1. A report submitted for internal assessment of
Economic Environment for
Business
Under the guidance of Prof. Shivani
Presented by;
Lokesh Rana
Section: FM1
IIPM
IIPM TOWER, SATBARI CHANDAN HAULA, CHATTARPUR-
BHATIMINES
ROAD
NEW DELHI

2. 1. What is MRTP and how it is sought to be regulated?
2. What is UTP and how it is sought to be regulated?
3. Comment on trending & success of monetary policy in India from
1960-2010.
4. Introduction of MNC’s in the Indian economy has been a boon as
well as bane.
5. FISCAL POLICY
6. FERA
Q. What are MRTP and how they sought to be regulated?
Ans:
The MRTP Act, 1969
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. 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.
The MRTP Act, 1969, aims at preventing economic power concentration in order to avoid
damage. The act also provides for probation of monopolistic, unfair and restrictive trade
practices. The law controls the monopolies and protects consumer interest.
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.
A restrictive trade practice is a trade practice, which
1. Prevents, distorts or restricts competition in any manner; or
2. Obstructs the flow of capital or resources into the stream of production; or
3. Which tends to bring about manipulation of prices or conditions of delivery or affected the
flow of supplies in the market of any goods or services, imposing on the consumers unjustified
cost or restrictions.
Inquiry into Restrictive Practices:
The Commission may inquire into any restrictive trade practice

3. 1. Upon receiving a complaint from any trade association, consumer or a registered
consumer association, or
2. Upon a reference made to it by the Central or State Government or
3. Upon its own knowledge or information <
Relief Available:
The commission shall if after making an inquiry it is of the opinion that the practice is
prejudicial to the public interest, or to the interest of any consumer it may direct that
1. The practice shall be discontinued or shall not be repeated;
2. The agreement relating thereto shall be void in respect of such restrictive trade practice or
shall stand modified.
3. The Commission may permit the party to any restrictive trade practice to take steps so that it
is no longer prejudicial to the public interest
About the MRTP Act, 1969
The MRTP Act extends to the whole of India except the state of Jammu and Kashmir. This law
was enacted:
To ensure that the operation of the economic system does not result in the concentration of
economic power in hands of few,
To provide for the control of monopolies, and
To prohibit monopolistic and restrictive trade practices.
Unless the Central Government otherwise directs, this act shall not apply to:
1. Any undertaking owned or controlled by the Government Company,
2. Any undertaking owned or controlled by the Government,
3. Any undertaking owned or controlled by a corporation (not being a company) established by
or under any Central, Provincial or State Act,
4. Any trade union or other association of workmen or employees formed for their own
reasonable protection as such workmen or employees,
5. Any undertaking engaged in an industry, the management of which has been taken over by
any person or body of persons under powers by the Central Government,
6. Any undertaking owned by a co-operative society formed and registered under any
Central, Provincial or state Act,
7. Any financial institution.
MRTP Commission and Filing of Complaint:
For the purpose of this Act, the Central Government has established a commission to be known
as the Monopolies and Restrictive Trade Practices Commission. This commission shall consist of
a Chairman and minimum 2 and maximum 8 other members, all to be appointed by the Central
Government. Every member shall hold the office for a period specified by the Central

4. Government. This period shall not exceed 5 years. However, the member will be eligible for re-
appointment.
In case of any unfair trade practice, monopolistic trade practice and/or restrictive trade practice,
a complaint can be filed against such practices to the MRTP commission. The procedure for
filing a complaint is as follows:
Complaint is filed either by the individual consumer or through a registered consumer
organization.
The Director General of the MRTP commission would carry on the investigation for finding
facts of the case.
If the prima facie case is not made, the complaint is dismissed. If the compliant is true, an
order is passed to its effect.
The commission restricts and restrains the concerned party from carrying on such practices by
granting temporary injunction.
Q. What is UTP and how it is sought to be regulated?
Ans:
Unfair Trade Practice.
An unfair trade practice means a trade practice, which, for the purpose of promoting any sale,
use or supply of any goods or services, adopts unfair method, or unfair or deceptive practice.
Unfair practices may be categorized as under:
1. False Representation:
The practice of making any oral or written statement or representation which:
1. Falsely suggests that the goods are of a particular standard quality, quantity, grade,
composition, style or model;
2. Falsely suggests that the services are of a particular standard, quantity or grade;
3. Falsely suggests any re-built, second-hand renovated, reconditioned or old goods as new
goods;
4. Represents that the goods or services have sponsorship, approval, performance,
characteristics, accessories, uses or benefits which they do not have;
5. Represents that the seller or the supplier has a sponsorship or approval or affiliation which he
does not have;
6. Makes a false or misleading representation concerning the need for, or the usefulness of, any
goods or services;
7. Gives any warranty or guarantee of the performance, efficacy or length of life of the goods,
that is not based on an adequate or proper test;

