Month: May 2020

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous, statutory body tasked with regulating and promoting the insurance and re-insurance industries in India. It was constituted by the Insurance Regulatory and Development Authority Act, 1999, an Act of Parliament passed by the Government of India. The agency’s headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001.

IRDAI is a 10-member body including the chairman, five full-time and four part-time members appointed by the government of India.

In India insurance was mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthashastra), which examined the pooling of resources for redistribution after fire, floods, epidemics and famine. The life-insurance business began in 1818 with the establishment of the Oriental Life Insurance Company in Calcutta; the company failed in 1834. In 1829, Madras Equitable began conducting life-insurance business in the Madras Presidency. The British Insurance Act was enacted in 1870, and Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were founded in the Bombay Presidency. The era was dominated by British companies.

In 1914, the government of India began publishing insurance-company returns. The Indian Life Assurance Companies Act, 1912 was the first statute regulating life insurance. In 1928 the Indian Insurance Companies Act was enacted to enable the government to collect statistical information about life- and non-life-insurance business conducted in India by Indian and foreign insurers, including provident insurance societies. In 1938 the legislation was consolidated and amended by the Insurance Act, 1938, with comprehensive provisions to control the activities of insurers.

The Insurance Amendment Act of 1950 abolished principal agencies, but the level of competition was high and there were allegations of unfair trade practices. The Government of India decided to nationalise the insurance industry.

An ordinance was issued on 19 January 1956, nationalising the life-insurance sector, and the Life Insurance Corporation was established that year. The LIC absorbed 154 Indian and 16 non-Indian insurers and 75 provident societies. The LIC had a monopoly until the late 1990s, when the insurance industry was reopened to the private sector.

General insurance in India began during the Industrial Revolution in the West and the growth of sea-faring commerce during the 17th century. It arrived as a legacy of British occupation, with its roots in the 1850 establishment of the Triton Insurance Company in Calcutta. In 1907 the Indian Mercantile Insurance was established, the first company to underwrite all classes of general insurance. In 1957 the General Insurance Council (a wing of the Insurance Association of India) was formed, framing a code of conduct for fairness and sound business practice.

Eleven years later, the Insurance Act was amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee was established. In 1972, with the passage of the General Insurance Business (Nationalisation) Act, the insurance industry was nationalized on 1 January 1973. One hundred seven insurers were amalgamated and grouped into four companies: National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. The General Insurance Corporation of India was incorporated in 1971, effective on 1 January 1973.

The re-opening of the insurance sector began during the early 1990s. In 1993, the government set up a committee chaired by former Reserve Bank of India governor R. N. Malhotra to propose recommendations for insurance reform complementing those initiated in the financial sector. The committee submitted its report in 1994, recommending that the private sector be permitted to enter the insurance industry. Foreign companies should enter by floating Indian companies, preferably as joint ventures with Indian partners.

Following the recommendations of the Malhotra Committee, in 1999 the Insurance Regulatory and Development Authority (IRDA) was constituted to regulate and develop the insurance industry and was incorporated in April 2000. Objectives of the IRDA include promoting competition to enhance customer satisfaction with increased consumer choice and lower premiums while ensuring the financial security of the insurance market.

The IRDA opened up the market in August 2000 with an invitation for registration applications; foreign companies were allowed ownership up to 26 percent. The authority, with the power to frame regulations under Section 114A of the Insurance Act, 1938, has framed regulations ranging from company registrations to the protection of policyholder interests since 2000.

In December 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and the GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from the GIC in July 2002. There are 28 general insurance companies, including the Export Credit Guarantee Corporation of India and the Agriculture Insurance Corporation of India, and 24 life-insurance companies operating in the country. With banking services, insurance services add about seven percent to India’s GDP.

In 2013 the IRDAI attempted to raise the foreign direct investment (FDI) limit in the insurance sector to 49 percent from its current 26 percent. The FDI limit in the insurance sector was raised to 100 percent according to the budget 2019.

Objectives of IRDA

• To promote the interest and rights of policy holders.
• To promote and ensure the growth of Insurance Industry.
• To ensure speedy settlement of genuine claims and to prevent frauds and malpractices
• To bring transparency and orderly conduct of in financial markets dealing with insurance.

Functions and Duties of IRDA

The functions of the IRDAI are defined in Section 14 of the IRDAI Act, 1999, and include:

• Issuing, renewing, modifying, withdrawing, suspending or cancelling registrations
• Protecting policyholder interests
• Specifying qualifications, the code of conduct and training for intermediaries and agents
• Specifying the code of conduct for surveyors and loss assessors
• Promoting efficiency in the conduct of insurance businesses
• Promoting and regulating professional organizations connected with the insurance and re-insurance industry
• Levying fees and other charges
• Inspecting and investigating insurers, intermediaries and other relevant organizations
• Regulating rates, advantages, terms and conditions which may be offered by insurers not covered by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938)
• Specifying how books should be kept
• Regulating company investment of funds
• Regulating a margin of solvency
• Adjudicating disputes between insurers and intermediaries or insurance intermediaries
• Supervising the Tariff Advisory Committee
• Specifying the percentage of premium income to finance schemes for promoting and regulating professional organizations
• Specifying the percentage of life- and general-insurance business undertaken in the rural or social sector
• Specifying the form and the manner in which books of accounts shall be maintained, and statement of accounts shall be rendered by insurers and other insurer intermediaries.

The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, aims at preventing concentration of economic power in the hands of few business houses. The Act provides for control of monopolies, probation of monopolistic, restrictive and unfair trade practice and protection of consumer interests. Premises on which the MRTP Act rests are unrestrained interaction of competitive forces, maximum material progress through rational allocation of economic resources, availability of goods and services of quality at reasonable prices and finally a just and fair deal to the consumers.

