SMU BBA6 BB0031 MANAGEMENT DEVELOPMENT

PROGRAM	BBA
SEMESTER	6
SUBJECT CODE & NAME	BB0031 MANAGEMENT DEVELOPMENT

Q1. What are the different types of decisions? Explain with examples. Ans. Types of Decisions: The types of decisions are based on the degree of knowledge about the outcomes or the events yet to take place. If the manager has full and precise knowledge of the event or outcome which is to occur, then the decision-making is not a problem. If the manager has full knowledge, then it is a situation of certainty. If he has partial knowledge or a probabilistic knowledge, then it is decision-making under risk. If the manager does not have any knowledge whatsoever, then it is decision-making under uncertainty. A good MIS tries to convert a decision-making situation under uncertainty to the situation under risk and further to certainty. Decision-making in the Operations Management is a situation of cer­tainty. This is mainly because the manager in this field has fairly good knowledge about the events which are to take place, has full knowledge of environment, and has pre-determined decision alternatives for choice or for selection. Decision-making at the middle management level is of the risk type. This is because of the difficulty in forecasting an event with hundred per cent accuracy and the limited scope of generating the decision alternatives. At the top management level, it is a situation of total uncertainty on account of insufficient knowledge of the external environment and the difficulty in forecasting business growth on a long-term basis. A good MIS design gives adequate support to all the three levels of management.

Organizational decisions differ in a number of ways. The following bases are used to classify the decisions:

Purpose of Decision-making: On the basis of the purpose of decision-making activities, the organizational decisions are divided into 3 categories:

·         Strategic Planning Decisions: Strategic planning decisions are those decisions in which the decision-maker develops objectives and allocates resources to achieve these objectives. Such decisions are taken by strategic planning level (top level) managers.

·         Management Control Decisions: Management control decisions are taken by management control level (middle level) managers and deal with the use of resources in the organization.

·         Operational Control Decisions: Operational control decisions deal with the day-to-day problems that affect the operation of the organization. These decisions are taken by the managers at operational level (bottom level) of the organization.

Levels of Programmability: Simon on the basis of level of the programmability of a decision, proposed two types of decisions:

1.     Programmed/Structured Decisions

Programmed or structured are those decisions, which are well defined and some specified procedure or some decision rule might be applied to reach a decision. Such decisions are routine and repetitive and require little time for developing alternatives in the design phase. Programmed or structured decisions have traditionally been made through habit, by operating procedures or with other accepted tools.

2.     Non-programmed /Unstructured Decision

Decisions, which are not well defined and have not pre-specified procedures decision rule are known as unstructured or non-programmed decisions.

Knowledge of Outcomes: Another approach of classifying decisions is the level of knowledge of outcomes. An outcome defines what will happen, if a decision is made or course of action taken. When there is more than one alternative, the knowledge of outcome becomes important. On the basis of the level of knowledge of outcomes, decision-making can be classified into three categories.

1.      Decision under certainty: Decision-making under certainty takes place when the outcome of each alternative is fully known. There is only one outcome for each alternative.

2.      Decision under risk: Decision-making under risk occurs when there is a possibility of multiple outcomes of each alternative and a probability of occurrence can be attached to each outcome.

3.      Decision under uncertainty: Decision-making under uncertainty takes place when there are a number of outcomes for each alternative & the probabilities of their occurrences are not known.

Q2. Discuss Line organizations in detail.

Ans. This is the oldest form of organization. This is known by different names, i.e. military, vertical, scalar, departmental, organization. All other types of organization structure have mostly been either modifications of this organization. The concept of line organization holds that in any organization derived from a scalar process, there must be a single head who commands it. Although an executive can delegate authority, he has ultimate responsibility for results. According to McFarland, "Line structure consists of the direct vertical relationship which connects the positions and tasks of each level with those above and below it." According to Allen, Organizationally, the line is the chain of command that extends from the board of directors through the various delegations and re-delegation of authority and responsibility to the point where the primary activities of the enterprise are performed."
Features of line organization:
(1) There are many levels of management depending upon the scale of business and decision-making ability of managers. Each level of management has equal rights.
(2) There is vertical flow of authority and responsibility. The lower positions derive authority from the positions above them.
(3) There is unity of command. Every person is accountable to only one person (his immediate boss) and none else. A person receives orders only from his immediate boss.
(4) There is scalar chain in line organization. The flow of orders, communication of suggestions and complaints etc. are made as it is in the case of a ladder. One cannot defy the claim.
(5) There is limit on subordinates under one manager. A manager has control only over the subordinates of his department.