5. 8. Makes to the public a representation in the form that purports to be warranty or guarantee of
the goods or services, a promise to replace, maintain or repair the goods until it has achieved a
specified result,
If such representation is materially misleading or there is no reasonable prospect that such
warranty, guarantee or promise will be fulfilled
9. Materially misleads about the prices at which such goods or services are available in the
market; or
10. Gives false or misleading facts disparaging the goods, services or trade of another person.
2. False Offer of Bargain Price:
Where an advertisement is published in a newspaper or otherwise, whereby goods or services
are offered at a bargain price when in fact there is no intention that the same may be offered at
that price, for a reasonable period or reasonable quantity, it shall amount to an unfair trade
practice.
The 'bargain price', for this purpose means:
1. The price stated in the advertisement in such manner as suggests that it is lesser than the
ordinary price, or
2. The price which any person coming across the advertisement would believe to be better than
the price at which such goods are ordinarily sold.
3. Free Gifts Offer and Prize Scheme
The unfair trade practices under this category are:
1. Offering any gifts, prizes or other items along with the goods when the real intention is
different, or
2. Creating impression that something is being offered free along with the goods, when in fact
the price is wholly or partly covered by the price of the article sold, or
3. Offering some prizes to the buyers by the conduct of any contest, lottery or game of chance or
skill, with real intention to promote sales or business.
4. Non-Compliance of Prescribed Standards:
Any sale or supply of goods, for use by consumers, knowing or having reason to believe that
the goods do not comply with the standards prescribed by some competent authority, in
relation to their performance, composition, contents, design, construction, finishing or packing,
as are necessary to prevent or reduce the risk of injury to the person using such goods, shall
amount to an unfair trade practice.

6. 5. Hoarding, Destruction, Etc.
Any practice that permits the hoarding or destruction of goods, or refusal to sell the goods or
provide any services, with an intention to raise the cost of those or other similar goods or
services shall be an unfair trade practice.
6. Inquiry into Unfair Trade Practices:
The Commission may inquire into any unfair trade practice:
1. Upon receiving a complaint from any trade association, consumer or a registered consumer
association, or
2. Upon reference made to it by the Central Government or State Government
3. Upon an application to it by the Director General or
4. Upon its own knowledge or information.
Relief Available
After making an inquiry into the unfair trade practice if the Commission is of the opinion that
the practice is prejudicial to the public interest, or to the interest of any consumer it may direct
that:
1. The practice shall be discontinued or shall not be repeated;
2. The agreement relating thereto shall be void in respect of such unfair trade practice or shall
stand modified.
3. Any information, statement or advertisement relating to such unfair trade practice shall be
disclosed, issued or published as may be specified
4. The Commission may permit the party to carry on any trade practice to take steps to ensure
that it is no longer prejudicial to the public interest or to the interest of the consumer.
However no order shall be made in respect a trade practice which is expressly authorised by
any law in force.
The Commission is empowered to direct publication of corrective advertisement and disclosure
of additional information while passing orders relating to unfair trade practices.

