Tag: Osmania University B.com Notes

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.

Privatization

This is the second of the three policies of LPG. It is the increment of the dominating role of private sector companies and the reduced role of public sector companies. In other words, it is the reduction of ownership of the management of a government-owned enterprise. Government companies can be converted into private companies in two ways:

• By Disinvestment
• By Withdrawal of governmental ownership and management of public sector companies.

Forms of Privatization

• Denationalization or Strategic Sale: When 100% government ownership of productive assets is transferred to the private sector players, the act is called denationalization.
• Partial Privatization or Partial Sale: When private sector owns more than 50% but less than 100% ownership in a previously construed public sector company by transfer of shares, it is called partial privatization. Here the private sector owns the majority of shares. Consequently, the private sector possesses substantial control in the functioning and autonomy of the company.
• Deficit Privatization or Token Privatization: When the government disinvests its share capital to an extent of 5-10% to meet the deficit in the budget is termed as deficit privatization.

Objectives of Privatization

• Improve the financial situation of the government.
• Reduce the workload of public sector companies.
• Raise funds from disinvestment.
• Increase the efficiency of government organizations.
• Provide better and improved goods and services to the consumer.
• Create healthy competition in the society.
• Encouraging foreign direct investments (FDI) in India.

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 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.

Outsourcing as an Outcome of Globalization

The most important outcome of the globalization process is Outsourcing. During the outsourcing model, a company of a country hires a professional from some other country to get their work done, which was earlier conducted by their internal resource of their own country.

The best part of outsourcing is that the work can be done at a lower rate and from the superior source available anywhere in the world. Services like legal advice, marketing, technical support, etc. As the Information Technology has grown in the past few years, the outsourcing of contractual work from one country to another has grown tremendously. As a mode of communication has widened their reach, all economic activities have expanded globally.

Various Business Process Outsourcing companies or call centres, which have their model of a voice-based business process have developed in India. Activities like accounting and book-keeping services, clinical advice, banking services or even education are been outsourced from developed countries to India.

The most important advantage of outsourcing is that big multi-national corporate or even small enterprises can avail good services at a cheaper rate as compared to their country’s standards. The skill set in India is considered most dynamic and effective across the world. Indian professionals are best at their work. The low wage rate and specialized personnel with high skills have made India the most favourable destination for global outsourcing in the later stage of reformation.

LPG Model in India

After Independence in 1947 Indian government faced a significant problem to develop the economy and to solve the issues. Considering the difficulties pertaining at that time government decided to follow LPG Model. The Growth Economics conditions of India at that time were not very good. This was because it did not have proper resources for the development, not regarding natural resources but financial and industrial development. At that time India needed the path of economic planning and for that used ‘Five Year Plan’ concept of which was taken from Russia and feet that it will provide a fast development like that of Russia, under the view of the socialistic pattern society. India had practiced some restrictions ever since the introduction of the first industrial policy resolution in 1948.

Liberalization is defined as making economics free to enter the market and establish their venture in the country. Privatization is defined as when the control of economic is sifted from public to a private hand. Globalization is described as the process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade.

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.

Impact of Foreign Direct Investment on Developing Countries

Many developing countries do not have the necessary resources at their disposal to develop some sectors and hence, they permit foreign capital to invest in these sectors. Of course, they also ensure that sectors like defense and other sectors that have national security implications are kept off the list of sectors in which foreign direct investment is allowed. For many countries, opening up of their economies results in benefits since they need the dollars as well as because they might not have the expertise to commence productive activities in these sectors. Finally, foreign direct investment can be used to pay for expensive imports and encourage exports as well. After all, every developing country (except those with large oil reserves) needs to pay for its oil imports in dollars and hence foreign direct investment helps to earn precious dollars.

Downsides of Foreign Direct Investment on Developing Countries

There are many downsides to allowing Foreign Direct Investment into the developing countries. However, the developing countries benefit because of inflow of dollars and much needed capital, which is not available domestically, there is scope for outflow of dollars as well since the foreign companies typically repatriate a part or whole of their profits back to their home countries. This is the reason why developing countries must think twice before allowing blanket foreign direct investment. To circumvent this, many developing countries typically restrict foreign direct investment into sectors that badly need capital and where the developing country does not have expertise. Further, the fact that many developing countries have capital controls on the capital account (which is to restrict wholesale repatriation of both profits and investment) and relax the current count where only profits and that too a percentage of it is repatriated.

Significance for developing countries

FDI has become an important source of private external finance for developing countries. It is different from other major types of external private capital flows in that it is motivated largely by the investors’ long-term prospects for making profits in production activities that they directly control. Foreign bank lending and portfolio investment, in contrast, are not invested in activities controlled by banks or portfolio investors, which are often motivated by short-term profit considerations that can be influenced by a variety of factors (interest rates, for example) and are prone to herd behavior. These differences are highlighted, for instance, by the pattern of bank lending and portfolio equity investment, on the one hand, and FDI, on the other, to the Asian countries stricken by financial turmoil in 1997: FDI flows in 1997 to the five most affected countries remained positive in all cases and declined only slightly for the group, whereas bank lending and portfolio equity investment flows declined sharply and even turned negative in 1997.

While FDI represents investment in production facilities, its significance for developing countries is much greater. Not only can FDI add to investible resources and capital formation, but, perhaps more important, it is also a means of transferring production technology, skills, innovative capacity, and organizational and managerial practices between locations, as well as of accessing international marketing networks. The first to benefit are enterprises that are part of transnational systems (consisting of parent firms and affiliates) or that are directly linked to such systems through nonequity arrangements, but these assets can also be transferred to domestic firms and the wider economies of host countries if the environment is conducive. The greater the supply and distribution links between foreign affiliates and domestic firms, and the stronger the capabilities of domestic firms to capture spillovers (that is, indirect effects) from the presence of and competition from foreign firms, the more likely it is that the attributes of FDI that enhance productivity and competitiveness will spread. In these respects, as well as in inducing transnational corporations to locate their activities in a particular country in the first place, policies matter.