Advantages:
(1) Simplicity—it is the simplest of all types of organizations. It can be easily established and easily understood by the workers.
(2) Clear-cut division of authority and responsibility—The authority and responsibility of every person is clearly defined. Everyone knows as to whom he can issue orders and to whom he is accountable. Further it is easier to fix up the responsibility if there is any lapse anywhere in the performance of activities.
(3) Strong Discipline—Because of direct authority—responsibility relationships, discipline can be maintained more effectively. Direct supervision and control also helps in maintaining strong discipline among the workers.
(4) Unified control—Since the orders are given by one superior, there is no confusion among the subordinates. This ensures better understanding and quick action.
(5) Prompt Decisions-As the superiors enjoy full authority, quick decisions are taken by them. Such decisions are executed promptly also.
(6) Flexibility-Since each departmental head has sole responsibility for his department, he can easily adjust the organization to changes in business situation.

Disadvantages:
(1) Heavy Burden of work—Since the departmental head has to look after all the activities of his department; he is over burdened with work. He may neglect some of the duties and there may be inefficiency in management.
(2) Concentration of Authority—It is dictatorial in nature as all important powers are concentrated in the hands of a few top executives. If they are not able the enterprise will not be successful.
(3) Lack of specialization—Line organization suffers from lack of specialized skill of experts. It is extremely difficult for one person to handle activities of diverse nature. It is not possible to achieve the advantages of specialization in all fields.
(4) Lack of communication -There is failure to get correct information and to act upon it due to lack of communication. Although there is communication from top to bottom there is usually no communication from the lower ranks to higher ranks and executives. They are not provided with an opportunity to put forward their view point or problems or suggestions to persons at the top level. Thus, they lose their capacity for independence thinking.
(5) Scope for favoritism—Since the departmental head is almost all-in-all for the activities of his department. There is scope for favoritism. There may be a good deal of nepotism and jobbery and personal prejudices. The executive may appoint and promote his own men in various positions ignoring the claim of efficient persons.

Q3. Mr. Narayan is Senior Manager HR with BrightShine Paints. He wants to develop a system which helps in drafting the plans and achieving them. It shall also help in improving the communication between the superior and subordinates. Suggest a technique which may help to achieve this. Explain the technique in detail. Ans. Being an effective manager requires experience in your industry and experience with different management techniques. Management techniques are not short-term tricks used to motivate employees, but rather effective methods of managing that help to develop a productive workplace. There is no single management technique that works in all situations, which is why it is important to become familiar with more than one. Workforce Development: Building an effective workforce means managing employee development before you even hire them, according to Dun and Bradstreet Small Business Solutions. Create a comprehensive job description for each position that you intend to hire for, and then put a monitoring system in place that allows you to track employee development and progress. Use annual performance reviews as tools to create a stronger working relationship between management and employees, and to guide employee development. Your monitoring system should also include weekly meetings with individual employees to discuss their progress and offer your assistance in their development. Growth Management: Creating growth within the company is a critical role of the management team. Growth can be characterized by an increase in revenue, employee population, number of locations or a larger main location, or a combination of the three. According to online business resource All Business, the management team needs to anticipate company growth and then put measures in place to accommodate the growth. Management techniques like assessing competition, looking at historical data on sales in various target markets, projecting changes in target markets and comparing available resources to needed resources are all part of growth management. Personnel Management: Managers use several different techniques to motivate and manage employee performance, according to a Free Management Library resource titled "Free Basic Guide to Leadership and Supervision." A manager needs to utilize his workforce properly by allocating qualified personnel to various departments and projects, creating schedules that bring together personnel resources when they are needed, and by motivating employees to improve production and assist their department to attain company goals. Managers should also be aware of any changes in employee skill sets through training or further education that would make employees more valuable to other parts of the company. Staff members should also be inspired to develop their own priority lists to help make sure that necessary task get done each day, and that important projects get needed attention.

Advantages & Disadvantages of Management Development Methods

There are many different approaches to management development. Some companies have a very defined approach to educating their leaders, while other organizations choose to train each manager in a slightly different way. Career development programs, university education programs and mentoring are just a few of the options. Each option has its own advantages and disadvantages, including costs, time and course content. Weighing the pros and cons of each and deciding on an approach for your company is an important decision for your organization's future.

Professional Development: A common approach to management development is to send your managers and supervisors to a college or university program for executive development. Many colleges offer certificate and degree programs and offer these programs at various times and locations. These programs have the advantage of sound learning and experienced professors, as well as a track record of success throughout the years. These programs are usually expensive, however, and also take time to complete successfully. Carefully select the individuals who you send to these programs since they represent an investment.

Coaching: Coaching is another method your company can use to develop managers and leaders. This technique uses other successful managers to train, advise and coach newer supervisors in order to gain knowledge of both the company and management procedures. This method has the advantage of one-on-one training, which allows the trainee ample time to ask questions and receive feedback on performance. A disadvantage is that the new manager receives coaching and advice from only other managers, not peers or outside participants. Coaching also provides company-specific information to your new leaders.