Aim of Monopolistic and Restrictive Trade Practices (MRTP) Act, 1969

• Prevention of concentration of economic power to the common detriment
• Control of monopolies
• Prohibition of Monopolistic Trade Practices (MTP)
• Prohibition of Restrictive Trade Practices (RTP)
• Prohibition of Unfair Trade Practices (UTP)

The Act has three areas of Regulatory Provisions

Concentration of economic Power, Competition Law and Consumer Protection. The MRTP Act 1969 came up to ensure that there is no concentration of economic power at a single place. Besides it also checked the restrictive, monopolistic and restrictive trade practices.

The main body to monitor this act is MRTP Commission that has right to inquire into any complaint that is related to monopolistic trade practice and is also having right for recommending any concrete plans for making any action to the central government. The MRTP is the only body that has the right to inquire, cease or award compensation in case there are some restrictive and unfair trade practices being practiced.

The MRTP Act extends to the whole of India except Jammu and Kashmir. This does not apply to following (unless specifically stated by the Central Government):

• Any undertaking owned or controlled by the Government Company,
• Any undertaking owned or controlled by the Government,
• Any undertaking owned or controlled by a Corporation, not being a company established by or under any Central, Provincial or State Act,
• Any Trade Union or other Association of Workmen or Employees formed for their own reasonable protection as such workmen or employees,
• 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,
• Any undertaking owned by a Co-operative Society formed and registered under any Central, Provincial or State Act, any Financial Institution.

With the new economic reforms introduced in 1991, the Monopolistic and Restrictive Trade Practices (MRTP) Act, 1969 was duly amended. In the context of the New Economic Policy Paradigm, India has chosen to enact a new competition law called the Competition Act, 2002 (Act, for brief). The Monopolistic and Restrictive Trade Practices (MRTP) Act, 1969 has metamorphosed into the new law, Competition Act, 2002. The new law is designed to repeal the extant MRTP Act.

Fiscal policy is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly.

Fiscal policy refers to the use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation, and economic growth.

Fiscal policy in India

Fiscal policy in India is the guiding force that helps the government decide how much money it should spend to support the economic activity, and how much revenue it must earn from the system, to keep the wheels of the economy running smoothly. In recent times, the importance of fiscal policy has been increasing to achieve economic growth swiftly, both in India and across the world. Attaining rapid economic growth is one of the key goals of fiscal policy formulated by the Government of India. Fiscal policy, along with monetary policy, plays a crucial role in managing a country’s economy.

Through the fiscal policy, the government of a country controls the flow of tax revenues and public expenditure to navigate the economy. If the government receives more revenue than it spends, it runs a surplus, while if it spends more than the tax and non-tax receipts, it runs a deficit. To meet additional expenditures, the government needs to borrow domestically or from overseas. Alternatively, the government may also choose to draw upon its foreign exchange reserves or print additional money.

For example, during an economic downturn, the government may decide to open up its coffers to spend more on building projects, welfare schemes, providing business incentives, etc. The aim is to help make more of productive money available to the people, free up some cash with the people so that they can spend it elsewhere, and encourage businesses to make investments. At the same time, the government may also decide to tax businesses and people a little less, thereby earning lesser revenue itself.

Functions of Fiscal Policy

Although particular tax or expenditure measures affect the economy in many ways and may be designed to serve a variety of purposes, several more or less distinct policy objectives may be set forth. They include:

1. Allocation Function

The provision for social goods, or the process by which total resource use is divided between private and social goods and by which the mix of social goods is chosen. This provision may be termed as the allocation function of budget policy. Social goods, as distinct from private goods, cannot be provided for through the market system.

The basic reasons for the market failure in the provision of social goods are: firstly, because consumption of such products by individuals is non rival, in the sense that one person’s partaking of benefits does not reduce the benefits available to others.

The benefits of social goods are externalised. Secondly, the exclusion principle is not feasible in the case of social goods. The application of exclusion is frequently impossible or prohibitively expensive. So, the social goods are to be provided by the government.

2. Distribution Function

Adjustment of the distribution of income and wealth to assure conformance with what society considers a ‘fair’ or ‘just’ state of distribution. The distribution of income and wealth determined by the market forces and laws of inheritance involve a substantial degree of inequality. Tax transfer policies of the government play an important role in reducing the inequalities in income and wealth in the economy.

3. Stabilization Function

Fiscal policy is needed for stabilization, since full employment and price level stability do not come about automatically in a market economy. Without it the economy tends to be subject to substantial fluctuations, and it may suffer from sustained periods of unemployment or inflation. Unemployment and inflation may exist at the same time. Such a situation is known as stagflation.

The overall level of employment and prices in the economy depends upon the level of aggregate demand, relative to the potential or capacity output valued at prevailing prices. Government expenditures add to total demand, while taxes reduce it. This suggests that budgetary effects on demand increase as the level of expenditure increases and as the level of tax revenue decreases.

4. Economic Growth

Moreover, the problem is not only one of maintaining high employment or of curtailing inflation within a given level of capacity output. The effects of fiscal policy upon the rate of growth of potential output must also be allowed for. Fiscal policy may affect the rate of saving and the willingness to invest and may thereby influence the rate of capital formation.

Capital formation in turn affects productivity growth, so that fiscal policy is a significant factor in economic growth.

Objectives of Fiscal Policy

Fiscal policy has a number of objectives depending upon the circumstances in a country.

Important objectives of fiscal policy are:-

1. Optimum allocation of economic resources. The aim is that fiscal policy should be so framed as to increase the efficiency of productive resources.

To ensure this, the government should spend on those public works which give the maximum employment.