The Benefits of Foreign Investment

Hence, the fact that FDI is preferred more by developing countries become clear when one considers the deep and the longer-term nature of these flows. However, this does not mean that investments in equity and bond markets are not welcomed. This is because many developing countries run large current account deficits, which have to be financed with dollars. In other words, current account deficits are the difference between the imports and the exports that a country does and since many developing countries import more than they export, there needs to be a mechanism through which the deficit is financed. This is made possible by the investment in bonds and equities. On the other hand, FDI is suitable for generating jobs and creating conditions for future prosperity. Moreover, FDI comes with the added advantage of technology and knowledge transfer, which is beneficial to the developing countries. Therefore, as can be seen from this explanation, both FDI and hot money are attractive in terms of the usefulness they have to developing countries.

The Downsides of Foreign Investment

However, the downsides of these investments are that whenever there is a crisis like the recent economic crisis and the Asian financial crisis of 1997, there tends to be outward flows of foreign capital as panicky investors flee the developing countries markets lest they lose out in the process of the crisis eroding their investments. This is the key downside of foreign investment. Further, even FDI or capital investment can flee the developing countries if they have full capital account convertibility or the provision for the foreign companies to quickly convert their holdings in domestic currencies back to their home currency, which in many cases is the United States Dollar. Hence, the implications of FDI and Hot Money have to be clearly understood by policymakers before they commit themselves to opening up their economies. Indeed, as the experiences of China and India illustrate, the gradual opening up of the economy and the careful monitoring of flows of hot money are needed for developing countries to withstand currency shocks and liquidity crunches.

Foreign direct investment (FDI) means companies purchase capital and invest in a foreign country. For example, if a US multinational, such as Nike built a factory for making trainers in Pakistan; this would count as foreign direct investment.

The main factors that affect foreign direct investment are

• Infrastructure and access to raw materials
• Communication and transport links.
• Skills and wage costs of labour

Tax policies and concessions:

Government should adopt uniform tax policies as per international norms. A heavy excise duty or sales tax or customs duty will prevent foreign direct investment. A moderate tax policy should continue so that the FDIs will feel comfortable.

Wage rates

A major incentive for a multinational to invest abroad is to outsource labour-intensive production to countries with lower wages. If average wages in the US are $15 an hour, but $1 an hour in the Indian sub-continent, costs can be reduced by outsourcing production. This is why many Western firms have invested in clothing factories in the Indian sub-continent.

 However, wage rates alone do not determine FDI, countries with high wage rates can still attract higher tech investment. A firm may be reluctant to invest in Sub-Saharan Africa because low wages are outweighed by other drawbacks, such as lack of infrastructure and transport links.

Stability of the Government:

A stable Government is an essential prerequisite for any investment. The investor will always look for a government which is supporting investment and which will not take any steps that are anti-investment. The investor should not have any fear of take over by the government. This will enable him to go for expansion.

Return on investment:

One of the major attractions for FDIs is the profit or the return they get for the investment made. Unless the return is substantially higher than what they could have obtained in other countries, they will not venture for investment. The rectum should also be consistent and it should be increasing over a period. These factors are closely looked into while undertaking investment. The financier of the FDIs will also ensure that they get their money back as it is a safe investment.

Thus, return on investment is a major deciding factor for FDls while undertaking investment in foreign countries. They also would like to ensure that the payback period is also less so that the return is ensured within a short period. Weightage is given to each of these factors and decisions are finalized.

Scope of the market:

FDIs must be in a position to exploit the market and expand both in the domestic as well as the foreign markets. This will reduce their cost of production and will give them ample scope for diversification.

Exchange rate stability:

Commercial viability of any FDI is based on exchange rate stability. This means that the value of domestic currency should not drop abnormally by which while repatriating the funds, the foreign investor will lose heavily. Exchange rate should be more or less the same as prevailing at the time of investment.

Flexibility in the Government Policy:

Certain investments were not allowed in the hands of FDI but such a rigid policy will not help in the growth of industries. With WTO regulation, government has to adopt flexible policies, permitting FDIs in all areas including those in which they were prevented previously. For example, in India, power generation was not permitted to private sector. Now, in Maharashtra, Dabhol Power Company is allowed to do so.

Other favorable location factors (including logistics and labor):

The productivity of labor in the country should be high. Adequate skilled labor should be available, especially in technical areas. Different transport facilities with a proper coordination between land, rail and air should be available.

Labour skills

Some industries require higher skilled labour, for example pharmaceuticals and electronics. Therefore, multinationals will invest in those countries with a combination of low wages, but high labour productivity and skills. For example, India has attracted significant investment in call centres, because a high percentage of the population speak English, but wages are low. This makes it an attractive place for outsourcing and therefore attracts investment.

A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control. Broadly, foreign direct investment includes “mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, and intra company loans“. FDI is the sum of equity capital, long-term capital, and short-term capital as shown in the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. Stock of FDI is the net (i.e., outward FDI minus inward FDI) cumulative FDI for any given period. Direct investment excludes investment through purchase of shares (if that purchase results in an investor controlling less than 10% of the shares of the company).

Types of Foreign Direct Investment

There are mainly two types of FDI: Horizontal and Vertical. However, two other types of FDI have emerged- Conglomerate and Platform FDI.

1. HORIZONTAL FDI: Under this type of FDI, a business expands its inland operation to another country. The business undertake the same activities but in foreign country.
2. VERTICAL FDI: In this case, a business expands into another country by moving to a different level of supply chain. Thus business undertakes different activities overseas but these activities are related to main business.
3. CONGLOMERATE FDI: Under this type of FDI, a business undertakes unrelated business activities in a foreign country. this type is uncommon as it involves the difficulty of penetrating a new country and an entirely new market.
4. PLATFORM FDI: Here, a business expands into another country but the output from the business is then exported to a third country.

Routes

There are two routes by which India gets FDI.

1. Automatic route: By this route FDI is allowed without prior approval by Government or Reserve Bank of India.
2. Government route: Prior approval by government is needed via this route. The application needs to be made through Foreign Investment Facilitation Portal, which will facilitate single window clearance of FDI application under Approval Route. The application will be forwarded to the respective ministries which will act on the application as per the standard operating procedure. Foreign Investment Promotion Board (FIPB) which was the responsible agency to oversee this route was abolished on May 24, 2017. It held its last meeting on 17 April, which was the 245th meeting of the Board. On 24 May 2017, Foreign Investment Promotion Board was scrapped by the Union Government. Henceforth, the work relating to processing of applications for FDI and approval of the Government thereon under the extant FDI Policy and FEMA, shall now be handled by the concerned Ministries/Departments in consultation with the Department for Promotion of Industry and Internal Trade(DPIIT) , Ministry of Commerce, which will also issue the Standard Operating Procedure (SOP) for processing of applications and decision of the Government under the extant FDI policy

The aim of globalization is to secure socio-economic integration and development of all the people of the world through a free flow of goods, services, information, knowledge and people across all boundaries.

