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Political institutions are organizations which create, enforce, and apply laws;
that mediate conflict, make (governmental) policy on the economy and social
systems. Examples of such political institutions include political parties, trade
unions, and the (legal) courts. The term 'Political Institutions' may also refer
to the recognized structure of rules and principles within which the above
organizations operate, including such concepts as the right to vote,
responsible government, and accountability
A political system which is stable, honest, efficient and dynamic and which
ensures political participation of the people and assures personal security to
the citizens, is a primary factor for economic development.
Two basic political philosophies are in existence all over the world-
Democracy
Totalitarianism
Democracy
Democracy refers to a political arrangement in which supreme power is
vested in the people. Democracy may manifest itself in any of the two
fundamental manners. The right to equality before the law, often phrased as
equal protection of the law, is fundamental to any just and democratic
society. Rich or poor, majority or minority, political ally of the State or its
opponentall are entitled to equal protection before the law.
In a democratic State, no one is above the law. Democracy is for the
people, by the people and of the people, said Abraham Lincoln.
Totalitarianism
During the first and second world wars, authoritarian governments began to
appear in most mature economies. Totalitarianism was seen till first and
second world war. A totalitarian government is a country
run with only one political party, like China, or North Korea. The government
can prevent people from doing anything including leaving the country.
Totalitarianism can also mean that this country might be ruled by one
person.
Legislature
Of the three, the Legislature is the most powerful political institution vested
with such powers as policy making, law-making, budget approving, executive
control and acting as a mirror of public opinion
POWER BRANCHES
POLITICAL POWER
Executive or Government
The executive is the primary and prominent organ of the government in
terms of its importance. It has been playing its role much before attempts
were made to organise the branches of government. Executive has been
the manifestation of government. It has been performing its functions of
executing the laws made by the legislature and also implementing the
policies of the state. The efficiency of the government depends on the
effective implementation of its policies by the executive
judiciary:
The third political institution is judiciary. Judiciary determines the manner
in which thework of the executive has been fulfilled. The Judiciary of India
is an independent body and is separate from the Executive and
Legislative bodies of the Indian Government. The judicial system of India
is stratified into various levels. At the apex is the Supreme Court, which is
followed by High Courts at the state level, District Courts at the district
level and Lok Adalats at the Village and Panchayat Level. The judiciary of
India takes care of maintenance of law and order in the country along with
solving problems related to civil and criminal offences
b. Entrepreneurial Role
c. Promotional Role
d. Planning Role
Generally, the government attempts to measure and control the limits of Private Sector.
Listed below are the major objectives from the governments end to regulate the business
processing/ functioning:
In regulatory role, the government directs businesses for their actions. This is done by
standardizing the code of conduct, norms and regulations in domestic environment.
Government of India has the foremost objective of social welfare, hence they control the
business and economic activities in such a way that it benefits the society and buyers.
Regulating it involves ceiling the prices, rationing the goods, imposing taxation on excess
profits, allocation of foreign exchange, adding restrictions on foreign trade, industrial
licensing etc. It is mainly done by two ways:
Discretionary Measures
Non Discretionary Measures include the control without any administrative discretion of an
authority. These measures are exercised at macro level through fiscal and monetary
policies. For examples imposing different taxes on different products at different places,
amending customs tariffs, regulating the bank interest by changing repo rates or reverse
repo rates, regulating money supply and credit creation and granting subsidies to different
industries. Government of India is sponsoring and providing subsidies to solar and power
projects for sustainable development. Hence, non discretionary measures are achieved by
passing different laws. In India, the regulatory role is exercised in following manner:-
I. The Companies Act, 2013: It is an act to consolidate and amend the law relating to
companies. This act is related to companies in force before the Indian Companies Act, 1866;
the Indian Companies Act, 1882; the Indian Companies Act, 1913; the Registration of
Transferred Companies Ordinance, 1942 and the Companies Act, 1956 for better functioning
of business in legalized form.
II. The Banking Laws (Amendments) Act, 2012: This is an act to further amend the Banking
Regulation Act, 1949, the Banking Companies (Acquisitions and Transfer of Undertakings)
Act, 1970, the Banking Companies (Acquisitions and Transfer of Undertakings) Act, 1980
and to make consequential amendments in certain other enactments for better functioning
of banking sector to help businesses and other economic activities.
III. The Securities and Exchange Board of India (Amendment) Act, 2013: This is an Act
which further amends the Securities and Exchange Board of India Act, 1992 for directing the
functioning of SEBI.