2. Fiscal policy should aim at equitable distribution of wealth and income. It means that fiscal policy should be so designed as to bring about reasonable equality of incomes among different groups by transferring wealth from the rich to the poor.
3. Another objective of fiscal policy is to maintain price stability. Deflation leads to a sharp decline in business activity. On the other extreme, inflation may hit the fixed income classes hard while benefiting speculators and traders. Fiscal policy has to be such as will maintain a reasonably stable price level thereby benefiting all sections of society.
4. The most important objective of fiscal policy is the achievement and maintenance of full employment because through it most other objectives are automatically achieved. Fiscal policy aimed at full employment envisages the direction of tax structure, not with a view to raising revenue but with a view to noticing the effects with specific kinds of taxes have on consumption, saving and investment.

Social responsibility of business implies the obligations of the management of a business enterprise to protect the interests of the society.

According to the concept of social responsibility the objective of managers for taking business decisions is not merely to maximize profits or sharehold­ers’ value but also to serve and protect the interests of other members of a society such as workers, consumers and the community as a whole.

Thus, Sachar Committee on Companies and MRTP Acts appointed by Government of India states, “In the development of corporate ethics we have reached a stage where the question of social responsibility of business to the community can no longer be scoffed at or taken lightly. In the environment of modern corporate economic development, the corporate sector no longer functions in isolation. If the plea of the companies that they are perform­ing a social purpose is to be accepted, it can only be judged by the test of social responsiveness shown to the needs of the society”.

It may be noted that some Indian sociologists and economists relate the idea of social responsibility of business of the Gandhian concept of trusteeship. According to Mahatma Gandhi, capitalist class owns wealth or capital as trustees of the society. The resources and capital they use for production of goods and services, according to him, should be used not to maximize profits for them but for the larger benefit of the society.

However, in our view, it will be too idealistic to expect that business enterprises will be purely guided by the benefits they confer on the society by their activities. The concept of social responsibility as used in management science is that businesses should maximize their profits subject to their working in a socially responsible manner to promote the interests of the society.

Their business activities should not harm other groups such as consumers, workers, and public at large. Mr. N.R. Narayana, Chairman of Infosys makes the idea of social responsibility of business quite clear when in a conference on corporate social responsibility he said, “Corporate’s foremost social responsibility is to create maximum shareholders’ value working in a way which is fair to all its stakeholders workers, consumers, the community, government and the environment He further points out.”

Working in harmony with the community and environment around us and not cheating our customers and workers we might not gain anything in the short run but in the long term it means greater profits and shareholders’ value’

Social Responsibility of Business and Social Contract

It is evident from above, the social responsibility of business implies that a corporate enterprise has to serve interests other than that of common shareholders who, of course, expect that their rate of return, value or wealth should be maximized.

But in today’s world the interest of other stakehold­ers, community and environment must be protected and promoted. Social responsibility of business enterprises to the various stakeholders and society in general is considered to be the result of a social Fig.1. Responsibility of Business Enterprises towards Stakeholders and Society in General contract.

Responsibility of Business Enterprises towards Stakeholders and Society in General

Social contract is a set of rules that defines the agreed interrelationship between various elements of a society. The social contract often involves a quid pro quo (i.e. something given in exchange for another). In the social contract, one party to the contract gives something and expects a certain thing or behaviour pattern from the other.

In the present context the social contract is concerned with the relationship of a business enterprise with various stakeholders such as shareholders, employees, consumers, government and society in general. The business enterprises happen to have resources because society consisting of various stakeholders has given them this right and therefore it expects from them to use them to for serving the interests of all of them.

Though all stakehold­ers including the society in general are affected by the business activities of a corporate enterprise, managers may not acknowledge responsibility to them. Social responsibility of business implies that corporate managers must promote the interests of all stakeholders not merely of shareholders who happen to be the so called owners of the business enterprises.

1. Responsibility to Shareholders

In the context of good corporate governance, a corporate enterprise must recognise the rights of shareholders and protect their interests. It should respect shareholders’ right to information and respect their right to submit proposals to vote and to ask questions at the annual general body meeting.

The corporate enterprise should observe the best code of conduct in its dealings with the shareholders. However, the corporate Board and management try to increase profits or shareholders’ value but in pursuing this objective, they should protect the interests of employees, consumers and other stakeholders. Its special responsibility is that in its efforts to increase profits or shareholders’ value it should not pollute the environment.

2. Responsibility to Employees

The success of a business enterprise depends to a large extent on the morale of its employees. Employees make valuable contribution to the activities of a business organization. The corporate enterprise should have good and fair employment practices and industrial relations to enhance its productivity. It must recognize the rights of workers or employees to freedom of association and free collective bargaining. Besides, it should not discriminate between various employees.

The most important responsibility of a corporate enterprise towards employees is the payment of fair wages to them and provide healthy and good working conditions. The business enterprises should recognise the need for providing essential labour welfare activities to their employees, especially they should take care of women workers. Besides, the enterprises should make arrange­ments for proper training and education of the workers to enhance their skills.

However, it may be noted that very few companies in India follow many of the above good practices. While the captains of Indian industries generally complain about low productivity of their employees, little has been done to address their problems. Ajith Nivard Cabraal rightly writes, “It should perhaps be realised that corporations can only be as effective and efficient as its employees and therefore steps should be taken to implement such reforms in a pro-active manner, rather than merely attempting to comply with many labour laws that prevail in the country. This is probably one area where good governance practices could make a significant impact on the country’s business environment.”

3. Responsibility to Consumers

Some economists think that consumer is a king who directs the business enterprises to produce goods and services to satisfy his wants. However, in the modern times this may not be strictly true but the companies must acknowledge their responsibilities to protect their interests in undertaking their productive activities.