Internal Training Programs: A big advantage for internal training programs as a means to develop your managers is that your training will be tailored to the specific needs of your company. You will be able to identify training needs and create solutions to meet those concerns. Internal training can be costly to develop and maintain, and you will have to update and add to programs yourself. You also will not be able to interact with other managers from different companies, as you would with external programs.

Vendor-Provided Training: Many consultants and vendors also offer management and training development programs. You can select from many trainers, costs, locations and programs, and you can use them whenever you desire. Many of these programs can be costly, and they will not always be tailored to your company's individual development needs. Some vendors will also train your company trainers to teach their courses at your company. You must be certain that these programs train your managers on skills and techniques that you find useful and make a difference for your organization.

SMU BBA6 BB0030 ROLE OF INTERNATIONAL FINANANCIAL INSTITUTIONS

ASSIGNMENT PROGRAM	BBA
SEMESTER	6
SUBJECT CODE & NAME	BB0030 ROLE OF INTERNATIONAL FINANANCIAL INSTITUTIONS

Q1. How has India benefited from International Development Association? Ans. The International Development Association (IDA) is an international financial institution which offers concessional loans and grants to the world's poorest developing countries. The IDA is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1960 to complement the existing International Bank for Reconstruction and Development by lending to developing countries which suffer from the lowest gross national income, from troubled creditworthiness, or from the lowest per capita income. Together, the International Development Association and International Bank for Reconstruction and Development are collectively generally known as the World Bank, as they follow the same executive leadership and operate with the same staff. The association shares the World Bank's mission of reducing poverty and aims to provide affordable development financing to countries whose credit risk is so prohibitive that they cannot afford to borrow commercially or from the Bank's other programs. The IDA's stated aim is to assist the poorest nations in growing more quickly, equitably, and sustainably to reduce poverty. The IDA is the single largest provider of funds to economic and human development projects in the world's poorest nations. From 2000 to 2010, it financed projects which recruited and trained 3 million teachers, immunized 310 million children, funded $792 million in loans to 120,000 small and medium enterprises, built or restored of 118,000 kilometers of paved roads, built or restored 1,600 bridges, and expanded access to improved water to 113 million people and improved sanitation facilities to 5.8 million people. The IDA has issued a total $238 billion USD in loans and grants since its launch in 1960. Thirty six of the association's borrowing countries have graduated from their eligibility for its concessional lending. However, eight of these countries have relapsed and have not re-graduated. India is currently benefiting from concessional finance from the bank. It is the largest taker and is the largest beneficiary of International Development Association (IDA) and we have had a very good and fruitful relationship. As countries evolve there will be the debate on the mix of concessional and non concessional finance. I would still say that in this world it is beginning to get a little more blurred. That is because financing from international markets is no longer at very high rates compared with an IBRD loan there is a variable rate that is 1%. The debate will be informed by a couple of factors; one is GDP per capita, which is a necessary condition but definitely not a sufficient one. The other is the access to international capital, also sometimes seen in terms of credit ratings. Another one is debt sustainability. The important thing is the vulnerability of a country. We have seen countries with very high GDP per capita but no access to international markets. The overall pot of concessional finance is certainly under stress, which also has to be kept in mind. At this stage we are implementing the IDA 16 period that will conclude in 2014 and expectation is that India will benefit in excess of $5 billion. It will remain the largest beneficiary. Q2. What are the types of assistance given by The International Finance Corporation? Ans. The International Finance Corporation (IFC) is an international financial institution which offers investment, advisory, and asset management services to encourage private sector development in developing countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects which reduce poverty and promote development.  The IFC's stated aim is to create opportunities for people to escape poverty and achieve better living standards by mobilizing financial resources for private enterprise, promoting accessible and competitive markets, supporting businesses and other private sector entities, and creating jobs and delivering necessary services to those who are poverty-stricken or otherwise vulnerable. Since 2009, the IFC has focused on a set of development goals which its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve health and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health. The IFC is owned and governed by its member countries, but has its own executive leadership and staff which conduct its normal business operations. It is a corporation whose shareholders are member governments which provide paid-in capital and which have the right to vote on its matters. Originally more financially integrated with the World Bank Group, the IFC was established separately and eventually became authorized to operate as a financially autonomous entity and make independent investment decisions. It offers an array of debt and equity financing services and helps companies face their risk exposures, while refraining from participating in a management capacity. The corporation also offers advice to companies on making decisions, evaluating their impact on the environment and society, and being responsible. It advises governments on building infrastructure and partnerships to further support private sector development. The corporation is assessed by an independent evaluator each year. In 2011, its evaluation report recognized that its investments performed well and reduced poverty, but recommended that the corporation define poverty and expected outcomes more