15

The Role of Public Policies in Governing Business

• Introduction
• Framing of Public Policy
• Involvement of Business in Public Policy Decision Making
• Public Policy and Business
• Economic Policy
• Monetary Policy
• Fiscal Policy
• Physical Controls
• Government Regulations in Business
• Public Policies and Government Regulations in India
• Workplace Safety and Health
• Functional Regulations
• MRTP Act, 1969
• Public Policies for the Global Village

Introduction

Public policy may be explained as a definite course or method of action selected from among alternatives and in the light of given conditions to guide and determine present and future decisions of governments or public authorities. It is thus a plan of action undertaken by government to achieve some broad public purpose. In the words of Senator Patrick Moynihan: “Public policy is what government chooses to do or not to do.” Public policy, while being different from nation to nation, is the basic set of goals, plans, and actions that each nation and government will follow in achieving its objectives. For instance, economic policy of a government is the statement of its objectives and how these are realised through the subset of policies such as monetary policy, fiscal policy and commercial policy. Likewise, a budget is an instrument of economic policy.

Definition of Public Policy

According to writers on the subject public policy is whatever a government chooses to do or not to do. A government performs a variety of functions from resolving conflicts within the society to distributing a great variety of symbolic rewards and material services to members of the society. To perform these functions, it needs money, which it collects from its citizens in the form of taxes, levies, cesses and administrative charges. Therefore, public policies may be regulative, distributive, organisational or extractive and a government may engage all of these to achieve its objectives either singly or collectively at the same time.

Public policy may deal with a wide variety of issues, both vital and trivial. It may deal with such important areas as defence, education, public health, taxation, welfare, housing, employment, relief for calamities such as floods, earthquakes and Tsunami, equitable distribution of income and wealth, labour laws, rural development, inflation and recession, while it cannot ignore trivial issues such as changing the colour of the currency notes.

Prof. V. Subramaniam in his book “Problem and Recognition in Public Policy and Business Management” says: “Public policy is governed by inertia and incrementalism: Often the best predictors of budgetary allocations for this year…. It can emanate from a variety of sources within the government and can be intended to fulfill a number of often incompatible objectives. Similarly, policy is devised to serve a number of purposes, some of which co-exist simultaneously at different levels. For example, a policy may be distributive, regulatory and symbolic at once. A wide range of forces and interests bear on the process of policy formulation. These forces exist in the “environment” of the political system and increasingly within the political institutions themselves. They are often in conflict with one another, but affect policy outcome nonetheless. Public policy needs to be justified, explained or rationalised to various ‘publics’. Such rationalisations frequently ignore or contradict the ‘true’ purposes and objectives of policy and often disguise or deliberately misrepresent the pressures and interests that helped generate the policy.”

Government and Public Policy

There is a close relationship between public policy and governments or public authorities. No policy becomes public policy unless it is adopted, implemented and enforced by some governmental institution. Government gives public policy three distinctive characteristics: (i) It lends legitimacy to policies. Government policies are generally regarded as legal obligations which are easily observed by citizens. While people may regard policies of society’s other groups and associations as important and even binding, they give policies emanating from government greater respect and comply with them easily because of the legal obligations it imposes. (ii) Government policies involve universality as these extend to all sections in society unlike the policies of other groups such as corporations, churches, civic associations etc. that reach only a part of the society and (iii) Government alone can exercise coercion in society-only government can legitimately imprison violators of its policies.

Classification of Public Policy

Public policy can be organised along the following five lines: (a) regulatory (b) distributive, (c) redistributive, (d) capitalisation and (e) ethical. Regulation is one of the more visible types of public policy generally enforced through criminal law statues which generally stipulate how people should act toward one another. Distributive policies provide for goods and services such as welfare and health to specific segments of the population. All public assistance welfare programmes are distributive in character. Redistributive policies, on the other hand, aim at rearranging one or more of the basic schedules of social and economic reward as in the case of progressive tax policies which tax away proportionately more money from the rich than from the poor. Incomes thus obtained may be spent on the welfare of the poor. Basic alterations in productive arrangements as in government nationalising industry, or changes in comprehensive services as in socialised medicine, or provision of scholarships to poor students, old age pensions and unemployment insurance are also redistributive in their rearrangement of wealth.

 

Business and local governments also receive distributive largesse from the central government which aim at increasing the productive capacity of society’s institutions. Although normally included in sample distributive policies, capitalisation policies are not like the primary consumptive distribution of welfare programmes. They include: (i) cash payments to farmers to improve agriculture, and (ii) tax subsidies to encourage exploration and production in selected industries and audit subsidies. In recent times, several moral and ethical issues such as death sentences, cloning of humans, euthanasia, the practice of killing hopelessly sick persons have come to the fore and created heated public debates for and against these issues. The courts do not settle such moral issues. Public policies, on the other hand, follow the court’s directives and set out what ought and ought not to be done in an area marked off by deep moral convictions. On such moral or ethical issues, the executive wing of the government may enact legislations or evolve policies on what the courts dictate them to do.

Areas of Public Policy

The area, extent and the reach of public policies have been increasing since the days of the Great Depression. While justifying the legitimacy of government intervention in economic matters, took some time, as Adam Smith and economists of his ilk considered capitalism as a self-evolving and self-correcting system in which government intervention was unwarranted and unnecessary and even lead to the failure of the system. But once it was proved that their assumption was wrong and that government has a role to play to maintain effective demand, competition, freedom of enterprise, and the very market economy itself, the role of government began to expand

Buchhoz in his book Business Environment and Public Policy says that the major public policy areas that stemmed from the Great Depression were economic management, where government assumed responsibility for correcting such economic down-turns, labour management relations with government support for the right of labour to bargain collectively, and the beginning of a welfare system, originally designed to relieve the distresses of the Depression. This line of argument justifies the following areas of public policies:

1.  Economic management: Economic problems are one of the important areas of public policy. Prior to the onset of the Great Depression, it was assumed, as explained earlier, that each economy is self-correcting and moves toward the right direction and restore the nation’s economic health. But the Great Depression has changed this view. The so-presumed self-correcting economy has been found to be totally inefficient to deal with the problems of Depression. Now with the emergence of stabilisation measures adopted by governments to combat recession and depression and the concept of welfare state, it is assumed that state interevention is essential and even inevitable in economic activities. Whatever the social welfare works the state does, they constitute the major part of public policy.

2.  Labour management relations: Another area of public policy that came out of the Depression days is the area of labour-management relations. Industrial revolution has effectively challenged the outdated thinking of the management that labour is like a vendible commodity that can be bought or sold at any time. The concept of industrial democracy is popular in all countries, which has made it imperative that a national labour policy should be adopted by the state to protect the rights of workers of unions. In fact, in several countries such as Germany, labour is given a vital role in corporate managements.

3.  The welfare state: The Depression also has brought about a metamorphosis in the thinking of people and has led to the emergence of another set of public policy measures that can be grouped loosely under the title of “welfare”. Previously, it was designed to alleviate distress. Society has now conceded that the unemployed were not necessarily to be blamed for their plight and is willing to accept a government’s responsibility to help victims of unemployment and old age. People were not allowed to stirve while waiting for the market to correct itself and make jobs available again. Now, it is believed that every man has the right to a good job, decent food, clothing and shelter. It is the responsibility of the government to guarantee these rights. In fact, this philosophy has led to a whole series of measures, such as social security, aid to families with dependent children, education, medicare—all designed to help people whose basic needs have not been met for one reason or the other by the market system.

4.  Shaping of Public Policies affecting Corporate Sector: Stakeholder expectations, if unmet, trigger action to transform social concern into pressure on business and government. A gap between the expected and actual performance stimulates public issue. We need to understand the reason for public issues and how they get transformed into public policy in the macro environment view.