Invoking the notion of social contract, the management expert Peter Drucker observes, “The customer is the foundation of a business and keeps it in existence. He alone gives employment. To meet the wants and needs of a consumer, the society entrusts wealth-producing resources to the business enterprise”. In view of above, the business enterprises should recognise the rights of consumers and under­stand their needs and wants and produce goods or services accordingly.

The following responsibilities of business enterprises to consumers are worth mentioning:

• They should supply goods or services to the consumers at reasonable prices and do not try to exploit them by forming cartels. This is more relevant in case of business enterprises producing essential goods such as life-saving drugs, vegetable oil and essential’ services such as electricity supply and telephone services.
• They should not supply to the consumers’ shoddy and unsafe products which may do harm to them.
• They should provide the consumers the required after-sales services.
• They should not misinform the consumers through inappropriate and misleading advertise­ments.
• They should make arrangements for proper distribution system of their products so as to ensure that black-marketing and profiteering by traders do not occur.
• They should acknowledge the rights of consumers to be heard and take necessary measures to redress their genuine grievances.

The organized movement to protect consumer rights which is termed as consumerism has been the result of the negligence of business enterprises to their responsibilities to consumers. Besides, due to the indifferent attitude of business enterprises to consumer rights, Government has been compelled to enact Consumer Protection Act to protect consumers’ rights and to prevent their exploitation by the businesses.

4. Obligation towards the Environment

The foremost responsibility of business enterprises is to ensure that they should not damage the environment and for this purpose they should reduce as much as possible air and water pollution by their productive activities. They should not dump their toxic waste products in rivers and streams to avoid their pollution. Pollution of environment poses a great health hazard for the people and is a cause of several respiratory and skin diseases.

5. Responsibility to Society in General

Business enterprises function by public consent with the basic objective of producing goods and services to meet the needs of the society and provide employment to the people. The traditional view is that in performing this function businesses maximize profits or shareholders’ value and doing so they do not behave in any socially irresponsible way.

In the present world where there are monopolies, oligopolies in product and factor markets and also there are externalities, especially detrimental externalities such as environment pollution by the activities of business enterprises maximization of private profits does not always lead to the maximization of social benefit.

In fact in such imperfect market conditions, consumers are exploited by raising of prices much above the cost of production, workers are exploited as they are not paid fair wages equal to the value of their marginal product. Besides, there are harmful external effects to which are not given due considerations by private enterprises in making their business decisions. Therefore, there is urgent need to make business enterprises behave in a socially responsible manner and to work for promoting social interests.

In view of the above in the context of modern developments, it is hard to agree with Milton Friedman, a winner of Nobel Prize in economics, who called the idea of corporate social responsi­bility as a “fundamentally subversive doctrine”. Friedman writes, “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

However, few economists and rational thinkers will subscribe to Friedman’s views like that of Adam Smith. Thus, authors of a noted textbook on management write, “It is true that Friedman sets a rather high standard when he suggests that businesses should operate within the ‘rules of the game’, practicing neither deception nor fraud. The rules of the game obviously include accepted ethical practices, in addition to international, national and other laws. How many corporations are willing to tell the absolute truth in the advertisements and to engage in open and fair competition avoiding collusion, price fixing and so forth. The fact is that few subscribe to Friedman s hard-line views today”.

Expressing the same sentiments, Dr. Manmohan Singh, who has been instrumental in initiating economic reforms promoting liberalization and privatization, in his recent speech while inaugurating the campus of Institute for Studies in Industrial Development on May 1, 2007 said, “I was struck by a comment in the media that most of the billionaires among India’s top business leaders operate in oligopolistic markets and in sectors where the government has conferred special privileges on a few. This sounds like a crony capitalism……. Are we doing enough to protect consumers and small businesses from the consequences of modern capitalism in our country” Later, on May 24, 2007, while giving inaugural address at the Annual Session of CII he urged the captains of Indian industry to break cartels and abstain from greed in their quest for profit maximisation.

To quote him, “The operation of cartels by groups of companies to keep prices high must end. It is unacceptable to obstruct the forces of competition from having free play. It is even more distressing in a country where the poor are severely affected by rising commodity prices. Cartels are a crime and go against the grain of an open economy”. More importantly, he further adds, “Maximization of profits should be within the bounds of decency and greed”.

The above views of Dr. Manmohan singh show that corporate businesses in India do not show any sense of social responsibility and due to oligopolies, informal collusion and other malpractices fleece the customers by charging higher prices in order to maximize their profits. This is clearly refutation of Friedman’s view that profit maximization always implies social responsibility of business.

Business enterprises have a lot of responsibility to the society at large.

We mention below some of them:

1. To take appropriate measures to reduce level of pollution and adopt eco-friendly technologies.
2. To generate sufficient employment opportunities so as to make good contribution to the reduction of poverty in the country.
3. Respect the rights of workers and other employees and take appropriate measures to ensure their safety and to improve their working conditions.
4. To provide quality healthcare to their employees.
5. To invest adequately in the research and development so as to make innovations to improve their productivity.

Dr. Manmohan Singh in the speeches referred to above adds the following social responsibilities of the corporate enterprises in India:

6. Do not pay excessive remuneration to promoters and senior executives as it creates social resentment.
7. To end cartels that keep prices highly
8. To implement affirmative action and to provide jobs to SCs, STs and OBCs. Besides, Dr. Manmohan Singh wants the private corporate sector to give preference to minorities, especially Muslims in providing employment.
9. To resist to pay bribes to officials and therefore do not promote corruption. He thus says, “Corruption need not be the grease that oils wheels of progress. There are many successful companies today that have refused to yield to this temptation. Others must follow”.

Social responsibility is related to the concept of ethics. Ethics is the discipline that deals with moral duties and obligations. Social responsibility implies corporate enterprises should follow business ethics and work for not only to maximize their profits or shareholders’ value but also to promote the interests of other stakeholders and the society as a whole.