explicitly to better-understand its effectiveness and approach poverty reduction more strategically. The corporation's total investments in 2011 amounted to $18.66 billion. It committed $820 million to advisory services for 642 projects in 2011, and held $24.5 billion worth of liquid assets. The IFC is in good financial standing and received the highest ratings from two independent credit rating agencies in 2010 and 2011. The IFC provides loans, equity investment advice, and technical assistances to private businesses in developing countries. The IFC lends to the private sector and does not accept host government guarantees on its loans. Since its founding, IFC lending has reached more than $49 billion in its own fund and $24 billion in syndication for 3,319 companies stretching through 140 developing countries. In FY 2008, its new commitment was $7.4 in its own fund and $3.3 billion in loan syndications. IFC’s equity portfolio was $11 billion as of the beginning of FY09. It has been consistently profitable since 1956.  Lending products: The IFC provides services such as guarantees, quasi-equity, and equity financing, risk management products, and advisory activities. However loans – as a financing tool – represent the majority of the Corporation’s portfolio. Loans usually have the following characteristics: ·         Terms amortizing with final maturities of up to 12 years; ·         Currencies in major convertibles such as the U.S. dollar, Euro, Swiss Franc, or the Japanese Yen; ·         Fixed or variable interest rates; ·         Pricing that reflects the market conditions along with country and project risks. A-Loans indicate loans from IFC account, and B-loans are syndicated loans from participating private banks.  The IFC sets limits on its total own account debt and equity financing on projects in order to ensure participation of investors and lenders within the private sector. The IFC lends up to 25 percent of the total estimated project cost for new projects. Under special circumstances, the percentage can be up to 35 percent in small projects but not the single largest shareholder. However with expansion projects, IFC may also provide up to 50 percent of the project cost when its investment is less the 25 percent of the total capitalization of the project company.   An equity investment in a company conditions financing to not exceed 35 percent of the company’s total share capital and IFC not serve as the single largest shareholder. Three percent is the IFC maximum investment in a single obligor. Also equity with quasi-equity investments in a single obligor should stay under 3 percent while straight equity investments under 1.5 percent of the total Corporation’s net worth plus general reserves.  Q3. In what way has the Asian Development Bank assisted India? Give current information also. Ans. India joined ADB at its founding in 1966 and since lending operations began in 1986, the world’s largest democracy of 1.2 billion people has undergone dramatic changes. Growth rates have climbed steadily from under 3% in the 1970’s to over 8% in fiscal year 2010, as the government carried out major economic reforms. But while the past four decades have seen a significant reduction in absolute poverty and the emergence of a burgeoning middle class, vast numbers of people still remain poor, and the country needs to address the challenge of ensuring that growth is inclusive. The goal of ADB’s current partnership with India is to help ensure the benefits of a fast expanding economy are shared by all, and that the growth is made environmentally sustainable, amidst increasing pressure on natural resources. Past support: ADB’s early assistance was focused on support for national programs in sectors including transport, energy and urban infrastructure development. While it remains committed to providing support in these sectors, ADB has also been widening the scope of its assistance into areas such as agribusiness infrastructure, water resource management, climate change resilience, and tourism development. It has also begun to shift its operations to assist individual states, particularly states which are economically lagging behind. Expanding the use of renewable energy, including solar power and providing assistance to deepen public-private partnerships for infrastructure development, are also important parts of the ongoing India-ADB partnership. ADB has also helped India foster closer economic ties with its South Asian neighbors, including by assisting with a cross-border energy project exchanging power with Bangladesh. Between 1986 and 2010, ADB has supported over 150 projects across eight sectors and across over 20 states of the country. In 2010, new highs were set for loan approvals and the performance of projects and programs in ADB’s broad portfolio of activities. Contract awards and disbursements also reached record levels. At the end of 2010 cumulative lending assistance had reached over $24 billion. Development gains in India have been achieved in many areas, with primary school enrollment rates likely to meet, or even exceed, this key 2015 Millennium Development Goal (MDG). However the country needs to keep pushing hard in progress other key MDG indicators and continue to address structural changes to ensure growth is inclusive and sustainable. Future progress: Looking forward, ADB’s focus will be on helping India meet the goals of its current five year economic development plan, which includes improving the delivery of essential services to the poor, building up the rural economy, balancing growth with protection of the environment, and reducing development gaps between states, regions, sectors, and genders. Earlier in 2011, a new three-year country business plan was signed that will see ADB provides India with lending assistance of $6.25 billion for 2012-2014. This assistance will be targeted across a broad range of areas, including the continued rollout of infrastructure in states and rural areas where the need is greatest. Creating an environment for small businesses and the private sector to flourish, along with tackling daunting climate change and other environmental challenges are also high on the agenda. Given India’s huge funding needs and ADB’s limited resources, ADB will need to increasingly explore ways to attract private sector finance, and to this end it will continue to support the government’s public-private partnership program for infrastructure development.

SMU BBA6 BB0029 ECONOMIC REFORMS PROCESS IN INDIA

ASSIGNMENT PROGRAM	BBA
SEMESTER	6
SUBJECT CODE & NAME	BB0029 ECONOMIC REFORMS PROCESS IN INDIA

Q1. Explain privatization through disinvestment in India.

