Business Environment - Unit-4 - IMBA - Osmania University Liberalisation, Privatisation, and Globalisation (LPG) in Indian Economy: Concept of LPG Process of LPG followed in India Globalization and role of WTO Regional Trading Blocks India’s Foreign Trade and Agreements with Trading Blocks. Highlights of the LPG Policy Foreign Technology Agreements Foreign Investment MRTP Act 1969 (Amended) Industrial Licensing Deregulation Beginning of Privatisation Opportunities for overseas trade Steps to regulate inflation Tax reforms Abolition of License-Permit Raj Advantages of Globalisation in India Industrial Licensing Deregulation Beginning of Privatisation Opportunities for overseas trade Steps to regulate inflation Tax reforms Abolition of License-Permit Raj Advantages of Globalisation in India Types of Regional Trading Blocs Trade blocs can be stand-alone agreements between several states (such as the North American Free Trade Agreement (NAFTA) or part of a regional organization (such as the European Union). Depending on the level of economic integration, the trade blocs can fall into the 6 different categories, such as preferential trading areas, the free trade areas, the customs unions, the common markets, the economic union and monetary unions & the political union. Preferential Trade Area: Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc.

1. Business
Environment
Unit - 4
PRESENTED BY
K.BALASRI PRASAD
B.Sc(KU), M.B.A(OU), NET(UGC), (Ph.D)(MGU)
ASSISTANT PROFESSOR IN MANAGEMENT
VISHWA VISHWANI GROUP OF INSTITUTIONS

2. BBA/MBA 5 year Integrated Course II Year -III Semester
Paper No. 3.5 Business Environment
Unit -I: Business Environment and Analysis:
Nature, Composition and Scope of Business Environment. Business Environment and its impact on different kinds of business
decisions. Economic growth and Economic Development. Analysis of India’s National Income. Recent trend in the growth of
National Income and its important components: Saving, Investment, Industry, Agriculture and Tertiary Sectors.
Unit-II: Indian Financial Systems:
Evolution and Structure of Indian Financial System. Elements of Indian Financial System— Markets, Institutions, and Environment.
Money Market and the role of banking, Non-banking and Unorganized Sector. Regulatory function of RBI with special reference to Money
market. Components of Capital Market—Primary, Secondary, Debt and Equity Market. Problems and Prospects of Indian Capital
Market.
Unit-III: Economic Policies of India:
Industrial Environment and Policy. Role of SSUs, and MNCs. Policy of Public Sector and its role in the economy. Competition Law.
Polices on Foreign Investment and Trade (EXIM).
Unit-IV: Liberalisation, Privatisation, and Globalisation (LPG) in Indian Economy:
Concept of LPG, Process of LPG followed in India. Globalization and role of WTO. Regional Trading Blocks. India’s Foreign Trade
and Agreements with Trading Blocks.
Unit-V: Economic Survey and Union Budget:
Fiscal Policy and Present Tax Environment –Direct and Indirect Taxes. Concept of Value Added Tax. Current Year’s Economic Survey
and Union Budget.
References:
1. Justin Paul, 2010, “Business Environment”, McGraw-Hill Companies.
2. Misra and Puri V.K, 2010 “Indian Economy”, Himalaya Publishing House, Bombay.
3. Shaik Saleem, “Business Environment”, Pearson Edition.
4. K. Aswathappa, 2010, “Essentials of Business Environment”, HPH
5. VIvek Mittal, “Business Environment”, 2010, Excel Books, New Delhi.
28-Mar-22
2

3. Unit-IV
Liberalisation, Privatisation, and Globalisation (LPG) in Indian Economy:
Concept of LPG
Process of LPG followed in India
Globalization and role of WTO
Regional Trading Blocks
India’s Foreign Trade and Agreements with
Trading Blocks.

4. Concept of LPG, Process of LPG followed in India
The economy of India had undergone significant policy
shifts in the beginning of the 1990s.
This new model of economic reforms is commonly known
as the LPG or Liberalisation, Privatisation and Globalisation
model.
The primary objective of this model was to make the
economy of India the fastest developing economy in the
globe with capabilities that help it match up with the
biggest economies of the world.
The chain of reforms that took place with regards to
business, manufacturing, and financial services industries
targeted at lifting the economy of the country to a more
proficient level.

