4 Business and Government

Mandeep kaur

1. Learning Outcome:

 

After completing this module the students will be able to: Understand the concepts of Business and Government. Understand the Prospects of Business Activity.

Describe the Present Scenario of the Business in India.

 

Understand the Concept of Synergy between Government and Business. Understand the Process of Disinvestment.

  

2.   Introduction

 

We are in 21st century; the outlook for business appears to be a blend of high prospects for growth on the one hand and serious concerns about the impact of business on society and the environment on the other. The apparent and real contradictions can probably be best reconciled by taking into account the expectations of the various stakeholders and harmonizing them.

 

Prospects of Business

 

The following are illustrative of the growth prospects for business.

   High GNP growth rates in the emerging, locomotive economies of the 21st century-China at 10 per cent plus, India at 7 per cent plus. This can be achieved because of the positive impact of the peace dividend on the economies of the USA, Russia, South Africa, the Middle Ease and elsewhere. Moreover, there is also a scope for high investment opportunities in infrastructure, power, telecom, roads, ports, railways etc. This will require faster innovation and better products and services die to increasing global competition. There is tremendous scope for raising global trade, export sourcing and investment freedom.

 

3.  Present Indian Scenario

 

People are among the most important resources of a country and for that matter of any organization and as such their efficiency or productivity is of prime significance as definitely affects their competitiveness. It is true that only because of this factor; India is able to achieve its share of international market, though mainly in leather, garments, diamond and software. It is human nature that whatever is available cheap is undervalued. So too, with labour, which suffers from low productivity. Also because labour is inexpensive, businessman have little incentive to push for higher productivity through greater investment in technology and human resources.

 

Today, for any economy to grow, benchmark is not the West but the high growing Asian Tigers of Singapore, Malaysia and Indonesia. So this gap between productivity is a worrying factor for us. Let us see the positive side of productivity. Higher productivity means increased output which means more margins. Margins can be utilized mainly in expanding the facilities which means more employment generation opportunities. Not to forget, higher margins can be invested back to upgrade the skills and knowledge of existing workers so as to take benefit of new production processes which also results in higher margins. On the other hand, government is treating education as a non-merit components to the subsidies which means less money will be invested in education. This factor is going to make availability of skilled workforce difficult. So, the one hand there is scarcity of skilled labour and on the other hand, unemployment figures are rising day by day.

 

4. Synergy between Government and Business

 

India has adopted the planned structure of economic growth. Five year plans were drawn up with resources allocated to different sectors by the central planning authorities. It was a licensed, closed economy, with the public sector holding the commanding heights. The private sector was in a nascent stage. It could enter into areas which were not reserved for the public sector and a licence was required for any project. Hence, for the first three decades of economic development in India we did not see much synergy between government and private sector. Economic liberalization began to an extent in 1980; it accelerated in 1985 and achieved the take off stage in 1991. It is from 1981 onwards that we gradually began to see synergy being practiced in economic growth in India, the economic agenda being written in consultation with the private sector. The public sector retreated to make way in areas where the private sector had a competitive edge. A supreme synergistic approach is increased focus on globalization of the Indian economy. all the fields of economic and commercial activities. being followed since 1991 with the This synergy is now visible in virtually

  Accelerative socio-economic development is indeed the common goal for both the government and the business. Agenda for synergy relationship is, therefore, one of finding innovative ways of working together towards the common goal. The immediate task ahead is to work towards the opportunities on hand. The economic liberalization process has indeed helped raise growth rates in industry and the economy. Urgent measures need to be initiated to sustain the tempo.

 

The relationship between Government and Business can be understood from the following points:

 

Ø  Agriculture: Keeping in view the dominance of agriculture in the Indian economy and its tremendous employment potential, it should be given the status of industry, while retaining the benefits available to it at present. The reforms should also focus on making far reaching changes in the nature of land holding in rural areas to ensure that benefits of the liberalization process percolate down to the vast majority of people living in villages.

