UNIT III BUSINESS ETHICS

BY : MS.HETAL GAGLANI FACULTY, DMIMS

Introduction
Rajiv Gandhis government initiated the policy of

liberalization since mid-80s.

The liberalization initiatives have been undertaken

in India with a view to - increase production, - improve quality and - get access to market for products and service abroad.

Contd..
Radical liberalization or globalization measures

have been brought in since July 1991 to make the Indian economy progressively market oriented and integrate it with the emerging global economy structure. These measures includes: - reduction of excise duty and customs duties - delicensing of several drug and pharmaceutical products - ready access to import of raw material and capital goods and so on.

Contd..
Indian industries have started to attract foreign

portfolio investment and equity participation in new ventures.

The government is committed to make foreign

players feet at ease to invest directly and bring with it new technology and marketing skills.
There has been impressive growth in FDI inflows

to India with the introduction of policy reforms.

Definition - LIBERALISATION
It refers to loosening or removal of controls so that

economic development gets encouragement

It includes abolition of those economic policies, rules,

regulations, administrative controls and procedures which impede economic development

In other words, economic liberalisation is a new

economic policy of promoting market determined economic decisions rather than bureaucratic arbitary economic decisions

Genesis
1980s,the root cause of the crisis was the large and

growing fiscal imbalance.

Large fiscal deficits emerged as a result of mounting

government expenditures, particularly during the second half of the 80s.

hese fiscal deficits led to high levels of borrowing by the T

government from the Reserve Bank of India(RBI), IMF, WorldBank.

Contd..
Government expenditure in India grew at a phenomenal rate

faster than what government earns as a revenues.

The subsidies grew at a rate faster than government

expenditures.
Expenditure on subsidies rose from Rs.19.1 billion in 1980-81

to Rs. 107.2 billion in 1990-91.

Contd..
The Indian economy was indeed in deep trouble. Lack of foreign reserves . Gold reserve was empty. Before 1991, India was a closed economy.

Contd..
The government was close to default and its

foreign exchange reserves had reduced to the point that India could barely finance three weeks worth of imports.
he Government of India headed by Chandra T

Shekhar, with Manmohan Singh (appointed as a special economical advisor)decided to usher in several reforms that are collectively termed as liberalisation in the Indian media.

The New Industrial Policy,1991

It pertain broadly to five areas viz.,

(a) Industrial licensing, (b) Public sector policy, (c) MRTP Act, 1969, (d) Foreign investment, and (e) Foreign technology agreements.

Industrial Licensing
This is one of the areas in which substantial change has

been made by the government. With a view to give effect to these changes, the government issued a notification on July 25, 1991 and this notification has exempted the industrial undertakings from the operation of the following Sections of Industries Development and Regulations Act, 1951 subject to the fulfillment of certain conditions. (a) Section 10 (which deals with registration of existing industrial undertakings); (b) Section 11 (which is concerned with the licensing for new industrial undertakings); and (c) Section 13 (which is concerned with the licensing requirements for substantial expansion).

Contd..
Further, the second schedule appended to the

notification cited above lists the industries which are subject to mandatory industrial licensing. According to this notification, only 18 industries were subject to compulsory industrial licensing. Further, five more industries have been excluded from the list of industries which are subject to compulsory industrial licensing subsequently. That means, only 13 industries are now subject to compulsory industrial licensing.

Public Sector Policy

A large number of Public Sector Enterprises have

failed to achieve at least a reasonable rate of success.

Some of the factors which have contributed to this

situation are over staffing and over managing.

Hence, the government, in its Industrial Policy, 1991,

introduced the number of significant changes pertaining to the PSEs.

Contd..
The list of industries reserved solely for the public

sector --which used to cover 17 industries, including - iron and steel, - heavy plant and machinery, - telecommunications and telecom equipment, - minerals, oil, mining, air transport services and - electricity generation and distribution
has been drastically reduced to six :

Contd..

(a) Arms and ammunition and allied items of defence equipment, aircraft and warships, (b) Atomic energy, (c) Coal and lignite, (d) Mineral oils, (e) Minerals specified in the schedule to the Atomic Energy Order, 1953, and (f) Railway transport.
However the objective of the New Industrial Policy has

been to withdraw the public sector investment from the activities which can successfully be taken up by the private sector enterprises.

Contd..

The New Industrial Policy also proposes selective

privatization of PSEs.

Further, the policy also proposes to close down the

PSEs which have become sick and which cannot be rehabilitated.

The New Industrial Policy also aims at providing

greater operational and managerial autonomy to the management of PSEs and making the managements accountable for the performance through a system called Memorandum of Understanding.

MRTP Act, 1969 and License Raj

Post independence, many new and big firms have entered the Indian market. They had little competition and they were trying to monopolize the market. The Government of India understood the intentions of such firms.

Contd..

In order to safeguard the rights of consumers,

Government of India passed the MRTP bill.

The bill was passed and the Monopolies and

Restrictive Trade Practices Act, 1969, came into existence.

Through this law, the MRTP commission has the

power to stop all businesses that create barrier for the scope of competition in Indian economy.

Contd
The important objectives of this were:

(a) Prevention of concentration of economic power in the hands of few which will be detrimental to the common interest; and (b) Regulation of monopolistic, restrictive and unfair trade practices which are pursued by the business community and which are prejudicial to the public interest.