Globalization is seen as a conscious and active process of expanding business and trade across the borders of all the states. It stands for expanding cross-border facilities and economic linkages. This is to be done with a view to secure an integration of economic interests and activities of the people living in all parts of the world. The objective of making the world a truly inter-related, inter-dependent, developed global village governs the on-going process of globalization.

Globalization is the concept of securing real social economic, political and cultural transformation of the world into a real global community. It is considered to be the essential means for securing sustainable development of all the people of the world.

“Globalization represents the desire to move from national to a global sphere of economic and political activity”. It seeks to transform the existing international economic system into a unified system of global economics. In the existing system, national economies are the major players. In the new system, the globalized economic and political activity will ensure sustainable development for the whole world.

“Globalization is both an active process of corporate expansion across borders and a structure of cross border facilities and economic linkages that has been steadily growing and changing.” :Edward S.Herman

“Globalization is the process whereby social relations acquire relatively distance-less and borderless qualities.” :Baylis and Smith

Nature of Globalization

1. Liberalization

It stands for the freedom of the entrepreneurs to establish any industry or trade or business venture, within their own countries or abroad.

2. Free trade

It stands for free flow of trade relations among all the nations. Each state grants MFN (most favored nation) status to other states and keeps its business and trade away from excessive and hard regulatory and protective regimes.

3. Globalization of Economic Activity

Economic activities are be governed both by the domestic market and also the world market. It stands for the process of integrating the domestic economy with world economies.

4. Liberalization of Import-Export System

It stands for liberating the import- export activity and securing a free flow of goods and services across borders.

5. Privatization

Keeping the state away from ownership of means of production and distribution and letting the free flow of industrial, trade and economic activity across borders.

6. Increased Collaborations

Encouraging the process of collaborations among the entrepreneurs with a view to secure rapid modernization, development and technological advancement.

7. Economic Reforms

Encouraging fiscal and financial reforms with a view to give strength to free world trade, free enterprise, and market forces.

Globalization accepts and advocates the value of free world trade, freedom of access to world markets and a free flow of investments across borders. It stands for integration and democratization of the world’s culture, economy and infrastructure through global investments.

Typical Stages of the Globalization of Business Companies

1. “In the first stage of globalization, companies normally tend to focus on their domestic markets. They develop and strengthen their capabilities in some core areas.
2. In the second stage of globalization, companies begin to look at overseas markets more seriously but the orientation remains predominantly domestic. The various options a company has in this stage are exports, setting up warehouses abroad and establishing assembly lines in major markets. The company gets a better understanding of overseas markets at low risk, but without committing large amounts of resources.
3. In the third stage of globalization, the commitment to overseas markets increases. The company begins to take into account the differences across various markets to customize its products suitably. Different strategies are formed for different markets to maximize customer responsiveness. The company may set up overseas R&D centers and full-fledged country or region specific manufacturing facilities. This phase can be referred to as the multinational or multi-domestic phase. The different subsidiaries largely remain independent of each other and there is little coordination among the different units in the system.”
4. In the final stage of globalization, the transnational corporation emerges. Here, the company takes into account both similarities and differences across different markets. Some activities are standardized across the globe while others are customized to suit the needs of individual markets. The firm attempts to combine global efficiencies, local responsiveness and sharing of knowledge across different subsidiaries.

Important Features of Globalization

1. Liberalization

It stands for the freedom of the entrepreneurs to establish any industry or trade or business venture, within their own countries or abroad.

2. Free trade

It stands for free flow of trade relations among all the nations. Each state grants MFN (most favoured nation) status to other states and keeps its business and trade away from excessive and hard regulatory and protective regimes.

3. Globalization of Economic Activity

Economic activities are be governed both by the domestic market and also the world market. It stands for the process of integrating the domestic economies with world economy.

4. Liberalisation of Import-Export System

It stands for liberating the import-export activity and securing a free flow of goods and services across borders.

5. Privatisation

Keeping the state away from ownership of means of production and distribution and letting the free flow of industrial, trade and economic activity across borders.

6. Increased Collaborations

Encouraging the process of collaborations among the entrepreneurs with a view to secure rapid modernization, development and technological advancement.

7. Economic Reforms

Encouraging fiscal and financial reforms with a view to give strength to free world trade, free enterprise, and market forces.

8. Several dimensions of Globalization

Increased and Active Social, Economic and Cultural Linkages among the people. Globalization has social, economic, political cultural and technological dimensions. It involves all round inter-linkages among all the people of the world.

Free flow of knowledge, technology goods services and people across all societies is it key feature. It attempts at making geographical borders soft permitting all the people to develop their relations and links.

Globalization accepts and advocates the value of free world, free trade, freedom of access to world markets and a free flow of investments across borders. It stands for integration and democratization of the world’s culture, economy and infrastructure through global investments.

GATT expands to General Agreement on Tariffs and Trade, is an international trade treaty, that came into existence in the year 1947, just after the second world war, as a result of Bretton Woods Agreement. It is a multilateral legal agreement which was signed by 23 nations. It was enacted to bolster the economic recovery which aimed at expanding world trade, by abolishing those trade barriers, such as reducing tariff, quota, subsidies etc.

There are three main provisions made in this regard, which are:

• When it’s about the tariff, all the member nations are considered as equal.
• Restriction on the number of imports and exports are prohibited but subject to certain exceptions.
• Special provisions are made to encourage trade of developing nations.

WTO

WTO stands for World Trade Organization, is the sole international body concerned with the provisions of cross-country trade, based in Geneva, Switzerland. Basically, there is an agreement called WTO agreement, which is duly signed and negotiated by member nations of the world and confirmed in their parliaments.

In the real sense, WTO is a place, where the governments of member countries attempt to resolve their trade problems, encountered by them during the trade with other countries. The member governments (who can be ministers or their ambassadors or delegates) operate WTO and all decisions are also taken by consensus.