7. Q. Comment on trending & success of monetary policy in India from 1960-2010.
Ans:
Reforms in the Indian Monetary Policy during 1990s:
The Monetary policy of the RBI has undergone massive changes during the economic reform
period. After 1991 the monetary policy is disassociated from the fiscal policy. Under the reform
period an emphasis was given to the stable macro-economic situation and low inflation policy.
The major changes in the Indian Monetary policy during the decade of 1990.
1. Reduced Reserve Requirements: During 1990s both the Cash Reserve Ratio (CRR) and the
Statutory Liquidity Ratio (SLR) were reduced to considerable extent. The CRR was at its highest
15% plus and additional CRR of 10% was levied, however it is now reduced by
4%. The SLR is reduced form 38.5% to a minimum of 25%.
2. Increased Micro Finance: In order to strengthen the rural finance the RBI has focused more
on the Self Help Group (SHG). It comprises small and marginal farmers, agriculture and non-
agriculture labour, artisans and rural sections of the society. However still only
30% of the target population has been benefited.
3. Fiscal Monetary Separation: In 1994, the Government and the RBI signed an agreement
through which the RBI has stopped financing the deficit in the government budget. Thus it has
separated the monetary policy from the fiscal policy.
4. Changed Interest Rate Structure: During the 1990s, the interest rate structure was changed
from its earlier administrated rates to the market oriented or liberal rate of interest. Interest rate
slabs are now reduced up to 2 and minimum lending rates are abolished. Similarly, lending
rates above ` Two lakh are freed.
5. Changes in Accordance to the External Reforms: During the 1990, the external sector has
undergone major changes. It comprises lifting various controls on imports, reduced tariffs, etc.
The Monetary policy has shown the impact of liberal inflow of the foreign capital and its
implication on domestic money supply.
6. Higher Market Orientation for Banking: The banking sector got more autonomy and
operational flexibility. More freedom to banks for methods of assessing working funds and
other functioning has empowered and assured market orientation.

8. Evaluation of the Monetary Policy in India:
During the reforms though the monetary policy has achieved higher success in the monetary
policy, it is not free from limitation or demerits. It needs to be evaluated on a proper scale.
1. Failed in Tackling Budgetary Deficit: The higher level of the budget deficit has made the
monetary policy ineffective. The automatic monetization of the deficit has led to high monetary
expansion.
2. Limited Coverage: The Monetary policy covers only commercial banking system leaving
other non-bank institutions untouched. It limits the effectiveness of the monitor policy in
India.
3. Unorganized Money Market: In our country there is a huge size of the unorganized money
market. It does not come under the control of the RBI. Thus any tools of the monetary policy do
not affect the unorganized money market making monetary policy less affective.
4. Predominance of Cash Transaction: In India still there is huge dominance of the cash in
total money supply. It is one of the main obstacles in the effective implementation of the
monetary policy. Because monetary policy operates on the bank credit rather on cash.
5. Increase Volatility: As the Monetary policy has adopted changes in accordance to the
changes in the external sector in India, it could lead to a high amount of the volatility.
There are certain drawbacks in the working of the monetary policy in India. However, during
the economic reforms it has got different dimensions.
Q. Introduction of MNC’s in the Indian economy has been a boon as well as bane.
Ans:
Multinational Companies in India (MNC)
As the name suggests, any company is referred to as a multinational company or corporation
(M. N. C.) when that company manages its operation or production or service delivery from
more than a single country.
Such a company is even known as international company or corporation. As defined by I. L.
O. or the International Labor Organization, a M. N. C. is one, which has its operational
headquarters based in one country with several other operating branches in different other
countries. The country where the head quarter is located is called the home country whereas;
the other countries with operational branches are called the host countries. Apart from playing
an important role in globalization and international relations, these multinational companies
even have notable influence in a country's economy as well as the world economy. The budget

9. of some of the M. N. C.s are so high that at times they even exceed the G. D. P. (Gross Domestic
Product) of a nation.
These are not the sole prior causes of the Nokia, Vodafone, Fiat, Ford Motors and as the list
moves on- to flourish in India. As the basic economic data suggest that after the liberalization in
1991, it has brought in hosts of foreign companies in India and the share of
U.S shows the highest. They account about 37% of the turnover from top 20 companies that
function in India.
Why are Multinational Companies in India?
There are a number of reasons why the multinational companies are coming down to India.
India has got a huge market. It has also got one of the fastest growing economies in the world.
Besides, the policy of the government towards FDI has also played a major role in attracting the
multinational companies in India.
For quite a long time, India had a restrictive policy in terms of foreign direct investment. As a
result, there was lesser number of companies that showed interest in investing in Indian
market. However, the scenario changed during the financial liberalization of the country,
especially after 1991. Government, nowadays, makes continuous efforts to attract foreign
investments by relaxing many of its policies. As a result, a number of multinational companies
have shown interest in Indian market.
Profit of MNCs in India:
It is too specify that the companies come and settle in India to earn profit. A company enlarges
its jurisdiction of work beyond its native place when they get a wide scope to earn a profit and
such is the case of the MNCs that have flourished here. More over India has wide market for
different and new goods and services due to the ever increasing population and the varying
consumer taste. The government FDI policies have somehow benefited them and drawn their
attention too. The restrictive policies that stopped the company's inflow are however
withdrawn and the country has shown much interest to bring in foreign investment here.
Besides the foreign directive policies the labour competitive market, market competition and
the macro-economic stability are some of the key factors that magnetize the foreign MNCs here.
Following are the reasons why multinational companies consider India as a preferred
destination for business:
Huge market potential of the country
FDI attractiveness
Labour competitiveness
Macro-economic stability
Advantages of the growing MNCs to India:

10. There are certain advantages that the underdeveloped countries like and the developing
countries like India derive from the foreign MNCs that establishes. They are as under:
Initiating a higher level of investment.
Reducing the technological gap
The natural resources are utilized in true sense.
The foreign exchange gap is reduced
Boosts up the basic economic structure.
Inter connectivity increased amongst nations.
New technology invent (bio-friendly, ecological).
Monopoly reduction.
Employment generation.
Outsourcing generation, Technology transfer
Disadvantages of MNCs:
Roses do not come without thrones. Disadvantages of having MNCs in a developing country
like India are as under-
Pollution and Environmental hazards
Some MNCs come only for tax benefits only
Exploitation of natural resources
Lack of employment opportunities
Diffusion of profits and Forex Imbalance
Working environment and conditions
Slows down decision making
Economic distress
Q. FISCAL POLICY:
The fiscal policy is concerned with the raising of government revenue and incurring of
government expenditure. To generate revenue and to incur expenditure, the government
frames a policy called budgetary policy or fiscal policy. So, the fiscal policy is concerned with
government expenditure and government revenue.
The fiscal policy is designed to achieve certain objectives as follows:-

11. 1. Development by effective Mobilisation of Resources
The principal objective of fiscal policy is to ensure rapid economic growth and development.
This objective of economic growth and development can be achieved by Mobilisation of
Financial Resources.
The central and the state governments in India have used fiscal policy to mobilise resources.
The financial resources can be mobilised by:-
Taxation: Through effective fiscal policies, the government aims to mobilise resources by way
of direct taxes as well as indirect taxes because most important source of resource mobilisation
in India is taxation.
Public Savings: The resources can be mobilised through public savings by reducing
government expenditure and increasing surpluses of public sector enterprises.
Private Savings: Through effective fiscal measures such as tax benefits, the government can
raise resources from private sector and households. Resources can be mobilised through
government borrowings by ways of treasury bills, issue of government bonds, etc., loans from
domestic and foreign parties and by deficit financing.
2. Efficient allocation of Financial Resources
The central and state governments have tried to make efficient allocation of financial resources.
These resources are allocated for Development Activities which includes expenditure on
railways, infrastructure, etc. While Non-development Activities includes expenditure on
defence, interest payments, subsidies, etc.
But generally the fiscal policy should ensure that the resources are allocated for generation of
goods and services which are socially desirable. Therefore, India's fiscal policy is designed in
such a manner so as to encourage production of desirable goods and discourage those goods
which are socially undesirable.
3. Reduction in inequalities of Income and Wealth
Fiscal policy aims at achieving equity or social justice by reducing income inequalities among
different sections of the society. The direct taxes such as income tax are charged more on the
rich people as compared to lower income groups. Indirect taxes are also more in the case of
semi-luxury and luxury items, which are mostly consumed by the upper middle class and the
upper class. The government invests a significant proportion of its tax revenue in the
implementation of Poverty Alleviation Programmes to improve the conditions of poor people in
society.
4. Price Stability and Control of Inflation
One of the main objectives of fiscal policy is to control inflation and stabilize price.
Therefore, the government always aims to control the inflation by reducing fiscal deficits,
introducing tax savings schemes, Productive use of financial resources, etc.
5. Employment Generation