Two instances of lack of social responsibility of business witnessed in India are worth mentioning. One refers to Bhopal Gas Leak Tragedy. On Dec. 2,1984 in a pesticide factory located in Bhopal and owned by a multinational corporation ‘Union Carbide Limited (UCL), there was a leakage of poisonous gas from factory which resulted in the death of more than 2000 poor people and about 2 lakh persons were badly injured and crippled.

This was due to the non-installation of safety measures by the company. Union Carbide tried to show that it was not responsible. A long legal battle was fought and ultimately Union Carbide was held responsible by the court and was asked to pay $ 650 millions to the victims as damages.

Another recent case of lack of corporate social responsibility in India and failure of good corpo­rate governance in India is provided by Satyam Saga. Ramalinga Raju, chairman of Satyam Computers Committed fraud running into several thousand crores inflicting heavy losses to the shareholders and lenders of the company. For this criminal act Raju is in Jail and his company has been taken over by Mahindera.

This Satyam fraud raises the question of failure of corporate governance in India, especially the role of independent directors in ensuring good governance of the corporates. The above two examples should serve as a wake-up call for Indian corporate businesses that they should discharge their responsibility to their customers, employees, other stakeholders and society at large.

1. Heromotocorp

Hero Motocorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter manufacturer based in New Delhi, India. The company is the largest two-wheeler manufacturer in the world, and also in India, where it has a market share of about 46% in the two-wheeler category. The 2006 Forbes list of the 200 World’s Most Respected Companies has Hero Honda Motors ranked at 108. On 31 March 2013, the market capitalization of the company was ₹308 billion (US$4.3 billion).

Hero Honda started its operations in 1984 as a joint venture between Hero Cycles (sometimes called Hero Group, not to be confused with the Hero Group food company of Switzerland) of India and Honda of Japan. In 2010, when Honda decided to move out of the joint venture, Hero Group bought the shares held by Honda, and focused on its entirely owned subsidiary, Honda Motorcycle and Scooter India (HMSI).

In June 2012, Hero MotoCorp approved a proposal to merge the investment arm of its parent Hero Investment Pvt. Ltd. with the automaker. This decision came 18 months after its split from Hero Honda.

“Hero” is the brand name used by the Munjal brothers for their flagship company, Hero Cycles Ltd. A joint venture between the Hero Group and Honda Motor Company was established in 1984 as the Hero Honda Motors Limited at Dharuhera, India. Munjal family and Honda group both owned 26% stake in the Company.

2. Bajaj

Bajaj Auto Limited is an Indian global two-wheeler company and three-wheeler manufacturing company based in Pune, Maharashtra. It manufactures motorcycles, scooters and auto rickshaws. Bajaj Auto is a part of the Bajaj Group. It was founded by Jamnalal Bajaj in Rajasthan in the 1940s. It is based in Pune, Maharashtra, with plants in Chakan (Pune), Waluj (near Aurangabad) and Pantnagar in Uttarakhand. The oldest plant at Akurdi (Pune) now houses the R&D centre ‘Ahead’.

Bajaj Auto is the world’s third-largest manufacturer of motorcycles and the second-largest in India. It is the world’s largest three-wheeler manufacturer.

On May 2015, its market capitalisation was ₹64,000 crore (US$9.0 billion), making it India’s 23rd largest publicly traded company by market value. The Forbes Global 2000 list for the year 2012 ranked Bajaj Auto at 1,416.

3. Dabur

Dabur ( Dabur India Ltd.) is one of the India’s largest Ayurvedic medicine and natural consumer products manufacturer.

Dabur demerged its Pharma business in 2003 and hived it off into a separate company, Dabur Pharma Ltd. German company Fresenius SE bought a 73.27% equity stake in Dabur Pharma in June 2008 at Rs 76.50 a share.

Dabur’s Healthcare Division has over 260 products for treating a range of ailments and body conditions, from common cold to chronic paralysis. Dabur International, a fully owned subsidiary of Dabur India formerly held shares in the UAE based Weikfield International, which it sold in June 2012.

Dabur plant was opened in Pakistan in 2008; in 2010 famous cricketer Shahid Afridi acted in digestive candy Dabur Hajmola’s Television commercial.

4. Hindustan Unilever Limited

Hindustan Unilever Limited (HUL) is the Indian subsidiary of Unilever. It is headquartered in Mumbai, India. Its products include foods, beverages, cleaning agents, personal care products, water purifiers and consumer goods.

HUL was established in 1933 as Lever Brothers and following merger of constituent groups in 1956 was renamed as Hindustan Lever Limited. The company was renamed in June 2007 as “Hindustan Unilever Limited”.

As of 2019 Hindustan Unilever portfolio had 35 product brands in 20 categories and employs 18,000 employees with sales of ₹34,619 crores in 2017–18.

In December 2018, HUL announced its acquisition of Glaxo Smithkline’s India business for $3.8 billion in an all equity merger deal with 1:4.39 ratio. However the integration of 3800 employees of GSK remained uncertain as HUL stated there was no clause for retention of employees in the deal. In January 2019, HUL said that it expects to complete the merger with Glaxo Smith Kline Consumer Healthcare (GSKCH India) this year.

5. TATA Group

Tata Group is an Indian multinational conglomerate holding company headquartered in Mumbai, Maharashtra, India. Founded in 1868 by Jamsetji Tata, the company gained international recognition after purchasing several global companies. One of India’s largest conglomerates, Tata Group is owned by Tata Sons. It is one of the biggest industrial groups in the country, founded 153 years back in 1868.