The Differences between GATT and WTO

• GATT was ad-hoc and provisional. The WTO and its agreement are permanent with WTO having a sound legal basis because members have ratified the WTO agreements.
• GATT refers to an international multilateral treaty to promote international trade and remove cross-country trade barriers. On the contrary, WTO is a global body, which superseded GATT and deals with the rules of international trade between member nations.
• While GATT is a simple agreement, there is no institutional existence, but have a small secretariat. Conversely, WTO is a permanent institution along with a secretariat.
• The participating nations are called as contracting parties in GATT, whereas for WTO, they are called as member nations.
• The grandfather clause in the Protocol of Provisional Application in GATT 1947 has not been carried forward to WTO. WTO contains an improved version of original GATT rules-GATT Rules 1994.
• GATT commitments are provisional in nature, which after 47 years the government can make a choice to treat it as a permanent commitment or not. On the other hand, WTO commitments are permanent, since the very beginning.
• The scope of WTO is wider than that of GATT in the sense that the rules of GATT are applied only when the trade is made in goods. As opposed to, WTO whose rules are applicable to services and aspects of intellectual property along with the goods.
• GATT agreement is primarily multilateral, but the plurilateral agreement is added to it later. In contrast, WTO agreements are purely multilateral.
• The domestic legislation is allowed to continue in GATT, while the same is not possible in the case of WTO.
• The dispute settlement system of GATT was slower, less automatic and susceptible to blockages. Unlike WTO, whose dispute settlement system is very effective.

	WTO	GATT
Meaning	WTO is an international organization, that came into existence to oversee and liberalize trade between countries.	GATT can be described as a set of rules, multilateral trade agreement, that came into force, to encourage international trade and remove cross-country trade barriers.
Institution	It has permanent institution along with a secretariat.	It does not have any institutional existence, but have a small secretariat.
Participant nations	Members	Contracting parties
Commitments	Full and Permanent	Provisional
Application	The rules of WTO includes services and aspects of intellectual property along with the goods.	The rules of GATT are only for trade in goods.
Agreement	Its agreements are purely multilateral.	Its agreement are originally multilateral, but plurilateral agreement are added to it later.
Domestic Legislation	Not allowed to continue	Allowed to continue
Dispute Settlement System	Fast and effective	Slow and ineffective

The Uruguay Round was the 8th round of Multilateral Trade Negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1994 and embracing 123 countries as “contracting parties”. The negotiations and process ended with the signing of the Final Act of the Marrakesh Agreement in April 1994 at Marrakesh, Morocco. The round led to the creation of the World Trade Organization (WTO), with GATT remaining as an integral part of the WTO agreements. The Uruguay Round was, without a doubt, the largest trade negotiation ever, and may very well have been the largest negotiation ever. It set out rules and principles to cover all global trade, from banking to consumer products. The subjects for negotiations, the widest of any GATT round, were tariffs, non-tariff measures, tropical products as a priority area, natural resource-based products, textiles and clothing, agriculture, review of GATT articles, safeguards, Tokyo Round agreements ad arrangements, subsidies and countervailing measures, dispute settlement, trade-related aspects of intellectual property rights, trade-related investment measures and the Functioning of the GATT System (FOGS).

Uruguay Round Negotiations in 1995 and the resultant World Trade Organization (WTO) that called for international trade between nations on equal footings introduced many changes. Trade related to goods, services, people (immigrant skilled labour) and capital was to be made more ‘impartial’ so that there is gradual reduction in the treatment for these factors of trade arising from the host nation and from the imported country. Still there is lot of hiccups as far as a mutual consensus is to be developed among various nations.

As far as trips is concerned there are conflicting views for it among the developing and the developed nations. The IPR regime that had to be followed uniformly could not happen and there is country specific intellectual property definition particularly in the new emerging fields of medicine, Pharma, nano technology, environmental science, microbiology etc.

The emerging economies are not ready to comply by the ‘liberal’ definition of intellectual property that they were forced to comply in the other WTO negotiations at Geneva, Singapore and Seattle when the emerging economies were not that organized like they have formed unions like brics, ibsa etc.

So, these developing nations were easily pressurized to comply by whatever demands that was put forward by the developed nations at the negotiating table. The ‘liberal’ definition of intellectual property makes the well-established mncs from the western economies that are on the throes of technical expertise, patent even the naturally evolved things like a particular phenotype-expressing gene-like or any microorganism.

Adding to this is the unresolved ‘ever greening’ clause in the ipr draft bill that tends to make their exclusive marketing rights of any product perennial. This step particularly harms the terminally ill patients like aids patient who needs cheaper version i.e., generic version of anti-retro viral drugs that mostly are invented by the rich MNCS who have a lot of corporate and federal funding for newer inventions. Moreover, this has steepened the trade conflicts between nations divided among the developing Southern nations and the developed Northern nations.

India being a signatory to world intellectual property organization convention is pledged to gradually move towards a ‘product patent’ regime from the present ‘process patent’. It has initiated this process from 2000 itself. Moreover, India is also making its own patents globally registered so it can reduce incidents like that of basmati and turmeric.

Also an autonomous body under Sam Pitroda has been established namely national knowledge commission that caters to compiling all inventions and traditional knowledge that India has. This will reduce instances like plagiarism for economic gains by the rich nations having financial muscle to fight protracted legal wars.

India is also improving upon its regulatory framework as far as piracy is concerned by bringing in constructive amendments in its Copyright Act of 1958.

Since the coming days there will be nation’s war for intellectual property as its provides for massive economic gains so it is better that India takes these pro-active steps so that it do not provide predators to take on all that had been in practice in India since time immemorial. Also, with realignment in its laws with the international regime it tends to make itself a safe ground for international products which fears their revenue loss from plagiarism.

The main achievements of the Uruguay Round included:

1. A trade-weighted average tariff cut of 38%;
2. Conclusion of the Agreement on Agriculture which brought agricultural trade for the first time under full GATT disciplines;
3. Adoption of the General Agreement of trade in Services (GATS);
4. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);
5. The Agreement on Trade-Related Investment Measures (TRIMS);
6. The creation of unified and predictable dispute settlement mechanism (Dispute Settlement Body-DSB);
7. Confirmation f the trade Policy Review Mechanism (TPRM);
8. The establishment of the WTO, which administers 15 multilateral, and four plurilateral trade agreements;

The Uruguay Round had extended considerably the realm of world trade rules with agreements on intellectual property and trade in services in ex-change for finally tackling agricultural protectionism on a broader scale and getting rid of the textile and clothing quotas.