Ans. Disinvestment: Disinvestment is a process where Government sells its equity holding to private sectors. In other ways it is a privatization process where private parties are given shareholding in Government undertakings either wholly or partially. The Rangarajan committee recommended the program of disinvestments in 1991-92. The disinvestments commission was established under the chairmanship of Shri. G. V. Ramkrishnan. He was given the task of long term planning of disinvestment To speed up the disinvestment process, the Government of India has set up a separate Department of disinvestment The amount realized from disinvestments will be used for meeting expenditure in social sector, restructuring the PSE's and for retiring public debt. An attempt has been made in this paper to study the progress and process of disinvestment of PSE's in India.

According to Anjila Saxena (2001) bureaucratic, trade union and valuation of PSU's disinvestment. Fair valuation and transparency is disinvestments process are equally important to make this exercise free from criticism and better public acceptance, B.K.S. Prakasa Rao and S.V. Ramana Rao (2001) found that disinvestment process through liberalization and privatization leads to cost reduction, quality of service and operational efficiency.

Improvement of management and operating performance is a precondition for successful privation. They further observed that a strong private sector and strong growth potential are essential for attaining higher degree of national output.

DISINVESTMENT IN INDIA’S PUBLIC SECTOR: - Disinvestment of a percentage of shares owned by the Government in public undertakings emerged as a policy option in the wake of economic liberalization and structural reforms launched in 1991. Initially, it was not conceived as privatization of existing undertakings but as limited sales of equity with the objective of raising some resources to reduce budgetary gaps and providing market discipline to the performance of public enterprises in general.

    A comprehensive policy on public sector was set out in the Industrial Policy Statement of July 24, 1991 - the year when the country had to tide over an unprecedented economic crisis reflected in its internal and external finances. The steps adumbrated included a review of public sector investments to focus on strategic and essential infrastructure enterprises and new procedures to tackle chronically sick and loss-making units.

    The ambit of disinvestment was gradually widened in the latter half of 1990s by the subsequent coalition governments to make a clear distinction between strategic and non-strategic enterprises so as to bring down Government share holding to 26 per cent in non-core undertakings through gradual disinvestment or strategic sale while retaining majority holding (51 per cent) in strategic undertakings.

    A Disinvestment Commission was set up in 1996 to carefully examine withdrawal of public sector from non-core, non-strategic areas with assurance to workers of job security or of opportunities for retraining and re-employment. The Commission, in its three-year term, gave its recommendations on 58 enterprises referred to it and proposed, instead of public offerings as in the past, strategic trade sales involving change in ownership/ management for 29 and 8 undertakings respectively. In other cases, there was to be offer of shares or closure and deferment of disinvestment.

    By strategic sale, privatization was envisaged though confined to non-strategic areas. The classification was redefined by Government in 1999 to include only defense-related, atomic energy undertakings and railway transport among strategic enterprises and treat all other undertakings as non-strategic. This major decision of the Government also stipulated that reduction of its stake going down to less than 51 per cent or to 26 per cent would not be automatic but would be governed by consideration as to whether continued presence of the public sector in an enterprise was required to prevent concentration of power in private hands. A Department of Disinvestment was established early in 2000 to give an impetus to the program of disinvestment and privatization.

    In a policy statement while presenting the Union Budget for 2000-01 last year, the Finance Minister, Shri Yashwant Sinha, said the main elements were restructuring and reviving potentially viable PSUs; Closing down PSUs which cannot be revived ; bringing down Government equity in all non-strategic PSUs to 26 per cent or lower, if necessary; and fully protecting the interests of workers. Over the last three years, the Finance Minister had listed in his budget speeches some major public undertakings for sizeable disinvestment or restructuring in the oil, telecom and aviation sectors. These are yet to take off. The utilization of receipts from disinvestment/privatization was to be for meeting expenditure in social sectors, restructuring of PSUs or retiring public debt.

Disinvestment process:

• Objectivity & transparency were the key requirements in the whole disinvestment process. As it was the first case of disinvestment for the Indian Government, the disinvestment process evolved as the transaction progressed.
• After the issue of the advertisement for inviting bids from the potential partners, it took around 10 months to complete the disinvestment process.
• The advisors carried out a review of the company and gave advice on the extent, mode and methodology for the disinvestment. The issues requiring action by the management/ approval of the GOI were identified and steps taken to ensure that the process moved smoothly and shareholder value was maximized.
• The Cabinet gave its approval and the necessary agreement was entered into with the strategic partner in December 1999. After the full payment against the shares and execution of share transfer agreement, the management of the company was handed over to the strategic partner in July 2000.