 

Figure 15.1 Shaping of public policies

 

Need for Public Policy in Business

As shown in Figure 15.1, public policies that affect corporations are shaped by (i) social forces (ii) economic forces (iii) political forces and (iv) technological forces. Social forces include the size and composition of population which have a definite effect on both the demand and supply of goods and services that corporates deal in; social forces that include lifestyles and patterns of living dictate corporate strategies to cater to the whims and fancies of consumers. Economic forces are those that shape corporate behaviour as well as the reaction of government to solve the problems arising therefrom. Political forces have an impact on government making and how governments are prompted to shape their policies affecting corporate. Technological forces are very important as far as shaping of corporate policies are concerned since these allow corporations to update their products, processes and help them meet competition.

1.  To create a competitive environment: Public policies help the market to have perfect competition by way of controlling monopolies through license or by creating a competitive market mechanism. It helps in providing a level playing field for enterprises to operate and to encourage companies to effectively and efficiently utilise available resources.

2.  To have control on foreign investment: Government interferes in regulating foreign investments in certain industries which is very critical for the country, as for example, oil industry, financial institutions. So the government tries to set some cap on these investments. Sometimes the objective is to encourage local investment when the domestic economy is doing well. To stem the flow of too much of foreign investment, government may adopt protectionist policies for the following reasons:

• To protect the growing local industries (in the nascent stage), government may enact policies by way of preventing free flow of goods from other countries, and offering tax holidays and other benefits
• To regulate demand and supply, where the resources are scarce
• To regulate the prices in the unhealthy competitive environment through administrative pricing mechanism and to promote consumer product safety
• To protect the environment (through effluent treatment and other anti-pollution measures

Different Levels of Public Policy

There are different levels/layers of public policy depending on the intended geographic reach and the degree of sovereignty the authority concerned enjoys

There are different levels/layers of public policy depending on the intended geographic reach and the degree of sovereignty the authority concerned enjoys: national level, state level, regional level, international ievel.

1. National Level: At the national level, public policy is applicable across the country. For instance, the Industrial Development and Regulation Act (IDRA) and the Monopolies and Restrictive Trade Practices (MRTP) Act had an all India reach.
2. State Level: Policies adopted by a state government is applicable only to the particular state as in the case of policies to protect ground water from contamination, policies to take over the wine shops in states like Tamil Nadu.
3. Regional Level: There may be certain policy perspectives that apply to certain regions such as the Common Agricultural Policy (CAP); sharing of river water among riparian states.
4. International Level: Global level policies are the ones that are adopted by international organisations with worldwide ramifications such as Intellectual Property Rights, (IPRs), Trade Related Investment Measures (TRIMs) and so on.

Elements of Public Policy

A government action that goes into its making in terms of public policy and execution can be understood in terms of several basic elements. Many factors or inputs, influence the development of public policy. Government may determine its course of action on the basis of several factors such as economic or foreign policy concerns, domestic political pressure from constituents and interest groups, technical information, concensus that has emerged in national politics, tax imperatives and sometimes as reaction to natural or national calamities. All of these inputs can help shape what the government chooses to do and how it chooses to do it.

Public policy goals can be ideal oriented or narrow and self-serving. National values, such as freedom, democracy, and equitable distribution of income and wealth to share in economic prosperity have led to the adoption of civil rights laws and assistance programmes for the weaker sections of society. Narrow, self-serving goals are more evident when nations decide how tax legislation will allocate the burden of taxes among various interest and income groups. Public policy goals may vary widely, but it is always important to inquire whether it served the citizens of the country whose welfare it intends to serve, as for instance, a policy with regard to public expenditure is expected to ensure what is dictated by the Principle of Maximum Social Advantage, i.e. the greatest good to the largest number of people.

Governments use different tools of public policy for instruments, to realise their policy goals. In budget negotiations, for example, much discussion is likely to focus on alternative ways to raise revenue, graduating tax rates for individuals and businesses, reduced deductions, excise duties, sales taxes on selected items (e.g. luxury automobiles, cosmetics, cigarettes, petrol, alcohol). In general, the instruments of public policy are those combinations of incentives and disincentives that government uses to prompt citizens, including businesses, to act in ways that achieve policy goals. Governmental regulatory powers are broad and constitute one of the most formidable instruments for accomplishing public purposes.

 

Figure 15.2 Key element of the public policy process

 

Public policy actions always have effects. Some are intended; others are unintended. Since public policies affect millions of people, corporations and other interests, it is almost inevitable that such actions will please some and displease others. Regulations may cause business to improve the way toxic substances are used in the workplace, thus reducing health risks to employees. Yet it is possible that other goals may be obstructed as an unintended effect of compliance with such regulations. For example, when the government of India provided for pre-natal and post-natal leave with full salary for pregnant women, many companies in India did not employ women employees. This action was seen as a form of discrimination against women that conflicted with the goal of equal employment opportunity. The unintended effect (discrimination) of one policy action (protecting employees) conflicted head-on with the public policy goal of equal opportunity.

Post et al. say that in assessing any public policy, it is important for managers to develop answers to the following four questions:

• What inputs will affect public policy?
• What goals are to be achieved?
• What instruments are being used to achieve goals?
• What effects, intended and unintended, are likely to occur?

The answers to these questions provide a foundation for understanding how any nation’s public policy actions will affect the economy and business sector.

1.  Agenda building: The public policy agenda consists of those major issues or problems to which officials give serious attention and upon which they feel compelled to act. Not all public issues or problems get enough attention or support to become agenda items. The actions of an interest group also may put an issue on the public policy agenda, as the group swings into action to protect its members by advocating greater government participation. For instance, in India in recent times representation of women in Parliament and legislatures to the extent of 33% is an issue that has been gathering momentum among various interest and advocacy groups.

2.  Policy formulation: Policy formulation occurs when interested groups take a position on some public issue and try to persuade others to adopt their viewpoints as public policy. If consensus among the participating groups can be reached, the proposed public policy moves towards the decision stage. In the example quoted above, i.e. women’s sizeable representation in India’s legislative bodies, various interest and pressure groups are trying to reach a concensus as to how to work out an acceptable formula for all political shades of opinion.

3.  Policy decision: A policy decision occurs when some arm of the government, either authorises or fails to authorise the course of action. For example, the government may issue an executive order forbidding trade with another country. The courts—another branch of government, may hand down the decision that becomes a precedent for paying claims to victims of train accidents. The policy decision occurs when a law is passed, a regulation is adopted, an executive order is issued or a court opinion is announced. Failing to act can also be a form of a policy decision. For instance, in September 2010, when the High Court of Delhi in response to a Public Interest Litigation on rotting foodgrains directed the government of India to distribute them free to the poor, the Prime Minister did not oblige as a matter of public policy and politely suggested that courts have no say in policy decisions of the executive.

4.  Policy implementation: Policy implementation occurs when action is taken to enforce a public policy decision. Once a law is accepted or court decision is handed down, business can still wield significant influence in the implementation of the public policy. Business has greatly improved its understanding of, and participation in, the formulation and implementation of public policy. This understanding of how the political process works can be most beneficial to managements.

5.  Policy evaluation: Policy evaluation occurs when the impact of public policy becomes evident. Groups which initially were opposed to a policy may take an “I told you so” attitude and try to prove that it has been a bad one from the beginning to end. Basically, the policy evaluators try to find out whether the benefits have been more than the cost incurred, and the same goals could have been achieved in another, more efficient, less expensive way.