IV. The National Food Security Act, 2013: This act provides for food and nutritional security
in human life cycle, by ensuring access to adequate quantity and quality of food at
affordable prices so that people can live a life with dignity. It is also concerned with matters
connected therewith or incidental thereto.
V. Consumer Protection Act, 1986: This is an act to protect the interest of consumers in
India by making provision for the establishment of consumer councils and other such
authorities for the settlement of consumers' disputes and for matters connected therewith.
VI. Industrial Policy: In India, Industrial Policies have been announced in 1948. 1956, 1973,
1977. 1980, 1990, and 1991. These the policies aimed at development of Industrial
Structure by Liberalization, Privation and Globalization and encouraging private sector to
start their venture in Indian economy.
VII. MRTP Act, 1969: The Monopolistic and Restrictive Trade Practices Act, 1969, was
enacted to make sure that the operation of the economic system does not result in
concentration of economic power in hands of few, to restrict the monopolies, and to forbid
monopolistic and restrictive trade practices. This Act was amended in 1982, 1984, 1985 and
1991.
VIII. Foreign Exchange Regulation Act, 1973: Foreign Exchange Management Act, 1973, as
amended by the Foreign Exchange Regulation (Amendment) Act, 1993. It is an Act to
consolidate and amend laws related to certain payments, dealings in foreign exchange and
securities, transactions indirectly affecting foreign exchange and the import and export of
currency, for the conservation of the foreign exchange resources of the country and the
proper utilization thereof in the interests of the economic development of the country. (As
Per RBI)
IX. Commercial Law: This act has been made with a view to order operational aspects of
trade and business. It includes acts like India Contract Act, Sales of Goods Act, Negotiable
Instruments Act, Arbitration Act, etc.
The regulation and control discussed above is aimed to encourage the trade and industrial
growth by monitoring the actions of private, public, joint and cooperative sector and limiting
them if required. It helps the economy with increased competitiveness at both the levels
nationally and internationally.
Transportation Indian Railway Catering and Tourism Corporation Ltd, DMRC Ltd;
Sometimes private sector is unable to establish its venture in some area due to constraints
like lack of capital, lack of know how or restrictions by government. For this, the
government has to perform the entrepreneurial role by entering the market with its
ownership through public sector. For example in the steel sector, minerals, chemical
industry, engineering, irrigation, power and heavy industry government of India established
its business. Similarly, projects like Delhi Rail Metro Corporation Limited is initiated by Delhi
Government under company act, 1956 with GOI and GNCTD. After the DMRC project,
Mumbai Metro One Private Limited (MMOPL) project was initiated by Reliance Infra with
69% equity, Mumbai Metropolitan Region Development Authority with 26 % and Veolia
Transportation RATP Asia, France with 5% equity. Entrepreneurial role of government is
encouraged owing to the following reasons:
To have balance growth among all section Thus, the promotional role of Indian
government includes fiscal and monetary policies for development and growth of the
economy.
Fiscal Policy:
The adjective fiscal' is derived from the noun "fisc" (from Latin fiscus) where fisc means
state Treasury. The word fiscal, therefore, refers to all matter pertaining to state treasury;
particularly it is a source of revenues and patterns of expenditures. Fiscal policy influences
consumption & investment expenditures and accordingly the income, output & employment
in the country. Fiscal policy deals with Government's power to tax & spend for the purpose
of achieving certain declared policy objectives which generally relate to prices, output &
employment. These policies of a country are directed towards four objectives:
These are achieved by two ways namely by direct tax and indirect tax. A Direct tax is a kind
of charge, which is imposed directly on the taxpayer and paid directly to the government by
the persons (juristic or natural) on whom it is imposed. A direct tax is one that cannot be
shifted by the taxpayer to someone else. It includes Income Tax, Corporate Tax and
Property Tax. An indirect tax is a tax collected by an intermediary (such as a retail store)
from the person who bears the ultimate economic burden of the tax (such as the customer).
An indirect tax is one that can be shifted by the taxpayer to someone else. An indirect tax
may increase the price of a good so that consumers are actually paying the tax by paying
more for the products. It includes Customs Duty, Central Excise Duty, VAT and CST. Despite
the fact that, fiscal policy is also carries limitations i.e. the tax structure in developing
economy is narrow & rigid and lack of sound & reliable database in our country.