Q2. Briefly discuss the reforms in the banking sector during 1992-2001. Ans. Economic Reforms of the Banking Sector In India: Indian banking sector has undergone major changes and reforms during economic reforms. Though it was a part of overall economic reforms, it has changed the very functioning of Indian banks. These reforms have not only influenced the productivity and efficiency of many of the Indian Banks, but have left everlasting footprints on the working of the banking sector in India. These are some of the import reforms regarding the banking sector in India. 1.      Reduced CRR and SLR: The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are gradually reduced during the economic reforms period in India. By Law in India the CRR remains between 3-15% of the Net Demand and Time Liabilities. It is reduced from the earlier high level of 15% plus incremental CRR of 10% to current 4% level. Similarly, the SLR Is also reduced from early 38.5% to current minimum of 25% level. This has left more loan able funds with commercial banks, solving the liquidity problem. 2.      Deregulation of Interest Rate: During the economic reforms period, interest rates of commercial banks were deregulated. Banks now enjoy freedom of fixing the lower and upper limit of interest on deposits. Interest rate slabs are reduced from Rs.20 Lac to just Rs. 2 Lac. Interest rates on the bank loans above Rs.2 Lac are full decontrolled. These measures have resulted in more freedom to commercial banks in interest rate regime. 3.      Fixing prudential Norms: In order to induce professionalism in its operations, the RBI fixed prudential norms for commercial banks. It includes recognition of income sources. Classification of assets, provisions for bad debts, maintaining international standards in accounting practices, etc. It helped banks in reducing and restructuring Non-performing assets (NPAs). 4.      Introduction of CRAR: Capital to Risk Weighted Asset Ratio (CRAR) was introduced in 1992. It resulted in an improvement in the capital position of commercial banks, all most all the banks in India has reached the Capital Adequacy Ratio (CAR) above the statutory level of 9%. 5.      Operational Autonomy: During the reforms period commercial banks enjoyed the operational freedom. If a bank satisfies the CAR then it gets freedom in opening new branches, upgrading the extension counters, closing down existing branches and they get liberal lending norms. 6.      Banking Diversification: The Indian banking sector was well diversified, during the economic reforms period. Many of the banks have stared new services and new products. Some of them have established subsidiaries in merchant banking, mutual funds, insurance, venture capital, etc which has led to diversified sources of income of them. 7.      New Generation Banks: During the reforms period many new generation banks have successfully emerged on the financial horizon. Banks such as ICICI Bank, HDFC Bank, UTI Bank have given a big challenge to the public sector banks leading to a greater degree of competition. 8.      Improved Profitability and Efficiency: During the reform period, the productivity and efficiency of many commercial banks has improved. It has happened due to the reduced Non-performing loans, increased use of technology, more computerization and some other relevant measures adopted by the government. With these reforms, Indian banks especially the public sector banks have proved that they are no longer inefficient compared with their foreign counterparts as far as productivity is concerned. Q3. Discuss the impact of convertibility both in current account and capital account. Ans. "Current Account” and “Capital Account” Convertibility: Current account includes all transactions, which give rise to or use of our National income, while Capital Account consist of short term and long term capital transactions. As per FEMA "capital account transaction" means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of person’s resident outside India. Those which are not Capital Account transactions are current Account transactions. Current Account Transactions covers the following: 1.      All imports and exports of merchandise 2.      Invisible Exports and Imports (sale/purchase of services 3.      Inward private remittances to & fro 4.      Pension payments (to & fro) 5.      Government Grants (both ways) Capital Account transactions consist of the following: 1.      Direct Foreign Investments (both inward & outward) 2.      Investment in securities (both ways) 3.      Other Investments (both ways) 4.      Government Loans (both ways 5.      Short-term investments on both directions. The substance of convertibility is to dispense with the discretionary management of foreign exchange and exchange rates and to adopt a more liberal and market driven exchange allocation process. All transactions are still conducted within the framework of exchange controls, as prescribed by the RBI. Full convertibility on current account is manifested as below: On trade account and on account of the receipt side of the invisibles, the rupee is fully convertible at market determined exchange rates. The payment side of the invisible and receipts and payments of capital account are subject to exchange control However, exchange rates for all these permissible transactions are undertaken at the free market exchange rates Capital Account is deemed convertible when residents and non-residents are allowed to effect such transactions without any restrictions i.e. without prior permission of the RBI. In such a context without any restrictions Indians should be able to secured foreign direct investment from abroad. Foreigners at their discretion should be able to make portfolio investments in this country. Presently these transactions are subject to prior permission of R.B.I. However R.B.I. is following a constructive and promotional approach and encouraging foreign investments in India. Indian Industrialist having good projects for direct foreign investment or foreign institutional investors desiring to make portfolio investments in this country are encouraged and they do not face problems on account of exchange control by R.B.I. Exchange control is limited to exchange monitoring. In a strict sense a currency can be considered