Just for Reference

Monopolistic Trade Practice

Such practice indicates misuse of one's power to abuse the market in terms of production and sales of goods and services. Firms involved in monopolistic trade practice tries to eliminate competition from the market. Then they take advantage of their monopoly and charge unreasonably high prices. They also deteriorate the product quality, limit technical development, prevent competition and adopt unfair trade practices.
Restrictive Trade Practice

The traders, in order to maximize their profits and to gain power in the market, often indulge in activities that tend to block the flow of capital into production. Such traders also bring in conditions of delivery to affect the flow of supplies leading to unjustified costs.

Just for Reference

Unfair Trade Practice
The following may result in an unfair trade practice: - False representation and misleading advertisement of goods and services. - Falsely representing second-hand goods as new. - Misleading representation regarding usefulness, need, quality, standard, style etc of goods and services. - False claims or representation regarding price of goods and services. - Giving false facts regarding sponsorship, affiliation etc. of goods and services. - Giving false guarantee or warranty on goods and services without adequate tests.

License Raj
The License Raj was a result of India's decision to have a

planned economy where all aspects of the economy are controlled by the state and licences are given to a select few.
private companies could produce something and, if granted, the government would regulate production. accompanying red tape that were required to set up business in India between 1947 and 1990. a planned economy, where all aspects of the economy are controlled by the state and licenses were given to a select few.

Up to 80% government agencies had to be satisfied before

License Raj refers to the elaborate licenses, regulations and

The license Raj was a result of Indias decision to have

Foreign Investments in India

After reforms in 1992, huge amounts of foreign direct

investment came into India.

In 1993, foreign institutional investors were allowed

to purchase shares of listed Indian companies in the stock market.

This is to enable the domestic companies an easy access

to international markets.

With a view to negotiate with the large international

financial institutions and to approve the direct foreign investments proposals in selected areas, the New Policy proposes to constitute a special committee.

Foreign Technology Agreements

The New Industrial Policy proposes to give

automatic permission for foreign technology agreements in identified high priority industries.
Further, it also proposes to allow other industries

to import foreign technology subject to the fulfillment of certain conditions.

Conclusion
The New Industrial Policy, 1991 certainly differs

significantly from the earlier philosophies, approaches, etc. of the government. For instance, prior to 1991, scope of public sector was expanded by reserving more number of industries for the public sector. But now, its scope has been reduced drastically by reducing the number of industries reserved for the public sector. Like this, a large number of changes can be noticed in the new policy.

Contd..
This process has been continuing even in post

liberalization era.

Adding to this, the government has taken a number

of steps to give effect to its policy decisions included in the New Industrial Policy, 1991.

Though the economy has been benefited

significantly from these measures, the economy has not been able to reap the full benefits of the Economic Reform Package owing to the political instability, etc.

Privatization
Privatization, in the narrow sense, means transfer of

ownership, or sale of public enterprises. Several countries are privatizing their public sector enterprises. India is no exception to it. Privatization was meant to improve the performance of public enterprises. Privatization techniques have been tried in countries like Great Britain, China, US, Turkey, Brazil, Mexico, Japan, etc.

Privatization of PSUs
Majority of the industrial enterprises in the public sector have

failed to achieve the desired result. Of course, a number of factors-internal and external, controllable and non- controllable are responsible for his precarious performance. A look at the history of public sector undertakings (PSUs) in the country reveals the continuous expansion in the role of PSUs. Consequently, a number of enterprises have been established and huge amount of borrowed capital has been employed by the state even in the non-core, non- strategic and not so essential area. Hence, the state has made a number of changes in its New Industrial Policy announced on July 24, 1991.

Contd..
Some giant public sector units

e.g., - Indian Oil Corporation, - Steel Authority of India, - Oil and Natural Gas Commission, - Hindustan Petroleum Corporation Ltd., - Coal India Ltd and Bharat Petroleum Corporation Ltd
figure in Fortune Internationals large companies.

Contd..
In India, privatization is taking place by adopting

two common methods viz.,

(a) Having fewer controls and regulations by the state in economic activities, and (b) Transferring ownership of state equity in PSUs to private individuals and institutions.

Benefits of Privatization
Increasing overall efficiency Improvement in the quality of management and decision making No government financial backing, and therefore, capital market will

compel these enterprises to be more efficient; in reduction in budgetary deficit;

Substantial reduction in governments budgetary support resulting

Recovery of government fund which could more productively be

used in development activities;

Reduction in political and bureaucratic interferences;

Globalisation
It may be described as the integration of national

economy with that of global economy.

More important, perhaps, it refers to a process of

increasing economic integrated and growing economic interdependence between countries in the world economy.
The term Globalization as such denotes adjustment

of national economy with that of the world economy.

Factors contributing to Globalization:

Technological Advances in Communication:

Technological advances in communication have made it possible to know in an instant what is happening in different parts of the world. The flow of information and ideas, boosted greatly by the Internet, can enable developing countries to learn more rapidly from each other and from industrial countries.

Contd..
Improvements In Transportation & Technology:

Improvements in transportation networks and technology are reducing the costs of shipping goods by water, ground and air. This can facilitate the movements of goods. Technological improvements can enable developing countries to leap stages in the development process that rely on inefficient uses of national resources.

Contd..
Other Factors:

Rising educational levels, technological innovations that allow ideas to circulate, and the economic failures of most centrally planned economies have also contributed to Globalization.

Advantages of Globalization:
Promise of Increase Productivity And Higher Living

Standards Increase In Trade in Goods And Services Provide New Opportunities For Growth Globalization of Financial Markets Increased Flow Of foreign Market Capital Induce Domestic Firms To Improve Technology Impact on Poverty Increase The Level Of Interdependence And Competitiveness

Disadvantages of Globalisation
Takeover of National Firms Ruin of Traditional Crafts And Industries

Brings Instability
Widens The Disparity