5. Highlights of the LPG Policy
Foreign Technology Agreements
Foreign Investment
MRTP Act 1969 (Amended)
Industrial Licensing
Deregulation
Beginning of Privatisation
Opportunities for overseas trade
Steps to regulate inflation
Tax reforms
Abolition of License-Permit Raj

6. Liberalisation
Liberalisation refers to the slackening of government regulations
It implies greater autonomy to the business enterprises in decision-making and
removal of government interference.
Objectives
 To boost competition between domestic businesses
 To promote foreign trade and regulate imports and exports
 Improvement of technology and foreign capital
 To develop a global market of a country
 To reduce the debt burden of a country
 To unlock the economic potential of the country by encouraging the private
sector and multinational corporations to invest and expand.
 To encourage the private sector to take an active part in the development
process.
 To reduce the role of the public sector in future industrial development.
 To introduce more competition into the economy with the aim of increasing
efficiency.

7. Privatisation
Privatisation refers to the participation of private entities
in businesses and services and transfer of ownership from
the public sector (or government) to the private sector
Privatization is the transfer of control of ownership of
economic resources from the public sector to the private
sector.
It means a decline in the role of the public sector as there
is a shift in the property rights from the state to private
ownership.
Privatisation is also called as Disinvestment.
The objective of disinvestment were to raise resources
through sale of PSUs

8. Globalisation
 Globalization essentially means integration of the national economy
with the world economy.
 It implies a free flow of information, ideas, technology, goods and
services, capital and even people across different countries and
societies.
 It increases connectivity between different markets in the form of
trade, investments and cultural exchanges.
Advantages of Globalisation in India
 Increase in Employment
 Increase in Compensation
 High Standard of Living
 Extension of Market
 Development of Infrastructure
 Development of healthy competition
 Multiplicity of Manufacturing Plants

9. Outcome of the LPG reforms
Positive outcomes:
 India’s GDP growth rate increased. During 1990-91 India’s GDP
growth rate was only 1.1% but after 1991 reforms GDP growth rate
increased year by year and in 2015-16 it was 7.5%. The growth in GDP
during 2021-22 is estimated at 8.9 per cent
 Since 1991, India has firmly established itself as a lucrative foreign
investment destination and FDI equity inflows in India in 2020-21
stood at US$ 81.97 billion.
 In 1991 the unemployment rate was high but after India adopted new
LPG policy more employment got generated as new foreign
companies came to India and due to liberalization many new
entrepreneurs started companies.
 Per Capita income increased to Rs. 86,659 in 2020-21 due to an
increase in employment.
 Exports have increased and stood at USD 27.24 billion as of October,
2019.

10. Negative outcomes
 In 1991, agriculture provided employment to 72 percent of the
population and contributed 29.02 percent of the GDP.
 Now the share of agriculture in the GDP has gone down drastically to
18 percent.
 This has resulted in a lowering the per capita income of the farmers
and increasing the rural indebtedness.
 Due to opening up of the Indian economy to foreign
competition, more MNCs are competing local businesses and
companies which are facing problems due to financial constraints,
lack of advanced technology and production inefficiencies.
 Globalization has also contributed to the destruction of the
environment through pollution by emissions from manufacturing
plants and clearing of vegetation cover.
 LPG policies have lead to widening income gaps within the country.
 The higher growth rate is achieved by an economy at the expense of
declining incomes of people who may be reduced to jobless.

11. Globalization and role of WTO
 India’s massive economic growth is largely due to globalization
 Globalization is the integration of a national economy and
culture with that of the global economy.
 A country throws open its gates, welcoming in communication,
international trade, capital, technology and cultural practices
from foreign countries.
 Globalization increases international economic interdependence
due to the increasing scale of cross-border trade of capital,
commodities, services and technologies.
Impacts of globalization on India’s economy
 The reduction of export subsidies and import barriers enabled
free trade that made the untapped Indian market incredibly
attractive to the international community.

12. Significant changes made to its industrial, financial and agricultural sectors:
 Industrial – There has been a massive influx of both foreign capital
investment and companies expanding to and offshoring in India,
particularly in the pharmaceutical manufacturing, chemical and
petroleum industries. They brought with them advanced technologies
and processes that have helped modernize the Indian industrial sector.
 Financial – Prior to globalization and privatization, India’s financial sector
had been mismanaged by a combination of corrupt and inept
government officials—many of whom were risk-averse and reluctant to
embrace change. By taking control of the financial sector out of the
hands of the bureaucracy, market competition spurred on innovation,
creating a much more dynamic financial services sector.
 Agricultural – India used to be a largely an agrarian society, with a
significant majority of the country’s population depending on this sector
either directly or indirectly for their livelihood. Thanks to India opening
its doors, the technological capabilities of farmers have increased—
helping drive global exports of Indian products such as tea, coffee and
sugar.