convertible, only if both residents and non-residents have full freedom to use and exchange it for any purpose whatsoever, at some definite rate of exchange. However in practice large numbers of currencies are considered convertible with various degrees of restrictions and controls. The International Monetary Fund provides a working definition of convertibility under Article VIII, which states as under: “No member shall, without the approval of the fund, impose restrictions on making of payment and transfers for current transactions.” The IMF concept considers convertibility only for current account transactions, thus leaving at the discretion of the country to regulate flows on capital account. Generally countries with currency convertibility have practiced various degrees of controls to suit their national interests from time to time. Thus currency convertibility implies absence of restrictions on foreign exchange transactions and not necessarily on trade or capital flow. This point has been clarified properly by IMF, which states as under:- “Thus, although measure formulated as quantitative limitation on imports will have the indirect effect, it is not for that reason a restriction on payments within the meaning of the provision…Restrictions on trade do not become restrictions on payment within the meaning of Article VIII, because they are imposed for balance of payments reasons”. Under the present floating system, exporters can realize their entire export earnings at the free market rate. All imports, including the Government imports consisting of petroleum, food, fertilizers and defense have to be paid at free market rates. The substance of convertibility efforts is to dispense with the discretionary management of foreign exchange and exchange rates and to adopt a more liberal and market driven exchange allocation process. It needs to be noted that here that the full convertibility does not mean the unrestricted use of the rupee for all types of India’s external transactions. All transactions are still conducted within the framework of exchange controls, as prescribed by the R.B.I.  Q4. Write notes on VAT, MODVAT and Service Tax. Ans. VAT: VAT is a multi-stage tax levied at each stage of the value addition chain, with a provision to allow input tax credit (ITC) on tax paid at an earlier stage, which can be appropriated against the VAT liability on subsequent sale. VAT is intended to tax every stage of sale where some value is added to raw materials, but taxpayers will receive credit for tax already paid on procurement stages. Thus, VAT will be without the problem of double taxation as prevalent in the earlier Sales tax laws. One of the many reasons underlying the shift to VAT is to do away with the distortions in our earlier tax structure that carve up the country into a large number of small markets rather than one big common market. In the earlier sales tax structure tax is not levied on all the stages of value addition or sales and distribution channel which means the margins of distributors/ dealers/ retailers at large not subject to sales tax earlier.  MODVAT: MODVAT abbreviates Modified Value Added Tax. The scheme is intended to avoid cascading effects of duty. Before the introduction of this scheme, barring some duty relief schemes provided to some specified goods, the inputs first suffered duty and the duty so paid became a part of the cost of the final product and the final product again suffered some duty. However, under MODVAT scheme duty becomes payable at the value added at each stage of production as against on the gross value including duty paid in earlier stages of production. The scheme envisages taking of credit of duty paid on inputs as well as on capital goods. SERVICE TAX: Service Tax is a central tax which has been imposed on the consumers of selective services and is latest addition to the genus of indirect taxes like Customs and Central Excise duty. According to the mechanism adopted for collection, it is to be collected by the C. Excise Department. The Service Tax in India was introduced in 1994 by way of Chapter V to the Finance Act, 1994 and to begin with the services rendered by Stock-brokers, General Insurance Companies and Telephone connection providers were brought within the ambit of these provisions. Other services were added to the fold during subsequent years and as a results of those additions services of Stock Brokers, Insurance, Telephone, Pager services, Advertising services, Courier services, Man power Recruitment Agents, Consulting Engineers, Custom House Agents, Steamer Agents, Mandap Keepers, Air Travel Agents, Clearing and Forwarding Agents, Rent a Cab Scheme Operators, Architects / Interior Decorators, Practicing Chartered Accountants, Practicing Cost Accountants and Practicing Company Secretaries, Management Consultant, Real Estate Agents, Security and Detective Agencies, Credit Rating Agencies, Market Research Agencies, Under Writers, Tour Operators, Commercial Training and Coaching Centre, Maintenance & Repair Service, Banking & Financial Services, Sound Recording Services, Cargo Handling Service, Business Auxiliary Service, Franchise Service, Commissioning & Installation Service. Q5.  Do you think poverty can be reduced through policies of inclusive growth? Justify. Ans. Poverty is the state of human beings who are poor. That is, they have little or no material means of surviving—little or no food, shelter, clothes, healthcare, education, and other physical means of living and improving one's life. Some definitions of poverty, are relative, rather than absolute, poverty reduction would not be considered to apply to measures which resulted in absolute decreases in living standards, but technically lifted people out of poverty. Poverty reduction measures, like those promoted by Henry George in his economics classic Progress and Poverty are those that raise, or are intended to raise, enabling the poor to create wealth for themselves as a means for ending poverty forever. In modern times, various economists within the georgism movement propose measures like the land value tax to enhance access by all to the natural world. Some people undertake voluntary poverty due to religious or philosophical beliefs. For example, Christian monks and nuns take a "vow of poverty" by which