An economic system is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country. Economic systems regulate the factors of production, including land, capital, labor, and physical resources. An economic system encompasses many institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community.

An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes and patterns of consumption that comprise the economic structure of a given community.

An economic system is a type of social system. The mode of production is a related concept. All economic systems must confront and solve the three fundamental economic problems: what kinds and quantities of goods shall be produced, What and how much economic resources will be used and how will the output be distributed?

The study of economic systems includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (including property rights and the structure of management). The analysis of economic systems traditionally focused on the dichotomies and comparisons between market economies and planned economies and on the distinctions between capitalism and socialism. Subsequently, the categorization of economic systems expanded to include other topics and models that do not conform to the traditional dichotomy.

Today the dominant form of economic organization at the world level is based on market-oriented mixed economies. An economic system can be considered a part of the social system and hierarchically equal to the law system, political system, cultural and so on. There is often a strong correlation between certain ideologies, political systems and certain economic systems (for example, consider the meanings of the term “communism”). Many economic systems overlap each other in various areas (for example, the term “mixed economy” can be argued to include elements from various systems). There are also various mutually exclusive hierarchical categorizations.

Types of Economic Systems

There are many types of economies around the world. Each has its own distinguishing characteristics, although they all share some basic features. Each economy functions based on a unique set of conditions and assumptions. Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies.

1. Traditional economic system

The traditional economic system is based on goods, services, and work, all of which follow certain established trends. It relies a lot on people, and there is very little division of labor or specialization. In essence, the traditional economy is very basic and the most ancient of the four types.

Some parts of the world still function with a traditional economic system. It is commonly found in rural settings in second- and third-world nations, where economic activities are predominantly farming or other traditional income-generating activities.

There are usually very few resources to share in communities with traditional economic systems. Either few resources occur naturally in the region or access to them is restricted in some way. Thus, the traditional system, unlike the other three, lacks the potential to generate a surplus. Nevertheless, precisely because of its primitive nature, the traditional economic system is highly sustainable. In addition, due to its small output, there is very little wastage compared to the other three systems.

2. Command economic system

In a command system, there is a dominant, centralized authority usually the government that controls a significant portion of the economic structure. Also known as a planned system, the command economic system is common in communist societies since production decisions are the preserve of the government.

If an economy enjoys access to many resources, chances are that it may lean towards a command economic structure. In such a case, the government comes in and exercises control over the resources. Ideally, centralized control covers valuable resources such as gold or oil. The people regulate other less important sectors of the economy, such as agriculture.

In theory, the command system works very well as long as the central authority exercises control with the general population’s best interests in mind. However, that rarely seems to be the case. Command economies are rigid compared to other systems. They react slowly to change because power is centralized. That makes them vulnerable to economic crises or emergencies, as they cannot quickly adjust to changed conditions.

3. Market economic system

Market economic systems are based on the concept of free markets. In other words, there is very little government interference. The government exercises little control over resources, and it does not interfere with important segments of the economy. Instead, regulation comes from the people and the relationship between supply and demand.

The market economic system is mostly theoretical. That is to say, a pure market system doesn’t really exist. Why? Well, all economic systems are subject to some kind of interference from a central authority. For instance, most governments enact laws that regulate fair trade and monopolies.

From a theoretical point of view, a market economy facilitates substantial growth. Arguably, growth is highest under a market economic system.

A market economy’s greatest downside is that it allows private entities to amass a lot of economic power, particularly those who own resources of great value. The distribution of resources is not equitable because those who succeed economically control most of them.

4. Mixed system

Mixed systems combine the characteristics of the market and command economic systems. For this reason, mixed systems are also known as dual systems. Sometimes the term is used to describe a market system under strict regulatory control.

Many countries in the West follow a mixed system. Most industries are private, while the rest, comprised primarily of public services, are under the control of the government.

Mixed systems are the norm globally. Supposedly, a mixed system combines the best features of market and command systems. However, practically speaking, mixed economies face the challenge of finding the right balance between free markets and government control. Governments tend to exert much more control than is necessary.

Economic policies

The economic policy of governments covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the economy.

Most factors of economic policy can be divided into either fiscal policy, which deals with government actions regarding taxation and spending, or monetary policy, which deals with central banking actions regarding the money supply and interest rates.

Such policies are often influenced by international institutions like the International Monetary Fund or World Bank as well as political beliefs and the consequent policies of parties.

Types of economic policy

Almost every aspect of government has an important economic component. A few examples of the kinds of economic policies that exist include:

• Macroeconomic stabilization policy, which attempts to keep the money supply growing at a rate that does not result in excessive inflation, and attempts to smooth out the business cycle.
• Trade policy, which refers to tariffs, trade agreements and the international institutions that govern them.
• Policies designed to create economic growth

Policies related to development economics

• Policies dealing with the redistribution of income, property and/or wealth
• As well as: regulatory policy, anti-trust policy, industrial policy and technology-based economic development policy.

Tools and goals

Policy is generally directed to achieve particular objectives, like targets for inflation, unemployment, or economic growth. Sometimes other objectives, like military spending or nationalization are important.

These are referred to as the policy goals: the outcomes which the economic policy aims to achieve.

To achieve these goals, governments use policy tools which are under the control of the government. These generally include the interest rate and money supply, tax and government spending, tariffs, exchange rates, labor market regulations, and many other aspects of government.

Macroeconomic stabilization policy

Stabilization policy attempts to stimulate an economy out of recession or constrain the money supply to prevent excessive inflation.

• Fiscal policy, often tied to Keynesian economics, uses government spending and taxes to guide the economy.
• Fiscal stance: The size of the deficit or surplus
• Tax policy: The taxes used to collect government income.
• Government spending on just about any area of government
• Monetary policy controls the value of currency by lowering the supply of money to control inflation and raising it to stimulate economic growth. It is concerned with the amount of money in circulation and, consequently, interest rates and inflation.
• Interest rates, if set by the Government
• Incomes policies and price controls that aim at imposing non-monetary controls on inflation
• Reserve requirements which affect the money multiplier

Impact of business on Public Sector

In India, a public sector company is that company in which the Union Government or State Government or any Territorial Government owns a share of 51 % or more. Currently there are just three sectors left reserved only for the government i.e. Railways, Atomic energy and explosive material. Private sectors/players are not allowed to operate in these sectors.