The Corporation and Public Policy

1. Limits to Powers of democratic government: In matters of public policy or its implementation, governments do not have unfettered powers. Their powers are restricted under
   • Constitutional law: Defines the limits of government to act, the powers in each level of government, and the rights of citizens.
   • Common law: Established, adjudicated precedents giving the government the right to act in the interest of justice and fairness. The common law is regulated by the judiciary.
2. Limits to powers of non-democratic monarchy, dictatorship, religious rulers, socialist state: No limits on the power of government except the tolerance of the public. When these governments exceed public tolerance, the usual result is violent actions to change the government, as it happened in several countries where monarchies, dictatorships and theocratic governments were pulled down and dethroned, as under the French and Russian Revolutions, or more recently the Uganda uprising which saw the downfall of the country’s dictator Idi Amin.

Framing of Public Policy

Powers of Government

1. Constitutional governments: In a constitutionally elected system of governance, the will of the people and their desires get reflected in public policies. Vox Populi, Vox Dei (The will of the people is the will of God). Petitions through elected representatives, public debate in election campaigns, promises given in election manifestoes, media promotion and exposure as was amply demonstrated by the check on use of tobacco causing cancer, public demonstration, etc are some of the ways of framing public policy under constitutional method.
2. Non-democratic governments: Special interest lobbying of the leadership elite, complete with illegal bribes and payments, international pressure for change, public demonstration and civil disobedience play decisive roles in shaping public policies. Media is controlled very much under these governments. Public is uninformed about the policy and gets frustrated. Demonstration and possible violence force change. As in the case of Serbia and Indonesia, incidents forced for a change through severe violence. Public expect action by government. Elections provide the best data on clear preferences or public ambiguity.

 

Involvement of Business in Public Policy Decision Making

There are two different schools of thought about businesses participating in public policy decision making. These are as follows:

1. Business should be involved: According to this school of thought it is imperative that business enterprises should be involved in policy making as they have a high stake in the manner of policy making and the way these are implemented. These stakes are: (i) a pluralistic system invites many participants and, business being an important constituent, should not be left out; (ii) economic stakes are high for firms and industries and public policy decisions might promote or mar their interests; (iii) business counterbalances other social interests since it has an overriding influence and impact on society through production and distribution of goods and services, income generation and employment; and (iv) business is a vital stakeholder of government, being a provider of revenues and the conduit for executing government policies.
2. Business should not be involved: On the other hand, there is another school of thought which stresses the fact that business and politics should be separated as their combination will have several toxic effects. There are other reasons as well, such as (i) executives are not fit to engage in political debates, they are not equipped to do so, by training or by inclination; (ii) business is naive about politics, as politicians can outsmart them both by rhetoric and tall promises which businessmen trust implicitly, as they do in their lines of business but come to know later after burning their fingers that politicians did not mean what they said and said so due to their own political compulsions; (iii) business is too big and too powerful, while politics is fragmented by its very nature and makes gains by divide-and-rule policy, and (iv) business risks its credibility by engaging in partisan politics, as has been demonstrated time and again by naive businessmen losing both their wealth and credibility by entering into politics.

Business and Politics—Levels of Involvement

There are three levels of business involvement in political activities and distribution of goods and services, income generation and employment. They are discussed below:

 

Level 1: Financial Involvement

1. Formation of Political Action Committee (PAC): In some democratic societies, direct contributions by corporations to political candidates running for federal offices are forbidden by law, and some states also place similar restrictions on corporate contributions in state elections. However, in countries such as the US, companies have been permitted to spend company funds to organise and administer a Political Action Committee (PAC). PAC may solicit contributions from stock-holders and employees and then channel the funds to those seeking political office. Even companies that have influence and impact on society through production might promote or mar their interests in organised PACs, though, are not permitted to donate corporate money to the PAC. Donations must come from individuals. Similarly, unions and other organisations may solicit contributions from members. Thus in countries where such political contributions and formation of PACs are permitted, such a course of action will lead to direct business political involvement.
2. Trade association support: The techniques used by business to participate in governmental politics are similar to those of other interest groups. Many large corporations place full-time liaison officers in national capitals to keep abreast of developments in the government that may affect the company, or to influence taking of favourable policy decisions through various public relations activities.

Smaller companies, as well as many large ones who join trade associations such as FICCI, CII, ASSOCHAM and other chambers of commerce which bring diverse business groups together to lobby for or against particular piece of legislation, have proved to be effective.

Level 2: Organisational Involvement

• Lobbying: Lobbying involves direct contact with a government official to influence the thinking or actions of that person on an issue or public policy. It is usually done through face-to-face contact, sometimes in lengthy discussions or in meetings that may last only minutes. Several media reports suggest that fast growing companies like Reliance resort to such lobbying.
• Employee grassroot involvement: Grassroot programmes are organised efforts to get constituents to influence government officials to vote or act in a favourable way. In the US, many companies are reported to have asked their shareholders to participate in grassroot efforts to persuade their congressional representatives to reduce capital gain taxes and thereby make stock purchases and other investments more lucrative. These programmes send a strong message to elected officials that the desired action is supported by a large number of voters.

Level 3: Strategic Public Policy Involvement

Other kind of public policy involvement is through executive participation where the representatives participate in decision making by acting as the part of the executive. Involvement with industry working groups and task forces, policy position development are the other kinds.

Public Policy and Business

Governments everywhere significantly influence business activities. Federal or central governments try to promote economic development of their countries by using appropriate economic policies whose constituents are monetary, fiscal and commercial policies. State governments shape the business environment through a slew of the state-specific economic policies. Local self governments, on the other hand, impact business through policies that involve permits, licenses, and various clearances. Thus, a nation’s prosperity is entwined with its economic and social policies. Public policy of the three layers of government—the executive, judiciary and legislature—has both direct and indirect impacts on business by creating an environment in which companies do business in the nation and across the world.

National Economic Growth

The role of government as an agent representing citizens of a country, and as such has to play its part in managing the modern economy, is widely accepted today. Businessmen understand and accept the fact that governments can create or destroy the basic conditions necessary for business to compete and citizens to prosper.

Modern governments, administer their economies through macro-economic policies. To-day’s social environment is tied to the effectiveness of government in creating conditions for growth of the modern economy.

 

Figure 15.3 Business-government-society-media relationship

 

Governments generally accept the view that their key role is to create appropriate public policy that promotes economic growth. Experience has proved that healthy economic growth is affected by many factors, thereby requiring continuing efforts by government to manage the macro-economy. Economic growth is stimulated by government policies that encourage investment (e.g. providing tax exemptions for domestic investments, inviting foreign investors to locate facilities in the country); foster technology development (e.g. patent protection); provide key services (e.g. infrastructure, public health and police protection); and create a capable workforce through education. Each year, dozens of laws are proposed by legislators to improve the nation’s business climate and promote economic growth.

Poor economic development will accelerate a nation’s social problems, including high unemployment, pushing people below poverty line and bring in pressures to raise taxes. An expanding economy means job opportunities for trained workers but also higher labour costs for businesses. On balance, political leaders favour economic growth because it creates increased national wealth. Figure 15.4 illustrates the complex nature of how economic policy works through its various constituents.

 

 

Figure 15.4 Economic policy

 

Economic Policy

Every government, irrespective of the economic system it has adopted or its political affliations, pursues an economic policy that reflects the broad objectives it wants to realise for the benefit of its people. Though there are many objectives depending on the stage and degree of development of the economy and special circumstances in which the country has been placed, five are considered, to be the most basic and fundamental. These are: (i) faster economic growth, (ii) reduction in inequalities of income and wealth, (iii) full employment, (iv) price stability and (v) balance of payments equilibrium. The emphasis on any one of these objectives to be the most or least important may change depending on the circumstances in which the country’ s economy is placed. At the same time, the government has to ensure that the realisation of one objective has not been done at the cost of others.