Monetary Policy:
Monetary policy is the deliberate exercise of the monetary authority's power to induce
expansions or contractions in the money supply with the objective of influencing investment,
income and employment and maintaining price stability in general within the broad
framework of economic policy objectives of government. There are two major instrument in
monetary policy namely Quantitative and Qualitative instrument. Quantitative instruments
are called 'quantitative' because they affect the total volume (or quantity) of money supply
and credit in the country. It takes account of Variations in reserve requirements, changes in
Bank rate and open market operations. Qualitative Instruments are also known as selective
instruments. Selective instruments are called selective because they are aimed at the
movement of credit towards selective sectors of the economy. It consists of Margin
requirements, Moral suasion, Ceilings on credit and Discriminatory rates of interests.
To generate employment
Basically, there are two types of planning i.e. centralized and decentralized planning.
In Centralized planning, plans come from top (central level) and passed to state level. In
Decentralized planning, the plans are initiated from the bottom i.e. from individual unit say
panchayat level, sectoral level, regional level and national level. Moreover, there are short
term planning and long term planning like five years plan laid down by government of India.
MRTP ACT
The Monopolies And Restrictive Trade Practices Act, 1969 is an
important piece of economic legislation designed to ensure that the
operation of the economic system does not result in the concentration of
economic power to the common detriment.
The act came into force from 1st June, 1970, and has been amended in
1991
OBJECTIVES
REGULATION OF MTPs
REGULATION OF RTPs
The practice shall not be repeated.
The agreement shall be void and shall stand modified in such a
manner as may be specified in the order.
REGULATION OF UTPs
The practice shall not be repeated.
Any agreement relating to such an UTP shall be void or shall stand
modified in such a manner as may be directed by the commission.
The MRTP Act, besides adversely affecting economic growth, blunted Indian
companies ability to grow, consolidate and improve competitiveness. This
has had a very dampening effect on their global competitiveness.
UNIT-3
Corporate Governance
Accountability
Ensure that management is accountable to the Board
Ensure that the Board is accountable to shareholders
Fairness
Protect Shareholders rights
Treat all shareholders including minorities, equitably
Provide effective redress for violations
Transparency
Ensure timely, accurate disclosure on all material matters, including
the financial situation, performance, ownership and corporate governance
Independence
Procedures and structures are in place so as to minimise, or avoid
completely conflicts of interest
Independent Directors and Advisers i.e. free from the influence of
others
Business Ethics
Ethics is a set of rules that define right and wrong conduct.
Business ethics can be defined as written and unwritten codes of principles
and values that govern decisions and actions within a company. In the
business world, the organizations culture sets standards for determining the
difference between good and bad decision making and behavior.
Competitive Environment
A competitive environment is the dynamic external system in which a
business competes and functions. The more sellers of a similar product or
service, the more competitive the environment in which you compete. Look
at fast food restaurants - there are so many to choose from; the competition
is high
Brand loyalty
Government Regulation
Ease in distribution
Demand conditions
3. Bargaining Power of Buyers: Buyers refer to the customers who finally
consume the product or the firms who distribute the industrys product to the final
consumers. Bargaining power of buyers refer to the potential of buyers to bargain
down the prices charged by the firms in the industry or to increase the firms cost
in the industry by demanding better quality and service of product. Strong buyers
can extract profits out of an industry by lowering the prices and increasing the
costs. They purchase in large quantities. They have full information about the
product and the market. They emphasize upon quality products. They pose
credible threat of backward integration. In this way, they are regarded as a threat.
4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs
to the industry. Bargaining power of the suppliers refer to the potential of the
suppliers to increase the prices of inputs( labour, raw materials, services, etc) or
the costs of industry in other ways. Strong suppliers can extract profits out of an
industry by increasing costs of firms in the industry. Suppliers products have a
few substitutes. Strong suppliers products are unique. They have high switching
cost. Their product is an important input to buyers product. They pose credible
threat of forward integration. Buyers are not significant to strong suppliers. In this
way, they are regarded as a threat.
5. Threat of Substitute products: Substitute products refer to the products having
ability of satisfying customers needs effectively. Substitutes pose a ceiling (upper
limit) on the potential returns of an industry by putting a setting a limit on the price
that firms can charge for their product in an industry. Lesser the number of close
substitutes a product has, greater is the opportunity for the firms in industry to
raise their product prices and earn greater profits (other things being equal).
The power of Porters five forces varies from industry to industry. Whatever be the
industry, these five forces influence the profitability as they affect the prices, the costs,
and the capital investment essential for survival and competition in industry. This five
forces model also help in making strategic decisions as it is used by the managers to
determine industrys competitive structure.