Each Tata company operates independently under the guidance and supervision of its own board of directors and shareholders. Significant Tata companies and subsidiaries include Tata Chemicals, Tata Communications, Tata Consultancy Services, Tata Consumer Products, Tata Elxsi, Tata Motors, Tata Power, Tata Steel, Voltas, Tata Cliq, Titan, Trent (Westside), Taj Hotels, and Jaguar Land Rover.

6. HCL Technologies

HCL Technologies Limited is an Indian multinational information technology (IT) service and consulting company headquartered in Noida, Uttar Pradesh. It is a subsidiary of HCL Enterprise. Originally a research and development division of HCL, it emerged as an independent company in 1991 when HCL entered into the software services business.

The company has offices in 44 countries including the United Kingdom, the United States, France, and Germany with a worldwide network of R&D, “innovation labs” and “delivery centers”, and 147,123 employees and its customers include 250 of the Fortune 500 and 650 of the Global 2000 companies. It operates across sectors including aerospace and defense, automotive, banking, capital markets, chemical and process industries, energy and utilities, healthcare, hi-tech, industrial manufacturing, consumer goods, insurance, life sciences, manufacturing, media and entertainment, mining and natural resources, oil and gas, retail, telecom, and travel, transportation, logistics & hospitality.

HCL Technologies is on the Forbes Global 2000 list. It is among the top 20 largest publicly traded companies in India with a market capitalisation of $21.5 billion as of May 2019. As of September 2019, the company, along with its subsidiaries, had a consolidated revenue of $9.3 billion.

7. Maruti Suzuki

Maruti Suzuki India Limited, formerly known as Maruti Udyog Limited, is an automobile manufacturer in India. It is a 56.21% owned subsidiary of the Japanese car and motorcycle manufacturer Suzuki Motor Corporation. As of July 2018, it had a market share of 53% of the Indian passenger car market. Maruti Suzuki manufactures and sells popular cars such as the Ciaz, Ertiga, Wagon R, Alto K10 and Alto 800, Swift, Celerio, Swift Dzire, Baleno and Baleno RS, Omni, baleno, Eeco, Ignis, S-Cross, Vitara Brezza and newly launched S-Presso small SUV. The company is headquartered at New Delhi. In May 2015, the company produced its fifteen millionth vehicle in India, a Swift Dzire.

8. TVS

TVS Motor Company (T.V.S) is an Indian multinational motorcycle company headquartered at Chennai, India. It is the third largest motorcycle company in India with a revenue of over ₹20,000 crore (US$2.8 billion) in 2018–19. The company has an annual sales of 3 million units and an annual capacity of over 4 million vehicles. TVS Motor Company is also the 2nd largest exporter in India with exports to over 60 Countries.

TVS Motor Company Ltd (TVS Motor), a member of the TVS Group, is the largest company of the group in terms of size and turnover.

T.V. Sundaram Iyengar began with Madurai’s first bus service in 1911 and founded T.V.S, a company in the transportation business with a large fleet of trucks and buses under the name of Southern Roadways.

A multinational company is one which is incorporated in one country (called the home country); but whose operations extend beyond the home country and which carries on business in other countries (called the host countries) in addition to the home country.

It must be emphasized that the headquarters of a multinational company are located in the home country.

Features of Multinational Corporations (MNCs)

Following are the salient features of MNCs:

1. Huge Assets and Turnover

Because of operations on a global basis, MNCs have huge physical and financial assets. This also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many MNCs are bigger than national economies of several countries.

2. International Operations Through a Network of Branches

MNCs have production and marketing operations in several countries; operating through a network of branches, subsidiaries and affiliates in host countries.

3. Unity of Control

MNCs are characterized by unity of control. MNCs control business activities of their branches in foreign countries through head office located in the home country. Managements of branches operate within the policy framework of the parent corporation.

4. Mighty Economic Power

MNCs are powerful economic entities. They keep on adding to their economic power through constant mergers and acquisitions of companies, in host countries.

5. Advanced and Sophisticated Technology

Generally, a MNC has at its command advanced and sophisticated technology. It employs capital intensive technology in manufacturing and marketing.

6. Professional Management

A MNC employs professionally trained managers to handle huge funds, advanced technology and international business operations.

7. Aggressive Advertising and Marketing

MNCs spend huge sums of money on advertising and marketing to secure international business. This is, perhaps, the biggest strategy of success of MNCs. Because of this strategy, they are able to sell whatever products/services, they produce/generate.

8. Better Quality of Products

A MNC has to compete on the world level. It, therefore, has to pay special attention to the quality of its products.

Advantages of MNCs

1. Employment Generation

MNCs create large scale employment opportunities in host countries. This is a big advantage of MNCs for countries; where there is a lot of unemployment.

2. Automatic Inflow of Foreign Capital

MNCs bring in much needed capital for the rapid development of developing countries. In fact, with the entry of MNCs, inflow of foreign capital is automatic. As a result of the entry of MNCs, India e.g. has attracted foreign investment with several million dollars.

3. Proper Use of Idle Resources

Because of their advanced technical knowledge, MNCs are in a position to properly utilize idle physical and human resources of the host country. This results in an increase in the National Income of the host country.

4. Improvement in Balance of Payment Position

MNCs help the host countries to increase their exports. As such, they help the host country to improve upon its Balance of Payment position.

5. Technical Development

MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a vehicle for transference of technical development from one country to another. Because of MNCs poor host countries also begin to develop technically.

6. Managerial Development

MNCs employ latest management techniques. People employed by MNCs do a lot of research in management. In a way, they help to professionalize management along latest lines of management theory and practice. This leads to managerial development in host countries.

7. End of Local Monopolies

The entry of MNCs leads to competition in the host countries. Local monopolies of host countries either start improving their products or reduce their prices. Thus MNCs put an end to exploitative practices of local monopolists. As a matter of fact, MNCs compel domestic companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of competition posed by MNCs.