 

The objectives of economic policy can be achieved through (i) monetary policy, (ii) fiscal policy and (iii) commercial policy, as illustrated in Figure 15.4.

Monetary Policy

Monetary Policy refers to the policy adopted by the monetary authority, with respect to the supply of money. The basic goals of the monetary policy have been identified as maximum feasible output, high rate of growth providing more employment, price stability, greater equity in the distribution of income and wealth and favourable balance of payments. The ideal policy, which the monetary authority should follow, is the policy of long-run neutral money which involves maximum feasible output and price-stability in the long-run. This monetary policy serves all the policy goals in the best possible manner.

The monetary authority uses various instruments to control the supply of money. These instruments are known as instruments of credit control. These instruments can be divided into two categories: quantitative and qualitative credit controls. There are three main methods of quantitative credit control, viz. bank rate policy, open market operations and changes in statutory reserve requirements. These methods are used to control the quantum of credit on the whole. The qualitative methods of credit control are also known as selective credit control methods. These include credit rationing, direct action, changes in margin requirements, moral suasion etc.

1.  Bank rate policy: Bank rate policy operates through changes in bank rate by the central bank. Bank rate is defined as the official minimum rate at which the central bank rediscounts bills of exchange. The bank rate is the rate at which the central bank is ready to buy or rediscount eligible bills of exchange and other commercial paper. The RBI gives a large proportion of its advances to the commercial banks against government securities and as refinance. When the central bank raises the bank rate, obtaining funds from the central bank becomes costlier for the commercial banks. It is through dear rediscount policy that the central bank restricts credit creation by the commercial bank and the money supply in the economy. The reverse happens when the bank rate is lowered during the period of depression.

2.  Open market operations: The open market operations refer to the purchase and sale of government securities and other approved securities by the central bank. An open market sale decreases the money supply and a purchase increases the money supply. The Reserve Bank of India, which is our central bank transacts with public as well as banks. During the boom, the RBI sells the government and other approved securities from its portfolio in the open market in order to reduce the aggregate supply of money in the economy. The reverse happens when there is a slump. However, the open market operations policy has not proved to be a very effective policy of monetary control in India.

3.  Cash reserve requirement: It refers to that portion of banks’ total cash reserves which they are statutorily required to hold with the RBI. The remaining portion of the total cash reserves of the banks refers to excess reserves which banks keep themselves to facilitate their normal functioning. An increase in the legal cash reserves ratio decreases of the banks’ and their optimum credit creating capacity. The reverse is true when the RBI increases the statutory cash reserves ratio.

4.  Statutory liquidity ratio: The commercial banks in India are required to maintain a particular level of liquidity. The main role of the statutory liquidity ratio is to allocate bank credit between government and commercial sectors. This instrument is also used to control the supply of money. The commercial banks are statutorily required to hold a proportion of their total demand and time liabilities in the form of excess reserves, investment in unencumbered government and other approved securities and current account balances with other banks.

5.  Selective credit controls: The methods of credit control discussed above are the quantitative control methods. The selective credit controls are used to regulate credit for specific purposes. These controls operate on the distribution of total credit by encouraging the flow of credit into certain sectors and discouraging its flow into certain other sectors of economy. The important selective credit controls include credit rationing, direction against the erring banks, changes its margin requirements, differential rate of interest and moral suasion.

Fiscal Policy

Objectives of Fiscal Policy

The Great Depression of 1930s gave birth to fiscal policy under Keynes’ influence. Changes in government expenditure and revenue programmes that aim at the short run goals of full employment and economic stability are called fiscal policy.

 

Usually, the government expenditure programmes are expansionary in effect and revenue or taxation is contractionary in effect. The net effect of the combined revenue-expenditure programme is likely to be expansionary because of the operation of the multiplier effect. The government manipulates its expenditure and taxation programmes in such a way that full employment as well as price stability can be attained. The name “fiscal policy” is given to such deliberate adjustments in revenue and expenditure policies.

The attainment of full employment is regarded as the primary objective of fiscal policy. However, in the true sense of the term, full employment is not attainable. Thus, “………a situation of full employment may be regarded as one in which there are no significant number of factor units continuously unemployed for any period of time”. It is to be noted that the reduction or elimination of unemployment enables a country to promote the welfare of the largest number of people.

 

Another short run goal of fiscal policy is the stability of the general price level. Fluctuations in the price level may upset all mathematics of economic calculation. For instance, a sharp fall in the general price level dampens the possibility of attaining full employment. Similarly, a high rate of price inflation has also adverse effects on the economy. In view of this, a stable general price level has been accepted as an important objective of fiscal policy.

In this connection, one must take note of the possible conflict of the two aspects of economic stability. According to Keynes, fiscal policy (i.e. decrease in tax rates and increase in government expenditure) boosts aggregate demand until full employment is reached without any danger of inflation. Similarly, by lowering aggregate demand via fiscal policy, a rise in price level can be avoided when demand threatens to exceed the full employment output. Thus, in the Keynesian framework, price stability and full employment can be achieved simultaneously. But, post-Keynesians have shown that there are cases of conflict between price stability and full employment. A. W. Phillips in the late 1950s has shown that these two stability requirements cannot be achieved simultaneously, and the government has to take a policy decision whether to pursue one or the other or a suitable combination of the two.

With the development of the Harrod-Domar growth model, which is a logical extension of the Keynesian economics, fiscal policy has shifted its emphasis more on economic growth, i.e. an annual rate of increase in total output. This objective has assumed an increasing importance in less developed countries than mature economies. Attainment of a higher growth rate requires: (i) improvement in levels of education and technical and organisational skills and (ii) higher rate of capital accumulation. Without government backing and patronage the possibility of rising capital formation is difficult. So government must play an active role in promoting growth.

In the context of growth with equity, the two other important goals of fiscal policy are: (i) resource mobilisation and (ii) income redistribution to reduce income inequalities or to ensure social justice. Economic development requires the transfer of funds from savers to the government for the financing of various government activities. The primary instrument of resource mobilisation for purposes of development is, of course, taxation which involuntarily curtails consumption. Another instrument is public borrowing. Fiscal policy should not only aim at mobilisation of resources but also aim at allocation of resources in the socially desired lines or in accordance with plan priorities. In order to strike a higher growth rate, the fiscal policy should aim at attaining a socially optimum pattern of investment.

Finally, fiscal policy has the objective of reducing income and wealth inequalities. By manipulating various types of taxes and expenditures, the government may help uplift the poor. This explains why the Taxation Inquiry Commission, appointed by the Government of India, in its report in 1953-54 had made the following comment: “The demand that the instrument of taxation should be used as a means of bringing about a redistribution of income more in consonance with social justice cannot be kept in abeyance.”

So we can sum up the role of fiscal policy by referring to its main objectives thus: (i) attainment of the rate and pattern of growth of national income and hence economic development in accordance with the country’s objectives and priorities, (ii) mobilisation of resources and its efficient and rational allocation for economic development, (iii) reasonable price level stability and, finally, (iv) reduction of inequalities in income and wealth.

The main instruments of tax policy of the government of India through which the objectives of resource mobilisation and income redistribution are sought to be achieved are various types of direct and indirect taxes.

Taxes tend to fall into two categories: direct and indirect. Direct taxes are levied directly on an individual’s income or wealth whereas indirect taxes are levied on consumers’ expenditure or outlay. Major Indian direct taxes are personal income tax and corporation tax, and major Indian indirect taxes are sales tax, excise duties and customs duties. Payment of direct taxes is compulsory even though there is no quid pro quo, while it is not so with the indirect taxes. In the case of direct tax, the impact and incidence of the tax is on the same person while in indirect tax, the impact may be the on the manufacturer and the incidence is on the ultimate consumer.