they renounce luxury. Poverty reduction measures have no role in regard to voluntary poverty. Poverty reduction measures and other attempts to change the economies of modern hunter-gatherers are not addressed in this article. Hunter-gatherers, also called "foragers" live off wild plants and animals, for example, the Hadza people of Tanzania and the Bushmen of southern Africa. Theirs is a special case in which their poverty relative to the developed countries is intertwined with their traditional way of life. Governmental attempts to modernize the economies of the Hadza people, the Bushmen, and other hunter-gatherers have resulted in political, legal, and cultural controversies. They have often met with failure. Poverty occurs in both developing countries and developed countries. While poverty is much more widespread in developing countries, both types of countries undertake poverty reduction measures. Poverty has historically been accepted in some parts of the world as inevitable as non-industrialized economies produced very little while populations grew almost as fast making wealth scarce. Geoffrey Parker wrote that "In Antwerp and Lyon, two of the largest cities in western Europe, by 1600 three-quarters of the total population were too poor to pay taxes, and therefore likely to need relief in times of crisis." Poverty reduction, or poverty alleviation, has been largely as a result of overall economic growth.  Food shortages were common before modern agricultural technology and in places that lack them today, such as nitrogen fertilizers, pesticides and irrigation methods.  The dawn of industrial revolution led to high economic growth, eliminating mass poverty in what is now considered the developed world. World GDP per person quintupled during the 20th century. In 1820, 75% of humanity lived on less than a dollar a day, while in 2001, only about 20% do. Today, continued economic development is constrained by the lack of economic freedoms. Economic liberalization requires extending property rights to the poor, especially to land Financial services, notably savings, can be made accessible to the poor through technology, such as mobile banking. Inefficient institutions, corruption and political instability can also discourage investment. Aid and government support in health, education and infrastructure helps growth by increasing human and physical capital. Poverty alleviation also involves improving the living conditions of people who are already poor. Aid, particularly in medical and scientific areas, is essential in providing better lives, such as the Green Revolution and the eradication of smallpox. Problems with today's development aid include the high proportion of tied aid, which mandates receiving nations to buy products, often more expensive, originating only from donor countries. Nevertheless, some believe (Peter Singer in his book The Life You Can Save) that small changes in the way each of us in affluent nations lives our lives could solve world poverty. Q6. Has the FDI flows in the current times helped India? Elaborate. Ans. Foreign Direct Investment Flows to India: FDI inflows to India remained sluggish, when global FDI flows to EMEs had recovered in 2010-11, despite sound domestic economic performance ahead of global recovery. The paper gathers evidence through a panel exercise that actual FDI to India during the year 2010-11 fell short of its potential level (reflecting underlying macroeconomic parameters) partly on account of amplification of policy uncertainty as measured through Kauffmann’s Index. FDI inflows to India witnessed significant moderation in 2010-11 while other EMEs in Asia and Latin America received large inflows. This had raised concerns in the wake of widening current account deficit in India beyond the perceived sustainable level of 3.0 per cent of GDP during April-December 2010. This also assumes significance as FDI is generally known to be the most stable component of capital flows needed to finance the current account deficit. Moreover, it adds to investible resources, provides access to advanced technologies, assists in gaining production know-how and promotes exports. A perusal of India’s FDI policy vis-à-vis other major emerging market economies (EMEs) reveals that though India’s approach towards foreign investment has been relatively conservative to begin with, it progressively started catching up with the more liberalized policy stance of other EMEs from the early 1990s onwards, inter alia in terms of wider access to different sectors of the economy, ease of starting business, repatriation of dividend and profits and relaxations regarding norms for owning equity. This progressive liberalization, coupled with considerable improvement in terms of macroeconomic fundamentals, reflected in growing size of FDI flows to the country that increased nearly 5 fold during first decade of the present millennium. Though the liberal policy stance and strong economic fundamentals appear to have driven the steep rise in FDI flows in India over past one decade and sustained their momentum even during the period of global economic crisis (2008-09 and 2009-10), the subsequent moderation in investment flows despite faster recovery from the crisis period appears somewhat inexplicable. Survey of empirical literature and analysis presented in the paper seems to suggest that these divergent trends in FDI flows could be the result of certain institutional factors that dampened the investors’ sentiments despite continued strength of economic fundamentals. Findings of the panel exercise, examining FDI trends in 10 select EMEs over the last 7 year period, suggest that apart from macro fundamentals, institutional factors such as time taken to meet various procedural requirements make significant impact on FDI inflows. This paper has been organized as follows: Section 1 presents trends in global investment flows with particular focus on EMEs and India. Section 2 traces the evolution of India’s FDI policy framework, followed by cross-country experience reflecting on India’s FDI policy vis-à-vis that of select EMEs. Section 3 deals with plausible explanations of relative slowdown in FDI flow to India in 2010-11 and arrive at econometric evidence using panel estimation. The last section presents the conclusions.