8. Improvement in Standard of Living

By providing super quality products and services, MNCs help to improve the standard of living of people of host countries.

9. Promotion of international brotherhood and culture

MNCs integrate economies of various nations with the world economy. Through their international dealings, MNCs promote international brotherhood and culture; and pave way for world peace and prosperity.

MNCs as a Source of Technology

Throughout the history technological changes and transfer leading to mechanization and industrialization have led to economical change, innovation, increasing in the knowledge and skills as well as, from the industrial point of view, productivity. Also the transfer of technology by multinational corporations (MNCs) would help developing countries to have sustainable development as well as both preserve the environment and improve the quality of life for present and future generatio. It has played an important role in shaping the society (UNIDO/WBSCD, 2002) and the development of the countries. Technological transfer involves a two-way relationship of sending and receiving technology between and among firms, industries and governments. However, the transfer of technology to a developing country depends on many factors including government, its economy, market, research and development as well as infrastructure of the country.

The transfer of technologies by the MNCs to the developing countries brings in economic changes as well as fosters productivity growth. Though invention and creation processes remains the province of the developed countries. However productive knowledge as well as follow-on innovation occurs in developing countries. These processes effectively are the drivers for sustainable growth and change in developing countries.

Technology is at the core of competition and development. The transfer of technology by multinationals enhances a country’s technological capabilities by providing product or process innovations or both. With manufacturing of new products and services as well as improving the quality of the existing ones it could lead to industrial up gradation of a developing country technical ability. Innovation could also lead to the establishment of more competitive industries that could in turn generate revenues for the host (developing) countries. For example, country like China attracts foreign direct investment (FDI) due to cheap mass production which was gradually established due to its innovation capabilities. Being fully aware of the threats, China took steps towards innovation. Innovation is considered the focal instrument of economic growth in both developed and developing countries. Developing countries can maintain its economic growth through its own innovation capabilities.

Constant growth could be there with the creation of new products that expands the knowledge of the technology and products and in turn lowers cost of innovation. The transfer of knowledge and skills is considered necessary for the adoption of new technologies in a developing country. For an MNC there is a growing dependence on the knowledge and skills for a profitable utilization of the product. Therefore a firm may invest in the dispersion of productive knowledge and skills to its employees, to the local suppliers of the inputs needed in its production process and to the local customers who may have to be taught the new technology of using the firm’s products effectively. The direct, in particular, impact is on the labour in the host country. The transfer of the knowledge and skills to local suppliers and labours make up a base for technology spillovers. This spillover in turn upgrades the existing knowledge and skills so as to ensure that the host country enjoys the true potential of the transferred technology. A highly skilled and knowledge based economy is a dominant feature in the 21st century so as to increase a developing country’s growth and competitiveness.

Apart from innovation and growth of knowledge and skills transfer of technology from multinationals to a developing country brings in technical changes in production equipments, production methods and final products that have economic benefits. An increase in the scale of production is possible due to the improved technology as well as due to increase in the knowledge and better skills of the labour. Technological inputs can directly improve productivity by being used in production processes.

Technology transfer by the multinationals makes a difference in nurturing a sustainable development in the developing countries. Technology cooperation is recognized as one of the key instrument in the context of sustainable development. Sustainable development could lead to the origination of new solutions to the socio-economic needs of the developing countries. Sustainable development is all about progress, economic growth, efficient use of resources as well as helping an economy to come out of poverty and environmental degradation. MNCs offer developing countries mutually beneficial environmentally clean and economical technologies. Some MNCs are pioneering eco-efficient, process-oriented low polluting technologies which are transferred to the developing countries. For example, British Petroleum are providing solar energy and upgrading the basic facilities in the remote parts of Philippines. With the help of this technology it is providing the remote parts with energy related infrastructure such as lighting facilities, school equipments, water pumps and many more. Also the company is providing knowledge about the technology through training and community development programs so that the local community members can manage the technology. The contribution of environment friendly technologies is associated to sustainable development. This in turn ensures that the quality of life and long-term benefits for the present as well as future generations improves.

Privatization occurs when a government-owned business, operation, or property becomes owned by a private, non-government party. Note that privatization also describes the transition of a company from being publicly traded to becoming privately held. This is referred to as corporate privatization.

How Privatization Works?

Privatization of specific government operations happens in a number of ways, though generally, the government transfers ownership of specific facilities or business processes to a private, for-profit company. Privatization generally helps governments save money and increase efficiency. In general, two main sectors compose an economy—the public sector and the private sector.

Privatization in India

In 1991 India made some major policy changes in their economic ideologies. There were stagnation and slow growth in the economy.

To tackle these problems the, then Finance Minister Dr. Manmohan Singh introduced some major economic reforms. Now, we call it the liberalization of the Indian Economy and the LPG reforms.

Privatization has a very broad meaning in economics. Everything that ranges from the introduction of private capital to selling government-owned assets to transitioning to a private economy.

As the definition of privatization is so very diverse let us take a look at the three main features of privatization.

• Ownership Measures: The ownership of all public enterprises ultimately shifts to private owners. The denationalization can be complete or partial.
• Organizational Measures: This is where we limit the control of the state in public companies. Some methods include holding company structuring, leasing. restructuring of the enterprises etc.
• Operational Measures: Public organizations and companies were running into huge losses. So the efficiency of these companies was to be increased.

Conceptualization of Privatization in India

1. Delegation

Here via a contract or franchise or lease or grant etc. the government keeps the ownership and the responsibility of an enterprise.

But the private company will handle the daily activities and deliver the product or service. The state will remain an active participant in this process.

2. Divestment

The government will sell a majority stake of the enterprise to one or more private companies. It may keep some ownership but will be a minority stakeholder in the enterprise.