1.  Direct taxation: Examples of direct taxation include income tax, corporation tax (on companies’ profits), capital gains tax (a tax on the profits of sales of certain assets), wealth tax (imposed by certain countries, which is a tax on ownership of property or wealth) and a capital transfer tax (a tax on gifts to replace death duties). Direct taxes are mainly collected by the central government.

2.  Indirect Taxation: Examples of indirect taxation include customs duties, motor vehicle tax, excise duty, octroi and sales tax. Indirect taxes are collected both by the central and state governments, but mainly by the central government.

In a good tax system, there should be a proper balance between direct and indirect taxes. The revenue will be optimum and loss of incentives minimum.

Non-tax revenue is derived from the following sources: (i) fiscal and other services, (ii) interest receipt, (in) profits and dividends of public sector enterprises and (iv) general services.

Physical Controls

Physical controls refer to various financial and commercial initiatives of the government to supplement monetary and fiscal policies to achieve certain socio-economic objectives. During the period of low economic growth or when the country has launched planned economic development these controls on production, consumption, trade and foreign exchange become necessary to conserve scarce resources in order to direct their uses to the most appropriate sector of economic development. But these controls get relaxed when they are not so needed during periods of faster economic growth or when tightening of the economy becomes superfluous. For instance, many of the physical controls that were found necessary during the early stages of India’s economic development are seen to be unwanted in the present juncture of a market-driven economic growth.

 

Government Regulations in Business

What is Government Regulation?

Government regulation of business is a mechanism for implementing social choices and helps in creating the basic conditions that lead to economic prosperity. People rely on government to institute and maintain rules of conduct for citizens as well as organisations. If citizens have to live peacefully, they expect the local government to regulate traffic, supply of basic necessities such as water and transportation; at the state level, they want the government to regulate industries so that they would observe labour laws and also create employment. The central government is expected to regulate trade and monetary and fiscal policies. Since government operates at so many levels, modern eneterprises! face “complex web of regulations”. Companies hire lawyers, public relation officers and liaison officers to monitor and manage the interaction with the government.

 

Justification of Government Regulation

1. Market failure: Using regulation to add the social costs of a product that are not otherwise demanded in the market.
2. Ethical failure: Regulation ensures fairness and justice, and adds this cost to the product.
3. Stakeholder demands: Special interest groups lobby for more government intervention in environmental conservation, consumer protection etc.
4. Public reaction: Communication of national events has made most “accidents” more visible and less acceptable.
5. Political advocacy: Organisations representing minorities and women call for government being proactive in these areas.

Types of Government Regulation

1. Industry specific: Prevention of abuse to buyers in markets where market forces are distorted, usually by monopoly or other market power by suppliers. (Transportation, communications, energy, banking)
2. Industry wide: Primary social issues that affect all business. (Environment, safety, pensions, healthcare, employment)
3. Functional: Specific to certain business operations. (Stock trading, anti-trust, labour, energy)
4. Media attention: Media connect communities globally. Events are chronicled as they occur, the public and government officials see social needs that should be highlighted. For example, Oil spillovers in the ocean when ships break midseas ‘causing irreparable harm to fish, pengiuns etc.

Problems of Government Regulation

1. Cost/Benefit: All regulations add cost to products. When government mandates operations that would not otherwise occur, or interfere with the operations of markets, costs or premiums are added to products, raising the price to the consumer. The trend in government is increasing cost and new rules.
2. Effectiveness: Is the intended purpose achieved and what are the unintended consequences and costs?
3. Deregulation: Stakeholders resist deregulation, even when cost/benefit and effectiveness clearly favour deregulation.
4. Policy confusion: TV and cable systems of delivery has caused confusion.

Economic and Social Costs of Public Policies

Following are the costs involved in framing and implementation of public policies. Although these costs were considered while framing the policies, most of the time, people’s welfare is given preference over the costs by the government. The same methodology has to be followed by corporates also. The different kinds of costs are given below:

• Administrative and compliance costs
• Paperwork
• Higher prices and taxes (public pay)
• Opportunity costs
• Unintended impacts of regulations
• Economic and social trade-offs

Although the administration and compliance of the public policies may cost more to the companies, they have to keep in mind that following the rules and policies meticulously would lead them to achieve higher profits and long-term goals.

Public Policies and Government Regulations in India Environmental Protection Law

The Air (Prevention and Control of Pollution) Act, 1981

Industrialisation and urbanisation have resulted in a profound deterioration of India’s air quality. Of the 3 million premature deaths in the world that occur each year due to outdoor and indoor air pollution, the highest numbers are assessed to have occurred in India. According to the World Health Organisation, the capital city of New Delhi is one of the top ten most polluted cities in the world. Surveys indicate that in New Delhi the incidence of respiratory diseases due to air pollution is about 12 times the national average. The Act provides for the prevention, control and abatement of air pollution. It also provides for the establishment of boards with a view to carrying out the aforesaid purposes.

Decisions were taken at the United Nations Conference on the Human Environment held in Stockholm in June 1972, in which India also participated, to take appropriate steps for the preservation of the natural resources of the earth which, among other things, include the preservation of the quality of air and control of air pollution. The Air (Prevention and Control of Pollution) Act, 1981 extends to the whole of India.

Effects of air pollution on human beings

Hydrocarbons emitted by automobiles are toxic and react with hemoglobin in the blood. The effect of nitrogen is adverse and permanent. It increases children’s susceptibility to diseases like influenza. Sulphur dioxide in the air spreads air acidity and corrodes buildings. It causes irritation to various parts of the respiratory systems.

The heart may be damaged by air pollution, secondary to lung diseases. Nitrogen dioxide results in pulmonary edema and aggravation of coronary disease. Toxic effects of lead pollution include impaired IQ and development defects in children. These are few of the many effects of air pollution on human beings.

 

The Environment Protection Act, 1986

The Environment Protection Act provides for protection and improvement of environment and for matters connected therewith.

The United Nations Conference on Human Environment held in Stockholm in June 1972, proclaimed that “Man is both creator and moulder of his environment, which gives him physical sustenance and the opportunity for intellectual, moral, social and spiritual growth. In the long and tortuous evolution of the human race on this planet, a stage has reached when through the rapid acceleration of science and technology, man has acquired the power to transform his environment in countless ways and on unprecedented scale. Both aspects of man’s environment, the natural and man made, are essential to his well being and to the enjoyment of basic human rights, even the right to life itself”. Under this Act the meanings of words/phases used would be as follows:

1.  Environment: It includes water, air, and land and the interrelationship that exists with human beings, other living creatures, plants, microorganism and property.

2.  Environmental Pollutant: It means any solid, liquid or gaseous substance present in such concentration as may be, or tend to be injurious to environment.

3.  Hazardous Substance: It means any substance or preparation which, by reasons of its chemical or physico-chemical properties or handling, is liable to cause harm to human beings, other living creatures, plants, micro-organism, property or environment.

4.  Environmental Pollution: It means imbalance in environment. The materials or substances when after mixing in air, water or land alters their properties in such manner, that the very use of all or any of the air, water and land by man and any other living organism becomes lethal and dangerous for health.

The Wildlife Protection Act, 1972

The Act provides for the protection of wild animals, birds and plants and for matters connected therewith or ancillary or incidental thereto. It extends to the whole of India, except the State of Jammu and Kashmir. The meaning of words/phases used in the Act would be as follows:

1.  Animal: includes amphibians, birds, mammals, and reptiles, and their young ones, and also includes, in the cases of birds and reptiles, their eggs.