Before the independence of India, there were only a few public sector companies in the country this includes, Indian Railways, the Port Trusts, the Posts and Telegraphs, All India Radio and the Ordinance Factory are some of the major examples of the country’s public sector enterprises. However, post Indian independence, some policies for the development of the socio-economic status of the country were planned out by the then visionary leaders, where the public sector were used as a tool for the self-reliant growth of the nation’s economy.

This was the reason that the second five year plan of India was solely based on the development of the different industries. Till 1990s major sectors of the economy were reserved only for the government, this caused the great loss of our precious natural resources and the whole country trapped into the great economic problem. From the very first five year plan till 1980s our country grows with the average rate of 3.5% per year (which is called Hindu rate of growth by Prof. Rajkrishna).

But later on the in 1991, july our new economic policy was launched under the leadership of Mr. Manmohan Singh and P.V. Narsimha Rao.

The main objectives of this new economic policy were:

• To maintain a sustained growth in productivity
• To enhance gainful employment
• To achieve optimum utilization of human resources
• To transform India into a major partner and player in the global arena.
• To take out Indian economy from the vicious circle of poverty.
• Open the Indian economy to interact openly with the rest of the world.

The main result of this new policy was that reserved sectors were opened for the private players. Public sectors were not able to operate at its optimum pace.

Objectives: The public sector aims at achieving the following objectives:

To promote rapid economic development through creation and expansion of infrastructure

• To generate financial resources for development
• To promote redistribution of income and wealth
• To create employment opportunities
• To promote balanced regional growth
• To encourage the development of small-scale and ancillary industries, and
• To accelerate export promotion and import substitution

Role of public sectors in the development of the country is explained below:

• Public Sector and Capital Formation: The role of public sector in collecting saving and investing them during the planning ear has been very important. During the first and second five year plan it was 54% of the total investment, which declined to 24.6 % in the 2010-11.
• Employment Generation: Public sector has created millions of jobs to tackle the unemployment problem in the country. The number of persons employed in the as on march 2011 was 150 lakh. Public sector has also contributed a lot towards the improvement of working and living conditions of workers by serving as a model employer.
• Balanced Regional Development: Public sector undertakings have located their plants in backward parts of the county. These areas lacked basic industrial and civic facilities like electricity, water supply, township and manpower. Public enterprises have developed these facilities thereby bringing about complete transformation in the socio-economic life of the people in these regions. Steel plants of Bhilai, Rourkela and Durgapur; fertilizer factory at Sindri, are few examples of the development of backward regions by the public sector.
• Contribution to Public Exchequer: Apart from generation of internal resources and payment of dividend, public enterprises have been making substantial contribution to the Government exchequer through payment of corporate taxes, excise duty, custom duty etc. gross internal resource generation in 1990- 2000 was 36000 cr which rose to 1, 11,000 cr in 2008-09, while net profit was 92,077 cr in 2010-11.
• Export Promotion and Foreign Exchange Earnings: Some public enterprises have done much to promote India’s export. The State Trading Corporation (STC), the Minerals and Metals Trading Corporation (MMTC), Hindustan Steel Ltd., the Bharat Electronics Ltd., the Hindustan Machine Tools, etc., have done very well in export promotion.
• Import Substitution: Some public sector enterprises were started specifically to produce goods which were formerly imported and thus to save foreign exchange. The Hindustan Antibiotics Ltd., the Indian Drugs and Pharmaceuticals Ltd. (IDPL), the Oil and Natural Gas Commission (ONGC), the Indian Oil Corporation Ltd., the Bharat Electronics Ltd., etc., have saved foreign exchange by way of import substitution.
• Promotion of Research and Development: As most of the public enterprises are engaged in high technology and heavy industries, they have undertaken research and development programmes in a big way. Public sector has laid strong and wide base for self-reliance in the field of technical know-how, maintenance and operation of sophisticated industrial plants, machinery and equipment in the country. Expenditure on research and development reduces the cost of production.

Impact of business on Private Sector

India, being a mixed economy, has assigned a great importance on the private sector of the country for attaining rapid economic development. The Government has fixed a specific role to the private sector in the field of industries, trade and services sector.

The most dominant sector of India, i.e., agriculture and other allied activities like dairying, animal husbandry, poultry etc. is totally under the control of the private sector. Thus private sector is playing an important role in managing the entire agricultural sector and thereby providing the entire food supply to the millions.

Moreover, the major portion of the industrial sector engaged in the non-strategic and light areas, producing various consumer goods both durables and non-durables, electronics and electrical goods, automobiles, textiles, chemicals, food products, light engineering goods etc., is also under the control of the private sector.

Private sector is playing a positive role in the development and expansion of aforesaid group of industries. Besides, the development of small scale and cottage industries is also the responsibility of the private sector.

Finally, the private sector is also having its role in the development of tertiary sector of the country. The private sector is managing the entire services sector providing various types of services to the people in general. The entire wholesale and retail trade in the country is also being managed by the private sector in a most rational manner.

Moreover, the major portion of the transportation, especially in the road transport is also managed by the private sector. With the growing liberalisation of Indian economy in recent years, the private sector is being assigned with much greater responsibility in various spheres of economic activities.

Characterstics

High Potentiality:

Most of the small scale and cottage scale industries are using labour intersine technologies, they create huge employment opportunities. These industries are owned by private sector. About 80% of the total working forces are employed in either organized or unorganized private sector units. Private sector contributes about three-forth of the country’s national income. Moreover, this sector also plays a vital role to increase gross domestic saving (CDS) and gross domestic capital formation'(GDCF) within the economy.

According to 1956 resolution, “industries producing intermediate goods and machines can be set up in the private sector.” A good number of ultra modern industries are constructed under the control of private sector. This includes several consumers’ good industries like sugar industry, edible oil industry, textile industry, paper industry, spice industry and fast food or semi-finished food industries.

Even in the sphere of capital goods, iron and steel heavy engineering, chemical, motors etc. private sector plays a dominant role for their development. In the post liberalisation phase (after introduction of New Industrial Policy, 1991), the working of few private industries became huge.

