the nominal exchange rate.

Nominal Effective Exchange Rate(NEER): it is the weighted average of nominal exchange rates where weights used are the shares of the trading partners in the foreign trade of a country. Suppose US accounts for 60% of total trade with India and UK 40% of trade with India, NEER will be:

(NER_US*W_US) +(NER_UK*W_UK)

According to the example: (44*0.6)+(85*0.4)=60.4

Real Exchange Rate(RER): the Rupee price of a basket of goods in India relative to the Dollar price of the same basket of goods in the USA. It is used as a measure of international competitiveness.

RER= (NER)*(P_US/P_IN)

For example if a basket of goods cost Rs 200 in India and the same costs 20 US Dollars then RER will be:

44*(20/200) = 4.4. This means 4.4 units of Indian goods are needed to buy one unit of US goods.

Real effective exchange rate (REER): it is the weighted average of RER with all its trade partners, the shares of different countries in its total trades are used as weights. In India major trade partners like US, UK, Japan, and other European countries are used as weights for calculating REER.

Advantages of Currency Convertibility in India are as follows:

1.      It encourages exports by increasing their profitability as the exchange rate will be higher than the earlier one under fixed exchange rate system.

2.      Encourages import substitution as the imports become expensive under market determined rates and thereby discourage imports.

3.      It provides greater incentives to send remittances of foreign exchange by Indian workers living abroad and by NRIs. It makes illegal remittances less attractive.

4.      When BoP is in deficit due to over-valued exchange rate, the currency of the country depreciates boosting exports and discouraging imports, thereby leading to an automatic correction in the BoP without Government intervention creating a self-balancing mechanism.

5.      It ensures the production pattern of the country according to their comparative advantage and resources endowment. A country tends to import goods in the production of which it has a comparative disadvantage, while it exports goods where it has an advantage.

6.      Easy access to foreign exchange helps the growth of trade and capital flows between the countries thus ensuring rapid economic growth in the economies of the world.

Problems of currency convertibility

1.      The market determined exchange rate leads to increase in prices of essential imports and generates cost-push inflation in the economy.

2.      If current account convertibility is not properly monitored and managed market exchange rate may lead to depreciation of domestic currency. This will affect the trade and capital flows in the country.

3.      Convertibility makes a currency volatile and operations of speculators add on to instability.

INDIA AND ITS EXCHANGE RATE

It is known that changes in exports and imports, capital inflows and outflows bring about large fluctuations in foreign exchange rate of rupee. The resultant appreciation or depreciation of Rupee affects the economy and hence RBI often intervenes to ensure that exchange rate remains within reasonable limits. When Rupee depreciates much, RBI intervenes and sells dollars from its reserves of foreign exchange. This increases the supply of dollars in the market and prevents depreciation of Rupee. The opposite happens when the Rupee appreciates too much. Therefore, through the intervention of RBI, exchange rate of Rupee is not allowed to change beyond certain limits. Such a system adopted by India is not completely flexible or floating exchange rate system is called managed float system.

Cases Birla Corporation

The company manufactures cement, Jute products, automobile components, pvc flooring, carbide, gases, synthetics and steel castings. By 2003-04, their sales shot up by 10.6 percentage to Rs.1, 243, 18 crore, from the previous year. Profit after tax was Rs. 41.56 crore against Rs.4.19 crore in 2002-03. This was achieved by the company’s improved performance of cement division, and by a well-planned cost management.

The cement division alone contributed for 88.75 percent of the company’s sales in 2002-03, and in 2003-04 they achieved higher capacity utilization. Total exports increased to Rs. 50.80 crore in 2003-04 from Rs.48.19 crore in 2002-03.

In 2003-04, their jute exports increased, and the company had a good performance rate. The total sale of iron and steel casting was increase to 948 tonnes in 2003-04, as compared to 855 tonnes in 2002-03. The automobile sector had to face a decline. Their calcium-carbide industry struggled much due to competition from low priced materials from China and Romania, and duty free imports from Bhutan. Increase in power tariff also contributed much to their struggle.

Low interest rates activity in housing sector will continue to be robust, boosting demand for cement. Taking this into advantage. Birla Corporation has decided to expand capacity at its Durgapur Cement Plant by 1 million tones. They are also working hard to make the production capacity of Chanderia Cement 3 Lakh tones per annum. Projects are underway to set up power plants of 237 MW, as new industrial undertaking at Satna, M.P. and Chanderia, Rajasthan. These Power plants would enhance the cost of the units.