2.  Animal article: means an article made from any captive animal or wild animal, other than vermin, and includes an article or object in which the whole or any part of such animal has been used and ivory imported into India and an article made therefrom.

3.  Hunting: includes the followig:

1. Capturing, killing, poisoning, snaring, and trapping any wild animal and every attempt to do so
2. Driving any wild animal for any of purposes specified in sub clause
3. Injuring or destroying or taking any part of the body of any such animal, or in the case of wild birds or reptiles, damaging the eggs of such birds or reptiles, or disturbing the eggs or nests of such birds or reptiles

4.  Taxidermy: With its grammatical variations and cognate expressions means the curing, preparation or preservation of trophies;

5.  Trophy: means the whole or any part of any captive animal or wild animal, other than vermin, which has been kept or preserved by any means, whether artificial or natural, and includes the following:

1. Rugs, skins, and specimens of such animals mounted in whole or in part through a process of taxidermy
2. Antler, horn, rhinoceros horn, feather, nail, tooth, musk, eggs and nests

6.  Uncured trophy: It means the whole or any part of any captive animal, other than vermin, which has not undergone a process of taxidermy, and includes a freshly killed wild animal ambergris, musk and other animal products

7.  Vermin: It means any wild animal specified in Schedule V of the Act.

8.  Wildlife: It includes any animal, bees, butterflies, crustacean, fish and moths and aquatic or land vegetation which forms part of any habitat.

Workplace Safety and Health

Trade Unions Act, 1926

The Trade Unions Act, 1926 provides for registration of trade unions with a view to rendering lawful organisation of labour to enable collective bargaining. It also confers certain protection and privileges on a registered trade union.

The Act extends to the whole of India and applies to all kinds of unions of workers and associations of employers, which aim at regularising labour management relations. A trade union is a combination whether temporary or permanent, formed for regulating the relations not only between workmen and employers but also between workmen and workmen or between employers and employers.

 

Registration

Registration of a trade union is not compulsory, but is desirable since a registered trade union enjoys certain rights and privileges under the Act. A minimum of seven workers of an establishment (or seven employers) can form a trade union and apply to the Registrar for its registration.

1. The application for registration should be in the prescribed form and accompanied by the prescribed fees, a copy of the rules of the union signed by at least seven members, and a statement containing the following:
   1. The names, addresses and occupations of the members making the application
   2. The name of the trade union and the addresses of its head office
   3. The titles, names, ages, addresses and occupations of its office bearers.
2. If the union has been in existence for more than a year, then a statement of its assets and liabilities in the prescribed form should be submitted along with the application.
3. The Registrar may call for further information for satisfying himself that the application is complete and is in accordance with the provisions, and that the proposed name of the union does not resemble any other name registered with the Registrar.
4. On being satisfied with all the requirements, the Registrar shall register the trade union and issue a certificate of registration, which shall be conclusive evidence of its registration.

Legal Status of a Registered Trade Union

1. A registered trade union is a body corporate with perpetual succession and a common seal.
2. It can acquire, hold, sell or transfer any movable or immovable property and can be a party to contracts.
3. It can sue and be sued in its own name.
4. No civil suit or other legal proceeding can be initiated against a registered trade union in respect of any act done in furtherance of a trade dispute under certain conditions.
5. No agreement between the members of a registered trade union shall be void or voidable merely on the ground that any of its objects is in restraint of trade.

Obligations of Registered Trade Unions

1. The general funds of a registered trade union should be spent only for the objects specified such as, payment of salaries, allowances and expenses of its office bearers, its administrative and audit expenses, prosecution or defence af any legal proceeding for securing or protecting its rights, conduct of trade disputes, compensation for loss arising out of trade disputes, provision of educational, social or religious benefits and allowances on account of death, old age, sickness, accident or unemployment to its members, publication of labour journals etc. The trade union may set up a separate political fund for furtherance of civic and political interest of members. Contribution to this fund is not compulsory.
2. The account books and membership register of the union should be kept open for inspection by any of its office-bearers.
3. A copy of every alteration made in the rules of the union should be sent to the Registrar within 15 days of making the alteration.
4. An annual statement of receipts and expenditure and assets and liabilities of the union for the year ending on the 31st December, prepared in the prescribed forms and duly audited should be sent to the Registrar within the prescribed time. This statement should be accompanied by a statement showing changes in office bearers during the year and a copy of the rules as amended up to date. Penalties imposed in case of the defaults made by any trade union in its annual report are as follows:

Offence-Penalty

1. If the registered trade union/its office bearers or members fail to give any notice or send any statement as required under the Act, they are fined upto Rs. 5 plus additional fine upto Rs. 5 per week in case of continuing offence. (Maximum fine imposable Rs. 50.)
2. If any person wilfully makes any false entry in the annual statement of the union or its rules, he is fined up to Rs. 500.

Payment of Bonus Act, 1965

The Payment of Bonus Act provides for payment of bonus to persons employed in certain establishments on the basis of profits or on the basis of production or productivity and for matters connected therewith.

It extends to the whole of India and is applicable to every factory and to every other establishment where 20 or more workmen are employed on any day during an accounting year.

 

Eligibility for Bonus

Every employee receiving salary or wages upto Rs. 3500 per month and engaged in any kind of work whether skilled, unskilled, managerial, supervisory etc. is entitled to bonus for every accounting year if he has worked for at least 30 working days in that year.

However, employees of LIC, universities and educational institutions, hospitals, chambers of commerce, RBI, IFCI, UTI and social welfare institutions are not entitled to bonus under this Act.

Disqualification for Bonus

Notwithstanding anything contained in the Act, an employee shall be disqualified from receiving bonus, if he is dismissed from service for fraud or riotous or violent behaviour while in the premises of the establishment or theft, misappropriation or sabotage of any property of the establishment.

Duties/Rights of Employer

Duties of the employers are as follows:

• To calculate and pay the annual bonus as required under the Act
• To submit an annul return of bonus paid to employees during the year in Form D to the Inspector, within 30 days of the expiry of the time limit specified for payment of bonus
• To co-operate with the Inspector, produce before him the registers/records maintained, and such other information as may be required by him
• To get his account audited as per the directions of a Labour Court Tribunal or of any such other authority

Rights of the employers are as follows:

• Right to forfeit bonus of an employee, who has been dismissed from service for fraud, riotous or violent behaviour, or theft, misappropriation or sabotage of any property of the establishment.
• Right to make permissible deductions from the bonus payable to an employee, such as festival/interim bonus paid and financial loss caused by misconduct of the employee.
• Right to refer any disputes relating to application or interpretation of any provision of the Act to the Labour Court or Labour Tribunal.

Rights of employees are as follows:

• Right to claim bonus payable under the Act and to make an application to the government, for the recovery of bonus due and unpaid, within 1 year of its becoming due.
• Right to refer any dispute to the Labour Court/Tribunal. Employees, to whom the Payment of Bonus Act does not apply, cannot raise a dispute regarding bonus under the Industrial Disputes Act.
• Right to seek clarification and obtain information, on any item in the accounts of the establishment.

The Employee’s Provident Funds Act, 1952

The Employees’ Provident Funds and Miscellaneous Provisions Act provides for compulsory contributory fund for the future of an employee after his retirement or for his dependents in case of his early death.

It extends to the whole of India except the State of Jammu and Kashmir and is applicable to the following:

1. Every factory engaged in any industry specified in Schedule I in which 20 or more persons are employed
2. Every other establishment employing 20 or more persons or class of such establishments which the central government may notify.
3. Any other establishment so notified by the central government even if employing less than 20 persons.