13. Globalization of the Indian economy has helped change the
world economy for the better.
And for foreign companies, it presents them with the
competitive advantage of accessing massive consumer and
labor markets, thus creating an attractive opportunity for
strategic investment and expansion.
India is quickly becoming a top destination for new
operations—and if it’s not on your radar, it should be.

14. Role of WTO in Globalisation
 Created in 1995, the World Trade Organization (WTO) is an international
institution that oversees the global trade rules among nations.
 It superseded the 1947 General Agreement on Tariffs and Trade (GATT) created in
the wake of World War II.
 The WTO is based on agreements signed by the majority of the world’s trading
nations.
 The main function of the organization is to help producers of goods and services, as
well as exporters and importers, protect and manage their businesses.
 As of 2021, the WTO has 164 member countries, with Liberia and Afghanistan the
most recent members, having joined in July 2016, and 25 “observer” countries and
governments.
 The WTO’s main focus is to provide open lines of communication concerning trade
among its members.
 The history of international trade has been a battle between protectionism and free
trade, and the WTO has fueled globalization, with both positive and adverse effects.

17. Regional Trading Blocks
A regional trading bloc is a group of countries within a
geographical region that protect themselves from imports
from non-members.
A trade bloc is basically a free-trade zone, or near-free-trade
zone, formed by one or more tax, tariff, & trade agreements
between two or more countries.
The Trading blocs are a form of economic integration, &
increasingly shape the pattern of the world trade.
Regional trade blocks promote the trade within the block &
defend its members against global competition.
Defense against the global competition is obtained through
established tariffs on goods produced by member states,
import quotas, government subsidies, onerous bureaucratic
import processes, & technical & other non-tariff barriers.

18.  Members of successful trade blocs usually share four common traits:
similar levels of per capita GNP, geographic proximity, similar or
compatible trading regimes, & political commitment to the regional
organization.
Types of Regional Trading Blocs
 Trade blocs can be stand-alone agreements between several states
(such as the North American Free Trade Agreement (NAFTA) or part of
a regional organization (such as the European Union).
 Depending on the level of economic integration, the trade blocs can
fall into the 6 different categories, such as preferential trading areas,
the free trade areas, the customs unions, the common markets, the
economic union and monetary unions & the political union.
 Preferential Trade Area: Preferential Trade Areas (PTAs) exist when
countries within a geographical region agree to reduce or eliminate
tariff barriers on selected goods imported from other members of the
area. This is often the first small step towards the creation of a trading
bloc.

19. Free trade area: Free Trade Areas (FTAs) are created when 2
or more countries in a region agree to reduce or eliminate
barriers to trade on all the goods coming from other
members.
This is the most basic form of economic cooperation.
Member countries remove all barriers to trade among
themselves but are free to independently determine trade
policies with nonmember nations.
An example is the North American Free Trade Agreement
(NAFTA).

20. Customs union:
 This type provides for economic cooperation as in a free-trade zone.
 Barriers to trade are removed between member countries.
 The primary difference from the free trade area is that members agree to treat trade with non-
member countries in a similar manner.
 The customs union involves the removal of the tariff barriers among the members, as well as the
acceptance of the common (unified) external tariff in contradiction to the non-members.
 This means that the members may negotiate as a single bloc with third parties, such as with other
trading blocs, or with the WTO.
 The Gulf Cooperation Council (GCC) Cooperation Council for the Arab States of the Gulf is an example.
Common market:
 All barriers to trade in goods, services, capital, & labor are removed.
 In addition, as well as removing tariffs, non-tariff barriers are also reduced & eliminated.
 There may also be common policies affecting key industries, such as the Common Agricultural
Policy (CAP) & Common Fisheries Policy (CFP) of the European Single Market (ESM).
 This type allows for the creation of economically integrated markets between member countries.
 Trade barriers are removed, as are any restrictions on the movement of labor & capital between
member countries.
 The primary advantage to the workers is that they no longer need the visa or work permit to work in
another member country of the common market.
 An example is the Common Market for Eastern & Southern Africa (COMESA).