Contribution to Agriculture:

India is an agro based economy. The share of agriculture and its allied activities like fishing, poultry, cattle rearing, animal husbandry, dairy farming etc. to the national income is nearly 22%. On the other hand, about 60% of the total working population is engaged in this area. Hence, this large agriculture sector is controlled by the private sector.

Helpful for Development:

According to Schumpeter peter private sector plays a dominant role in economic development. It enhances the process of industrialisation. All the private entrepreneurs are worked for profit motive. They actually played a leading role for the introduction of new commodities, new techniques of production, new plants equipment’s and machineries. Private entrepreneur has innovative ideas and always modifies the total method of production. After the introduction of new industrial policy in 1991, private sector leads a vital role in country’s industrial development.

Employment Generation:

Private sector plays a dominant role for generating employment opportunities inside the country. A huge number of large scale, small scale, cottage scale units are under the control of private sector. It proves that small scale and cottage scale industries contribute four times more employment in compare to large scale industries. According to 2001-02 statistics, as far as employment is concerned, the share of private sector was 51.2% against 44.3% of the public sector.

Most Important Sector:

In-spite of huge progress of the public sector during the plan period, the importance of private sector is tremendous in the India economy. On the basis of the latest data available for the country’s industrial development, the number of private sector companies in 2001- 02 was 1, 10, 634 in compare to the total number companies of 1,28,549. In other way 86.1% of the total companies were under the control of private sector in compare to only 11.67o companies under public sector.

Impact of business on Joint Sector

The joint sector represents a new ideology of economic management geared to sub serve a new economic system.

The term is applied to an under­taking only when both its ownership and control are effectively shared between public sector agen­cies on the one hand and a private group on the other.

Joint sector was emerged as an alternative to both the public and private sector in the mixed economy of India to help the Government by providing the ‘nuclei’ for a healthy growth of certain important industries making the best possible use of available technical and managerial experience in the existing enterprise.

The radical shift in Government policy has brought the concept of the joint sector into sharp focus. It is nothing but a form of partnership between the public sector and the private sector.

Although the Joint Sector concept was conceived by the authors of the 1956 Industrial Policy Resolution, it was really the brainchild of the Industrial Licensing Policy Enquiry Committee, popularly known as the Dutta Committee.

Besides the public and the private sector, there was need for a new sector a joint sector for the harmonious industrial development of the economy. The joint sector is envisaged as something in between the public and the private sector and in which the state could actively participate in management, control and decision-making.

It is claimed that the joint sector scheme has the advantages of both the public and the private sectors and at the same time avoids the evils of both sectors and thus fulfils the basic socio-economic objectives of the country.

Moreover, it offers an avenue of growth when all other gates to growth seem to have been closed.

The concept of a joint sector is basically an extension of the idea of mixed economy in which the public and private sector units are separate and function independently but are nevertheless part of a national plan.

It is a compromise between total nationalisation and complete private autonomy. In the joint sector, the relationship between the representatives of the private and public sectors is much closer as they have to work together within the same unit.

The joint sector was recommended for units where a large proportion of the cost of a new project was to be met by public financial institutions either directly or through their support.

There are three different concepts of joint sector: First, financial institutions can exercise the right to convert debt into equity and appoint directors on company boards.

Secondly, Government may appoint directors on company boards through the exercise of powers granted by the Monopolies and Restrictive Trade Practices Act to check malpractices.

This need not involve share participation and must not be confused with the joint sector. The third form is the real joint sector where the Government directly, or through its agencies, is a co- shareholder in an enterprise. The Government in this case plays a promotional and entrepreneurial role and is an active majority partner.

In a memorandum submitted to the Government, JRD Tata suggested a slightly different definition of the joint sector. “A joint sector enterprise is intended to be a form of partnership between the private sector and the Government in which the State participation of capital will not be less than 26 per cent, the day-to-day management will normally be in the hands of the private sector partner, and control and supervision will be exercised by a board of directors on which government is adequately represented”.

The Dutta Committee advocated conversion of some of the private sector units into joint sector enterprises as an important means of curbing the concentration of economic power in certain private groups.

A number of new industrial projects had been established in the private sector with the help of funds provided by public financial institutions but the latter had not asked for a voice in the management.

It was strange that huge private industrial empires should be built up with funds provided by public institutions without knowing how the money was actually spent. The Dutta Committee asked the Government to enunciate a new industrial policy whereby this anomaly could be rectified.

There was a change in the industrial policy without there being a change in the 1956 Policy Resolution. The Government announced the new industrial policy in February 1970. The joint sector concept as suggested by the Dutta Committee was accepted in principle.

It was laid down that while sanctioning loans or subscribing to debentures, public financial institutions should in future have the option to convert them into equity within a specified period of time. Specific guidelines had been laid down.

In case the aggregate loans granted were below Rs. 25 lakh, the financial institutions are not to insert any convertibility clause in the agreement. If the loans granted were between Rs. 25 lakh and Rs. 50 lakh, it is optional for the financial institutions to insert a convertibility clause in the agreement. Once convertibility was agreed to, the undertaking is required to appoint representatives of the lending institutions as directors on company board.

It is not difficult to understand the logic behind the joint sector. As has been emphasised by the then Prime Minister, the old concepts of exclusive private ownership and private profit do not fit in with today’s social values and priorities.

An open society requires an open corporate structure; the joint sector provides this openness without taking away the advantages of private enterprise and initiative. The joint sector is a departure from exclusive private ownership but it should be welcomed in preference to outright nationalisation.

The joint sector experiment has been viewed with misgivings by many industrialists. It has been assailed as “nationalisation by the backdoor”.

But others have welcomed it on the ground that it is preferable to wholesale nationalisation of existing private undertakings. There is one serious objection to the joint sector.

The concept is based on mutual trust and confidence, yet the idea originated because the private sector could not be trusted enough to grow on its own. Thus, conceived in mistrust, the marriage might be a disastrous failure.

The joint sector was evolved to check the concentration of economic power of private groups. But some think it is not necessary to check the concentration of economic power as the existing Monopolies and Restrictive Trade Practices Act was adequate for the purpose.

Features of Joint Sector:

Joint sector enterprises may be brought into being by any of the following ways:

(i) The Central Govt. and private entrepre­neurs may jointly set up new enterprises. Sometimes the Central Govt. and one or more State Govts, together may set up enterprises in partnership with the pri­vate sector.