 

Employees’ Entitlement

Every employee, including the one employed through a contractor (but excluding an apprentice engaged under the Apprentices Act or under the standing orders of the establishment and casual labourers), who is in receipt of wages up to Rs. 6500 per month, shall be eligible for becoming a member of the Employee’s Provident Funds.

The condition of three months’ continuous service or 60 days of actual work, for membership of the scheme, has been done away with, w.e.f. 01 November 1990. Workers are now eligible for joining the scheme from the date of joining the service.

Employer’s Contribution

The employer is required to contribute the following amounts towards Employees’ Provident Fund and Pension Fund.

1. In case of establishments’ employing less than 20 persons or a sick industrial (BIFR) company or “sick establishment” or any establishment in the jute, beedi, brick, coir or gaur gum industry—10% of the basic wages, dearness allowance and retaining allowance, if any.
2. In case of all other establishments’ employing 20 or more persons—12% of the wages, D.A., etc.

A part of the contribution is remitted to the Pension Fund and the remaining balance continues to remain in Provident Fund account. Where, the pay of an employee exceeds Rs. 5000 per month, the contribution payable to Pension Fund shall be limited to the amount payable on his pay of Rs. 5000 only, however, the employees may voluntarily opt for the employer’s share of contributions on wages beyond the limit of Rs. 5000 to be credited to the Pension Fund.

The Workmen’s Compensation Act, 1923

The Workmen’s Compensation Act 1923 aims to provide workmen and/or their dependents some relief in case of accidents arising out of, and in the course of employment and causing either death or disablement of workmen. It provides for payment by certain classes of employers to their workmen compensation for injury by accident.

Who is a Workman?

Workman means any person (other than a person whose employment is of a casual nature and who is employed otherwise than for the purposes of the employer’s trade or business) who is:

1. A railway servant as defined in section 3 of the Indian Railways Act, 1890 not permanently employed in any administrative, district or sub-divisional office of a railway and not employed in any such capacity as is specified in Schedule II
2. Employed in any such capacity as is specified in Schedule II

Whether the contract of employment was made before or after the passing of this Act and whether such contract is expressed or implied, oral or in writing, the Act is applicable to all.

The provisions of the Act have been extended to cooks employed in hotels, restaurants using power, liquefied petroleum gas or any other mechanical device in the process of cooking.

Employees Entitled to Compensation

Every employee (including those employed through a contractor but excluding casual employees), who is engaged for the purposes of employer’s business and who suffers an injury in any accident arising out of and in the course of his employment, shall be entitled for compensation under the Act.

Consumer Protection

Consumer Protection Act

Industrial development in the field of manufactured goods has led to the influx of various consumer goods into the Indian market to cater to the needs of the consumers and a variety of services such as banking, financing, insurance, transport, housing, construction, entertainment have been made available to the consumers.

In order to protect the consumers from exploitation and to save them from adulterated and substandard goods and deficient services, the Consumer Protection Act came into force on 15 April 1986 and it applies to the whole of India except the State of Jammu and Kashmir.

 

Eligibility to File a Claim

Any person who

• has bought goods for a consideration and finds a defect in the quality, quantity, potency, purity or standard of the goods
• has hired or availed any service for a consideration and finds any fault, imperfection, shortcoming, or inadequacy in the quality, nature and manner of performance in relation to the service can approach the courts.

However, if a person has bought the goods for resale or for a commercial purpose, he is not a, consumer.

Limitation

Within what period can a complaint be filed?

A complaint should be filed at the earliest but not later than TWO YEARS from the date on which the cause of action arose. However, the court may entertain the complaint after a period of 2 years if the complainant is able to satisfy the court that there was sufficient cause for the delay.

Appeals

An appeal against the order of the District Forum are to be filed to the State Commission, against the order of the State Commission to the National Commission and against the order of the National Commission to the Supreme Court. All appeals are to be filed within 30 days of the order appealed against and are to be accompanied by a certified copy of the order.

Food Adulteration Under the Prevention of Food Adulteration Act, 1954

The Prevention of Food Adulteration Act, 1954 aims at making provisions for the prevention of adulteration of food. The Act extends to the whole of India and came into force on 1 June 1955.

 

What is Adulterated Food?

An article of food shall be deemed to be adulterated under the following conditions:

1. If the article sold by a vendor is not of the nature, substance or quality demanded

   by the purchaser or which it purports to be

2. If the article contains any substance affecting its quality or of it is so processed as to injuriously affect its nature, substance or quality
3. If any inferior or cheaper substance has been substituted wholly or partly for the article, or any constituent of the article has been wholly or partly abstracted from it, so as to affect its quality or it is so processed as to injuriously affect its nature, substance or quality
4. If the article has been prepared, packed or kept under insanitary conditions whereby it has become contaminated or injurious to health
5. If the article consists wholly or in part of any filthy, putrid, disgusting, rotten, decomposed or diseased animal or vegetable substance or being insect-infested, or is otherwise unfit for human consumption
6. If the article is obtained from a diseased animal
7. If the article contains any poisonous or other ingredient which is injurious to health
8. If the container of the article is composed of any poisonous or deleterious substance which renders its contents injurious to health
9. If the article contains any prohibited colouring matter or preservative, or any permitted colouring matter or preservative in excess of the prescribed limits
10. If the quality or purity of the article falls below the prescribed standard, or its constituents are present in sub-standard proportions or its constituents are present in proportions other than those prescribed, whether or not rendering it injurious to health

Functional Regulations

Custom Law and Procedures

Custom duty is a tax which the state collects on goods imported into or exported out of the boundaries of a country. Custom duties now form a significant source of revenue for all countries, more so in the case of developing countries like India. In India, custom duties are levied on the goods and at the rates specified in the Schedules to the Customs Tariff Act, 1975. Export duties are practically non-existent at present. They are levied occasionally to mop up excess profitability in international price of goods in respect of which domestic prices may be low at a given time. But sweep of import duties is very wide, almost universal, barring a few goods like food grains, fertilizer, life saving drugs and equipment etc. Import duties generally consist of the following:

1. Basic duty: It may be at the standard rate or, in the case of import from some countries, at the preferential rate.
2. Additional custom duty: It is equal to central excise duty leviable on goods produced or manufactured in India. It is commonly referred to as countervailing duty or C.V.D.
3. Special additional duty of customs: It is at the rate of 4% in order to provide a level playing field to indigenous goods which have to bear sales tax. This duty is to be computed on the aggregate of the following:
   • Assessable value
   • Basic duty of customs
   • Surcharge
   • Additional duty of customs leviable under Section 3 of the Customs Tariff Act, 1975 (C.V.D.)
4. Additional duty of customs: It is at the rate of Rs. 1 per litre on imported motor spirit (petrol) and high speed diesel oil.
5. Anti-dumping duty/safeguard duty: This is for import of specified goods with a view to protecting domestic industry from unfair injury.

Service Tax

Service tax is an indirect levy imposed under Chapter V of the Finance Act, 1994 as amended. The tax is applicable to services specified in the chapter called “taxable services”. At present the rate of Service Tax is 8% to be levied on the “value of taxable service”. Generally speaking “value of taxable service” means the gross amount received by the service provider for the taxable service rendered by him. The person who provides the taxable service on receipt of charges is responsible for paying the Service Tax to the government. Where the service is provided by a person other than Indian resident or who does not have any establishment in India, then the services receiver in India is liable to pay service tax.

Service Tax is administered by the Central Excise Commissionerates working under the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India.

MRTP Act, 1969

The Monopolies and Restrictive Trade Practices Act 1969 was enacted for the following reasons:

1. To ensure that the operation of the economic system does not result in the concentration of economic power in hands of a few
2. To provide for the control of monopolies
3. To prohibit monopolistic and restrictive trade practices

   The MRTP Act extends to the whole of India except Jammu and Kashmir.