21. Economic & monetary union:
 This type is created when countries enter into an economic agreement to
remove barriers to trade & adopt common economic policies.
 An example is the European Union (EU).
 Monetary union is a type of trade bloc which is composed of an economic
union (common market & customs union) with a monetary union.
Political union:
 Political union is a final stage in the economic integration with more formal
political links among the countries.
 A limited form of the political union may exist when two or more countries
share common decision-making bodies & have common policies.
 It is the unification of previously separate nations.
 The unification of West & East Germany in 1990 is an example of the total
political union.

22. Advantages of Regional Trading Blocs
Free trade within the bloc:
 Knowing that they have free access to each other’s markets, members
are encouraged to specialize.
 This means that, at a regional level, there is the wider application of
the principle of the comparative advantage.
Market access & trade creation:
 Easier access to each other’s markets means that trade between
members is likely to increase.
 Trade creation exists when free trade enables high-cost domestic
producers to be replaced by lower-cost, & more efficient imports.
 Because low-cost imports lead to lower-priced imports, there is a
‘consumption effect’, with increased demand resulting from lower
prices.
 Due to a reduction or removal of tariffs, cooperation results in
cheaper prices for consumers in the bloc countries.

23.  Economies of scale: Producers can benefit from the application
of scale economies, which will lead to lower costs & lower prices
for consumers.
 Jobs: Jobs may be created as the consequence of increased
trade among the member economies.
 By removing the restrictions on the labor movement, economic
integration can help expand job opportunities.
 Protection: Firms inside the bloc are protected from cheaper
imports from outside, such as the protection of the EU shoe
industry from cheap imports from China & Vietnam.
 Consensus & cooperation: Member nations may find it easier to
agree with smaller numbers of countries.
 Regional understanding & similarities may also facilitate closer
political cooperation.

24. DISADVANTAGES OF REGIONAL TRADING BLOCS
Loss of benefits: The benefits of free trade among the
countries in different blocs is lost.
Distortion of trade: Trading blocs are likely to distort world
trade, & reduce the beneficial effects of specialization & the
exploitation of comparative advantage.
Inefficiencies & trade diversion: Inefficient producers
within the bloc can be protected from more efficient ones
outside the bloc.
For example, inefficient European farmers could be
protected from low-cost imports from developing countries.

25. India’s Foreign Trade and Agreements with Trading Blocks
 India actively engages in regional and bilateral trade negotiations to diversify
and expand its export markets while ensuring access to the raw materials,
intermediates, and capital goods needed to stimulate value-added domestic
manufacturing.
 Presently, India shares preferential market access and economic cooperation
through trade agreements with over 50 countries.
 The ASEAN–India Free Trade Area (AIFTA) is a free trade area among the ten
member states of the Association of Southeast Asian Nations (ASEAN)
and India.
 The ASEAN–India Free Area emerged from a mutual interest of both parties to
expand their economic ties in the Asia-Pacific region.
 India's Look East policy was reciprocated by similar interests of many ASEAN
countries to expand their interactions westward.
 The Agreement on South Asian Free Trade Area (SAFTA) came into force from
1st January, 2006.
 India, Pakistan and Sri Lanka are categorized as Non-Least Developed
Contracting States (NLDCS) and Bangladesh, Bhutan, Maldives and Nepal are
categorized as Least Developed Contracting States (LDCS).

26. S.
No
Acron
ym
Grouping Member Countries FTA/
PTA
No. Names
1 APTA Asia Pacific Trade
Agreement
6 Bangladesh, China, India, Lao PDR,
Republic of Korea, Sri Lanka.
PTA
2 India
ASEAN
TIG
India ASEAN Trade in
Goods Agreement
11 Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines,
Singapore, Thailand, Vietnam, and India.
FTA
3 GSTP Global System of
Trade Preferences
42 Algeria, Argentina, Bangladesh, Benin,
Bolivia, Brazil, Cameroon, Chile, Colombia,
Cuba, Republic of Korea, Ecuador, Egypt,
Ghana, Guinea, Guyana, India, Indonesia,
Iran, Iraq, Libya, Malaysia, Mexico,
Morocco, Mozambique, Myanmar,
Nicaragua, Nigeria, Pakistan, Peru,
Philippines, Republic of Korea, Singapore,
Sri Lanka, Sudan, Thailand, Trinidad and
Tobago, Tunisia, Tanzania, Venezuela,
Vietnam, Zimbabwe.
PTA
4 SAFTA South Asia Free Trade
Agreement
7 India, Pakistan, Nepal, Sri Lanka,
Bangladesh, Bhutan, and the Maldives
FTA