3. Displacement

The first step here will be deregulation. This will allow private players to enter the market. And slowly and gradually the private company will displace the public enterprise.

Here the private sector will compete with public companies and ultimately outperform them, causing the public enterprise to be displaced.

4. Disinvestment

Directly selling a portion or whole of a public enterprise to private parties.

Impact of Privatization on Indian Business Environment

• Private companies always have a better incentive than public companies. The managers and officials of a private company have skin in the game, i.e. their income is related to the performance of the company. In public companies, such an incentive is not present. So privatization usually leads to higher efficiency in the company.
• In a public company, there is a lot of political interference. This may dissuade the company from taking economically beneficial decisions. However, a private company will not let political factors affect their performance.
• In public companies, at times the government can only think about the upcoming elections. So all their goals may be short-term in the process of trying to gain favours of the voting public. But a private company does not have such restrictions. They have long-term goals and ambitions and steer the company in the right direction.
• Privatization will also increase competition in the market. Consequently, this has proved to be very beneficial to consumers. Healthy competitiveness in an economy will push efficiency and performances.

Globalization

It means to integrate the economy of one country with the global economy. During Globalization the main focus is on foreign trade & private and institutional foreign investment. It is the last policy of LPG to be implemented.

Globalization is the free movement of people, goods, and services across boundaries. This movement is managed in a unified and integrated manner. Further, it can be seen as a scheme to open the global economy as well as the associated growth in trade (global). Hence, when the countries that were previously shut to foreign investment and trade have now burned down barriers.

Considering a precise definition, countries that abide by the rules and regulations set by WTO (World Trade Organization) are part of globalization. These procedures include oversees trade conditions among countries. Apart from this, there are other organizations such as the UN and different arbitration bodies available for supervision. Under this, non-discriminatory policies of trade are also enclosed.

Globalization as a term has a very complex phenomenon. The main aim is to transform the world towards independence and integration of the world as a whole by setting various strategic policies. Globalization is attempting to create a borderless world, wherein the need of one country can be driven from across the globe and turning into one large economy.

Effect of Globalization on the Indian Business Environment

Globalization has its impact on India which is a developing country. The impact of globalization can be analyzed as follows:

1. Access to Technology

Globalization has drastically, improved the access to technology. Internet facility has enabled India to gain access to knowledge and services from around the world. Use of Mobile telephone has revolution used communication with other countries.

2. Growth of international trade

Tariff barriers have been removed which has resulted in the growth of trade among nations. Global trade has been facilitated by GATT, WTO etc.

3. Increase in production

Globalization has resulted in increase in the production of a variety of goods. MNCs have established manufacturing plants all over the world.

4. Employment opportunities

Establishment of MNCs have resulted in the increase of employment opportunities.

5. Free flow of foreign capital

Globalization has encouraged free flow of capital which has improved the economy of developing countries to some extent. It has increased the capital formation.

Negative effect of globalization on the Indian Business Environment

Globalization is not free from negative effects. They can be summed up as follows:

1. Inequalities within countries

Globalization has increased inequalities among the countries. Some of the policies of Globalization (liberalization, WTO policies etc.) are more beneficial to developed countries. The countries which have adopted the free trade agenda have become highly successful. E.g.: China is a classic example of success of globalization. But a country like India is not able to overcome the problem.

2. Financial Instability

As a consequence of globalization there is free flow of foreign capital poured into developing countries. But the economy is subject to constant fluctuations. On account of variations in the flow of foreign capital.

3. Impact on workers

Globalization has opened up employment opportunities. But there is no job security for employees. The nature of work has created new pressures on workers. Workers are not permitted to organize trade unions.

4. Impact on farmers

Indian farmers are facing a lot of threat from global markets. They are facing a serious competition from powerful agricultural industries quite often cheaply produced agro products in developed countries are being dumped into India.

5. Impact on Environment

Globalization has led to 50% rise in the volume of world trade. Mass movement of goods across the world has resulted in gas emission. Some of the projects financed by World Bank are potentially devastating to ecological balance. E.g.: Extensive import or export of meat.

6. Domination by MNCs

MNCs are the driving force behind globalization. They are in a position to dictate powers. Multinational companies are emerging as growing corporate power. They are exploiting the cheap labour and natural resources of the host countries.

7. Threat to national sovereignty

Globalizations results in shift of economic power from independent countries to international organizations, like WTO United Nations etc. The sovereignty of the elected governments are naturally undermined, as the policies are formulated in favour of globalization. Thus globalization has its own positive and negative consequences. According to Peter F Drucker Globalization for better or worse has changed the way the world does business. It is unstoppable. Thus Globalization is inevitable, but India should acquire global competitiveness in all fields.

Liberalization

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

Objectives of Liberalization Policy

• To increase competition amongst domestic industries.
• To encourage foreign trade with other countries with regulated imports and exports.
• Enhancement of foreign capital and technology.
• To expand global market frontiers of the country.
• To diminish the debt burden of the country.

India has taken many efforts for liberalization which are as follows:

New economic policy 1991

Objectives of the new economic policy

• To achieve higher economic growth rate.
• To reduce inflation
• To rebuild foreign exchange reserves.

FEMA

Foreign exchange Regulation Act 1973 was repealed and Foreign exchange Management Act was passed. The enactment has incorporated clauses which have facilitated easy entry of MNCs.

• Joint ventures with foreign companies. E.g.: TVS Suzuki
• Reduction of import tariffs
• Removal of export subsidies
• Full convertibility of Rupee on current account
• Encouraging foreign direct investments

The effect of liberalization is that the companies of developing countries are facing a tough competition from powerful corporations of developed countries.

The local communities are exploited by multinational companies on account of removal of regulations governing the activities of MNCs.