 

Unless the central government otherwise directs, this Act shall not apply to the following:

1. any undertaking owned or controlled by a government company
2. any undertaking owned or controlled by the government
3. Any undertaking owned or controlled by a corporation (not being a company established by or under any central, provincial or state Act)
4. any trade union or other association of workmen or employees formed for their own reasonable protection such as workmen or employees
5. any undertaking engaged in an industry, the management of which has been taken over by any person or body of persons under powers by the central government
6. any undertaking owned by a co-operative society formed and registered under any central, provincial or state Act
7. Any financial institution

The MRTP Act has now been replaced by the Competition Act, the details on which have been covered in the chapter on Monopoly, Competition and Corporate Governance.

Small-scale Industries Tax Exemption Scheme

The contribution of small-scale sector in the industrial growth of the Indian economy and to the gross domestic product is significant besides the potential for employment generation. The small-scale sector has for itself a special dispensation in the central excise law in order to make it competitive in the domestic and global market. Central Excise duty concessions have been extended to the units in the small-scale sector based on their turnover so as to facilitate them to graduate by availing these concessions in a graded manner.

Eligibility

Manufacturers of specified commodities having clearances not exceeding Rs. 3 crores in the preceding financial year are eligible for this exemption.

Registration of Small-scale Companies

Every manufacturer of excisable goods is required (under Rule 174 of Central Excise Rule 1944) to get registered with the Central Excise Department before starting production.

• The SSI must file for registration when their turnover crosses Rs. 1 crore. The application for the registration should be submitted to the jurisdictional range superintendent of central excise.
• The Registration Certificate will be automatically granted. If it is not granted within 30 days of the receipt of the application, it is deemed to have been granted.
• There is no fees for registration and a factor y or a unit is to be registered only once.
• There is no need for renewal of the registration.
• The registration is applicable only for the premises where the manufacture is taking place.
• A separate registration is required for each premise.
• In case a new product is to be manufactured, the registration certification should be endorsed for the additional items.

Foreign Exchange Management Act, 1999 (FEMA)

A bill based on the recommendations of the Task Force, was introduced in the Lok Sabha on 4 August 1998. The bill was referred to the standing committee on Finance which submitted it’s report to the House on 23 December 1998 with suggestion and modifications. The 12th Lok Sabha was dissolved before any decision could be taken on the bill. The bill subsequently lapsed. The bill was again introduced in the 13th Lok Sabha on 25 October 1999. The Presidential Assent was received on 6 January 2000. Finally the FEMA came into operation w.e.f. 1 June 2000.

To Whom is the Act Applicable?

The FEMA is applicable to

• The whole of India
• Any branch, office and agency, which is situated outside India, but is owned or controlled by a person who is resident of India
• Any contravention of provisions of FEMA, by all those, who are covered under the above two aspects committed outside India.

Public Policies for the Global Village

India went for globalisation because every other country in the world had adopted it. It was a kind of compulsion from the WTO for the developing countries. The developing countries had no other choice of allowing foreign competitors into their market to stabilise their economies. There are some public policies which have to be followed globally.

Intellectual Property Rights (IPR and TRIPS)

Patents, designs, copyrights and trademark are industrial property as they are used in some form of industry or business. They are also aptly termed intellectual property since they are the products of pure intellectual effort. Attempts have been made from time to time to expand the boundaries of intellectual property and to convert a protective law into a source of monopoly.

Anti-dumping Policies

Trade “Dumping”

Dumping occurs when a product is exported to and sold in another country at less than its normal value in the exporting country, and such sales cause injury to producers in the importing country. In essence, the product is “dumped” onto the importing country’s domestic market.

What Protection Does the Anti-dumping Agreement Offer?

In cases where dumped imports threaten or materially injure a nation’s domestic industry, injured nations may impose “anti-dumping measures” in the form of duties—in addition to the standard tariffs applied—to imports from “dumping” foreign sources. This protection is granted under the GATT 1994 Agreement (Article VI), commonly called the WTO Agreement on Anti-Dumping.

How Is It Determined Whether or Not Goods Are Being Dumped?

• The “normal value” of the good is determined
• The “export price” is established
• A “fair value comparison” of the export price and normal value is made, including any necessary allowance and adjustments that circumstances of the sale and product differences might dictate

How Is It Determined Whether or Not Dumping Has Caused Injury to Domestic Industry?

• Investigators examine the volume and value of dumped imports, and the effect on the industry in the domestic market for identical or similar products
• Future threats are assessed on the basis of dumping rates, inventories, exporter capacities and price projections on goods in the market

How Are Punishment Measures Set?

• Dumping margins are calculated (the difference between the normal value and the export price)
• The importing country then typically collects duties on imports from the dumping source country
• In lieu of collecting anti-dumping duties, members may elect to negotiate higher price agreements with the offending exporters
• The WTO measure establishes rules for the duration of anti-dumping duties and price undertakings

Transparency of the Process

• Investigating authorities must provide public notice of all non-proprietary information regarding the details of all preliminary and final rulings and determinations.
• Extensive details are provided along with official responses to arguments, to ensure transparent, consistent and fair implementation of the Agreement.

• Commercial policy
• Financial involvement
• Fiscal policy
• Framing public policy
• Monetary policy
• National economic policy
• Organisational involvement
• Policy decision making
• Political involvement
• Public policy in business
• Shaping of public policies
• Strategic public policy involvement
• Taxation policy

1. What is public policy? What is the need for public policy in business?
2. What are the areas in which public policy is applicable? Discuss its limitations.
3. Discuss the key elements in the public policy process. Illustrate the process with a suitable diagram.
4. Discuss the involvement of business in public policy decision-making.
5. What is economic policy? What are the constituents of economic policy? Explain briefly each one of them.
6. What is the need for the regulation of business by the government? Explain the problems associated with government regulation.

• Anti Dumping Duties—http://www.amir-jordan.org/amirl_web/pri/wto/antidumping.htm
• Business and Society by POST, LAWRENCE, WEBER.
• “Corporate Responsibility in the Global Village: The Role of Public Policy.” By Susan Ariel Aaronson and James T. Reeves.
• Corporate Governance—The Dire need of the hour by Prof. A. C. Fernando LIBA.
• CSR & Public Policy—http://www.socialdialogue.net/enlen_csr_index.htm
• Customer Tariff Acts—http://www.exim.indiamart.com/act-regulations/customs-act-1962-sec-121-160.html
• Corporate Affairs & Public Policy—www.oecd.org/daf/corporate-affairs
• Consumer Protection Act—www.helplinelaw.com
• Corporate Social Responsibility, Public Policy and the Oil Industry in Angola Molly Ettenborough and James Shyne Angola Education Assistance Fund Web References.
• Child Labour—http://www.vedamsbooks.com/anthro.htm#.
• EXIM Policies—http://exim.indiamart.com/ssi—regulations/idr-act.html#idr-act
• Environmental Policies—http://www.gisdevelopment.net/applicationlenvironment/pp/envplOOOla.htm
• FERA and Customs Duty—http://www.thebharat.com/legal/companylaw/index.html
• FERA—http://exim.indiamart.com/act-regulations/fera-1993.html
• Globalisation and it Effects—http://www.mindfully.org/WTO/Shiva-India-Primlani.htm
• Labour Policy—http://www.unido.org/enl!doc/4825
• Privatisation & Globalisation Policies—http://www.columbia.edu/-ta63/index.html
• Public Policy for Corporate Social Responsibility—Djordjija Petkoski World Bank Institute and Nigel Twose—World Bank Group.
• Policy Decision Making—http://www.aeco.ttu.edu/Courses/4305/index.htm