Question: Discuss the business activities of Birla Corporation based on the recent Developments?

Every Industries India

Eveready Industries India produces products ranging from carbon zinc batteries, rechargeable batteries, alkaline batteries and flashlight, to packed tea and bulk tea in2003-04, the company had to face a loss before tax of Rs. 38 Lakhs, against a profit before tax of Rs. 11.13 crore in 2002-03. Sales increased by about 3 percent

Eveready has started to focus on outsource production. They are trying to improve their quality, and reduce costs. They had a very tough time due to the rising cost of input materials in global markets, especially non-ferrous materials like zinc and brass. Due to high demand for cheap flashlight in the market, they have started to source flashlight form small scale industry units and price them attractively. They have a market share of 43 percent in zinc carbon batteries, and have launched a rechargeable torch, and two models of CFL rechargeable lanterns. They have also started to manufacture cordless telephone batteries and AAA batteries.

The company is also concentrating on controlling costs, and increasing the yield and efficiency of their workers. They are planning to further improve their distribution channels for packed tea. They are also initiating capacity enhancement at their tea factories. The tea plantation sector had to face a number of problems, including low process, increasing cost of production, declining export volume and price realization, in the recent years. A general over-supply situation and the slowdown of consumption growth adversely affected prices. Eveready has initiated various steps to rationalize the operations of their tea estates.

Questions:  Discuss the business trends with reference to Eveready Industries?

Steel Authority of India

Steel Authority of India, is a leading steel maker in India. They produce and sell a broad range of steel products , including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets structural’s, They produce iron and steel at 4 integrated plants and 3 special steel plants, located mostly in the eastern and central regions of India.

The company recorded its highest ever sales turnover of Rs 24,178 crore in 2003-04, compared to Rs. 19,207 corer in 2002-03. The company has recorded a significant turnaround with net profit of Rs.2.512 corer during 2003-04, from a loss of Rs. 304 crore in 2002-03. The reasons for this turnaround are the increase in production, cost reduction measures, reduction in borrowings, improved product mix and buoyancy in the steel market. The company has performed reasonable well in the recent years too.

The debt-equity ratio improved dramatically due to better cash management and improved profitability. The total cost of production was lowered by 4 percent on account of measures focused on reduction in usage of coking coal/other raw materials, in energy consumption and control on administrative expenditure. The company relieved 2000 employees through voluntary retirement.

The major challenge that the sector faces is the shortage of raw materials, including coking coal, coke, etc. the scarcity has resulted in rise in international coal prices. The company can face this challenge only by finding alternative input materials like coal tar, petroleum, fuel etc.

Questions: Discuss the business performance of Steel Authority of India? Do they face challente?

Gas Authority of India Limited (GAIL)

The Gas Authority of India is a leading public sector enterprise, whose activities range from gas marketing and distribution through trunk and regional systems, to retailing of natural gas for production and marketing of liquefied petroleum gas (LPG), liquid hydrocarbons and petrochemicals. They are ranked among the top 10 companies of India.

The intensification of domestic exploration activities under the new exploration and licensing policy has led to the discovery of new oil and gas reserves. The current share of gas in primary energy consumption is 8 percent. Macroeconomic policies would drive the demand for gas in the coming years. The industrial sector also has a large appetite for gas. The growing urban population will require greater availability of compressed natural gas.

While supply sources of gas are geographically dispersed, India lacks interstate pipeline infrastructure for supply of gas to the markets. Gas Authority of India (GAIL) has made some progress in the implementation of the grid, covering acquisitions, preparing feasibility studies, identification of markets and procurement of gas management projects make up the bulk of GAIL’s business development plans for the coming years. The company’s aim to transform itself into an integrated energy company with involvement in the upstream and downstream power sector, and also undertake projects in countries in West Asia and South East Asia in gas infrastructure development and processing. It is already associated with various transnational gas pipeline projects in India, and is also involved in liquefied natural gas (LNG) import project. It is also plans to interface with similar initiatives for increasing gas supplies in the market. It would undertake a low cost expansion of its infrastructure of gas pipelines and networks, to increase gas usage in the market.

Questions: Discuss the business structure and performance of Gas Authority of India?