12. The government is making every possible effort to increase employment in the country through
effective fiscal measure. Investment in infrastructure has resulted in direct and indirect
employment. Lower taxes and duties on small-scale industrial (SSI) units encourage more
investment and consequently generate more employment. Various rural employment
programmes have been undertaken by the Government of India to solve problems in rural
areas. Similarly, self-employment scheme is taken to provide employment to technically
qualified persons in the urban areas.
6. Balanced Regional Development
Another main objective of the fiscal policy is to bring about a balanced regional development.
There are various incentives from the government for setting up projects in backward areas
such as Cash subsidy, Concession in taxes and duties in the form of tax holidays, Finance at
concessional interest rates, etc.
7. Reducing the Deficit in the Balance of Payment
Fiscal policy attempts to encourage more exports by way of fiscal measures like Exemption of
income tax on export earnings, Exemption of central excise duties and customs, Exemption of
sales tax and octroi, etc.
The foreign exchange is also conserved by providing fiscal benefits to import substitute
industries, imposing customs duties on imports, etc.
The foreign exchange earned by way of exports and saved by way of import substitutes helps to
solve balance of payments problem. In this way adverse balance of payment can be corrected
either by imposing duties on imports or by giving subsidies to export.
8. Capital Formation
The objective of fiscal policy in India is also to increase the rate of capital formation so as to
accelerate the rate of economic growth. An underdeveloped country is trapped in vicious
(danger) circle of poverty mainly on account of capital deficiency. In order to increase the rate of
capital formation, the fiscal policy must be efficiently designed to encourage savings and
discourage and reduce spending.
9. Increasing National Income
The fiscal policy aims to increase the national income of a country. This is because fiscal policy
facilitates the capital formation. This results in economic growth, which in turn increases the
GDP, per capita income and national income of the country.
10. Development of Infrastructure
Government has placed emphasis on the infrastructure development for the purpose of
achieving economic growth. The fiscal policy measure such as taxation generates revenue to the
government. A part of the government's revenue is invested in the infrastructure development.
Due to this, all sectors of the economy get a boost.
11. Foreign Exchange Earnings
Fiscal policy attempts to encourage more exports by way of Fiscal Measures like, exemption of
income tax on export earnings, exemption of sales tax and octroi, etc. Foreign exchange

13. provides fiscal benefits to import substitute industries. The foreign exchange earned by way of
exports and saved by way of import substitutes helps to solve balance of payments problem.
Conclusion on Fiscal Policy:
The objectives of fiscal policy such as economic development, price stability, social justice, etc.
can be achieved only if the tools of policy like Public Expenditure, Taxation, Borrowing and
deficit financing are effectively used.
Though there are gaps in India's fiscal policy, there is also an urgent need for making India's
fiscal policy a rationalised and growth oriented one.
The success of fiscal policy depends upon taking timely measures and their effective
administration during implementation.
Q. FERA
Ans.
The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian
Parliament in 1973 by the government of Indira Gandhi and came into force with effect from
January 1, 1974. FERA imposed stringent regulations on certain kinds of payments, the dealings
in foreign exchange and securities and the transactions which had an indirect impact on the
foreign exchange and the import and export of currency.
The purpose of the act, inter alia, was to "regulate certain payments, dealings in foreign
exchange and securities, transactions indirectly affecting foreign exchange and the import and
export of currency, for the conservation of foreign exchange resources of the country".
Coca-Cola was India's leading soft drink until 1977 when it left India after a new government
ordered the company to turn over its secret formula for Coca-Cola and dilute its stake in its
Indian unit as required by the Foreign Exchange Regulation Act (FERA). In 1993, the company
(along with PepsiCo) returned after the introduction of India's Liberalization policy.
FERA was repealed in 1999 by the government of Atal Bihari Vajpayee and replaced by the
Foreign Exchange Management Act, which liberalized foreign exchange controls and
restrictions on foreign investment.
FERA:
Regulated in India by the Foreign Exchange Regulation Act (FERA), 1973.
Consisted of 81 sections.
FERA Emphasized strict exchange control.
Control everything that was specified, relating to foreign exchange.
Law violators were treated as criminal offenders.
Aimed at minimizing dealings in foreign exchange and foreign securities.
FERA was introduced at a time when foreign exchange (Forex) reserves of the country were
low, Forex being a scarce commodity. FERA therefore proceeded on the presumption that all

14. foreign exchange earned by Indian residents rightfully belonged to the Government of India
and had to be collected and surrendered to the Reserve bank of India (RBI). FERA primarily
prohibited all transactions, except one’s permitted by RBI.
OBJECTIVES:
To regulate certain payments.
To regulate dealings in foreign exchange and securities.
To regulate transactions, indirectly affecting foreign exchange.
To regulate the import and export of currency.
To conserve precious foreign exchange.
The proper utilization of foreign exchange so as to promote the economic development of the
country.