(ii) The State Govt. or their industrial devel­opment corporations may set up new companies jointly with private partners, involving equity participation by both the partners.

(iii) Public financial institutions may, through equity participation or conver­sion of loans or debentures into equity, transform enterprises promoted by pri­vate entrepreneurs into joint sector com­panies.

(iv) The existing private enterprises may be transformed into joint sector enterprises by the govt. or govt. companies acquir­ing a part of the equity or converting debt into equity or by contributing to an increase in the share capital.

(v) The existing public sector companies may be transformed into joint sector en­terprises through the sale of some eq­uity shares to private entrepreneurs or the general public.

Advantages

Growth with Welfare:

Growth with wel­fare can be achieved more readily through the agency of joint sector; for expansion and diversifi­cation in this sector will not generate concentra­tion of economic power. The joint sector run and managed on business lines, with specific emphasis on welfare of the surrounding community can be the most useful formula.

In fine, it may be stated that the joint sector, if managed properly, can be a viable alternative to both state capitalism with its risk of bureaucratisation on the one hand and private capi­talism with its acute inequality in the distribution of wealth and income.

Curbing the Concentration of Economic Power:

Govt. participation in the ownership and management of enterprises jointly with private entrepreneurs could be an effective means for con­trolling monopoly, concentration of economic power and business malpractices.

The Dutt Com­mittee even regarded the joint sector as possibly more effective than licensing in achieving this ob­jective.

Social Control over Industry:

Govt. par­ticipation in equity and management is expected to give a social orientation to the enterprise. The joint sector would ensure that the management of industry is conducted according to the overall poli­cies laid down by the Govt. and that public interest and not merely private profit would guide the op­erations of the enterprises.

Alternative to Public and Private Sectors:

The joint sector has the potential to grow as an al­ternative to both the public and private sectors in the mixed economy of India. The main advantage of the joint sector is that it combines the favourable points in the public as well as the private sector and seeks to eliminate the negative points in both.

Broad-Basing of Entrepreneurship:

Another advantage of the joint sector is that it helps Broad base entrepreneurship by encouraging new and small entrepreneurs. The joint sector enables potential entrepreneurs, with small financial resources and less experience to participate in large enterprises as the public sector shares investment and the risk.

Promotion of Mixed Economy:

It is also expected that the joint sector will promote the mixed economy and help achieve development ob­jectives. The basic justification of the idea of mixed economy is to harness all the productive forces of society, state as well as private, to the task of eco­nomic development with a view to accelerating the process.

By allowing the private sector to play its part in the process, the state is able to develop entrepreneurship outside the govt. and enlist it to sup­plement its entrepreneurial role. Similarly, a mixed economy allows the state to take advantage of vol­untary savings in society for purpose of investment to supplement the resources it is able to mobilise for this purpose.

Acceleration of Economic Growth:

The joint sector, by mobilising and augmenting the pro­ductive resources, can accelerate the pace of eco­nomic growth. It enables private entrepreneurs and the state agencies to promote or invest in a greater number of projects than would otherwise be possi­ble.

The resources of the private sector in savings, investments and entrepreneurship can be harnessed in the joint sector with active state help to supple­ment the efforts made by them in the public sector without the private profit motive being allowed to vitiate the effort.

An effective regulatory and legal framework is indispensable for the proper and sustained growth of the company. In rapidly changing national and global business environment, it has become necessary that regulation of corporate entities is in tune with the emerging economic trends, encourage good corporate governance and enable protection of the interests of the investors and other stakeholders. Further, due to continuous increase in the complexities of business operation, the forms of corporate organizations are constantly changing. As a result, there is a need for the law to take into account the requirements of different kinds of companies that may exist and seek to provide common principles to which all kinds of companies may refer while devising their corporate governance structure.

The important legislations for regulating the entire corporate structure and for dealing with various aspects of governance in companies are Companies Act, 1956 and Companies Bill, 2004. These laws have been introduced and amended, from time to time, to bring more transparency and accountability in the provisions of corporate governance. That is, corporate laws have been simplified so that they are amenable to clear interpretation and provide a framework that would facilitate faster economic growth.

Secondly, the Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India Act, 1992 and Depositories Act, 1996 have been introduced by Securities and Exchange Board of India (SEBI), with a view to protect the interests of investors in the securities markets as well as to maintain the standards of corporate governance in the country.

Legal Framework of Doing Business in India

Legal Framework of Doing Business in India is intended to provide foreign investors and their advisors a broad legal perspective on foreign investment in India. The guide is written in general terms and its application to specific situations will depend on the particular circumstances involved. It summarizes all major foreign investment regulations and procedures that are currently in force in India. It has been prepared in order to facilitate multinational companies, start-ups and venture capital investor’s set-up business operations in India and includes valuable regulations, forms and policies for ready reference of entrepreneurs and senior managers of foreign entities. It also includes a step-by-step guide to compliance and filings of forms in India. The information in this guide is accurate as of March 20, 2014.

Citizens of India have the option to set-up their business operations either in the form of incorporated entities, (a company or limited liability partnership) or unincorporated entities like a sole proprietorship. On the other hand, a foreign company opting to enter India can do so either by incorporating a wholly owned subsidiary (“WOS”) or by way of joint venture collaboration with an Indian company (“JV Company”). For registration and incorporation of WOS or JV Company, one would first need to incorporate an Indian company and then file an application with Registrar of Companies (“ROC”). The WOS and JV Company will be subject to Indian laws and regulations as applicable to other domestic Indian companies.

Additionally, a foreign company not opting to be incorporated in India, either by way of a JV Company or WOS, is permitted to conduct its business operations through any of the following offices, namely i) liaison office, also known as a representative office; ii) branch office; or iii) project office. Such offices can undertake activities permitted to them under the regulations framed by Foreign Exchange Management Act, 1999 (“FEMA”) for such offices. The approvals for these offices are accorded by the Reserve Bank of India (“RBI”) on a case-to-case basis.

The Government of India is making all efforts to attract and facilitate foreign direct investment (“FDI”) from abroad including investment from non-resident Indians (“NRIs”) to compliment and supplement domestic investment. To make the investment attractive, returns on them are freely repatriable subject to certain legislative restrictions. In addition to approval for bringing FDI in India, many other clearances and approvals, such as registration of company, environment and land related clearances, permission for import of plant and machinery, land acquisition etc are required for starting a business in India.