 

The system of price incentives should mirror market conditions. The resources presently devoted to farm subsidies could be better spent on rural infrastructure development, particularly transport, storage and rural credit system. There is an urgent need to motivate the rural masses to undertake novel schemes for rural development as the reform process would have no relevance till the rural masses are made a part and parcel of it. Policy implications should be given to forge linkages of agriculture with allied activities like horticulture, floriculture, sericulture and food processing.

 

Ø  Infrastructure: For attracting investment into the infrastructure sector, it is necessary to work for increasing the level of investors’ confidence through transparent policies, procedures and legal framework. Disinvestment offers another opportunity. Here again, the government will have to make up its mind early and clearly. One of the reasons for the delay in the flow of private sector investment is the non-availability of projects cleared in all respects, for which competitive bids can be made.

 

After the National Highways, there is a plan under the consideration of Central Road Transport Highways to create Super National Highways. Through these Super National Highways of about 14000 km length, there is a plan to link big sea ports of the country with important cities. In the building of these Highways, the role of Private sector will be important. This will be done on the basis of BOT (Build Operate Transfer) by private sector. The Government of India has received 22 feasibility reports for the building of Super National Highways estimated to cost about Rs 150000 crores. Out of these, 10 proposals have come from multinational companies.

 

Ø  Water Transport: Under water transport, Coastal transport and Overseas Transport have their own importance. In the coastal areas of the sea, navigation is comparatively cheaper. On the 7516 km long sea-coast of India, there are 11 major and 148 minor operable ports providing congenial and favourable conditions for the development of domestic transport infrastructure. The development and the management of major ports rests with respective Port Trusts under the central government, the state governments administer the minor ports. Among the major ports, Kandala, Mumbai, Majhgaon, New Mangalore, Cochin and JNPT (Jawahar Lal Nehru Port, Mumbai) are situated on the Western Coast and Tuticorin, Chennai, Vishakhapattanam. Paradeep, Kolkata and Haldia ports are situated on the Eastern coast.

 

Jawahar Lal Nehru port is the latest big port equipped with most modern facilities. The ports of Mumbai and Cochin are natural sea-ports whereas the Kandala Sea-port is used in tides. Vishakhapattanam is the deepest port of India among the Sea-ports of the eastern coast.  Chennai is the oldest Seaport.  Kolkata port is situated on the river bank.

 

The 12th major port is under construction at Europe near Chennai which will become operative very shortly. This port is being constructed with the Financial aid of Asian Development Bank.

 

Ø  Shipping Companies: In India there are 12 major and 187 non-major ports. A huge size of Cargo traffic, recorded as 1,052 million metric tonnes (MMT) in 2015, is expected to reach 1,758 MMT in the year 2017. The ports in India and shipping industry play an important role in increasing the growth and development in the country’s trade and commerce and industry. India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km. The Indian Government has a significant contribution in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 per cent under the automatic route for port and for the construction and maintenance of harbour projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

 

Ø  National Waterways: The inland waterways authority of India was set up on 27, Oct 1986. This statutory body is entrusted with the responsibility of development, maintenance and regulation of national waterways. The government has identified ten important waterways for consideration to declare them as National waterways. The following have so far been declared as National Waterways Authority of India. The Ganga between Allahabad and Haldia (1620 Km) on October 27, 1986, the Sadia-Dhubri-stretch of river Brahamputra (891 Km) on October 26, 1988 and Kollam-Kottapuram stretch of west coast canal (168 Km) alongwith Champakare Canal (14 Km) and Udyogmandal canal (22 Km) in Kerala with effect from February 1, 1993. It is also proposed to consider the declaration of some more waterways like the river Godawari, Sunderbans and waterways in Goa. These national waterways are prepared by the Government of India in order to promote trade and business activities across the world.

    Ø  Air Transport: For Civil Aviation, Air India, Indian Air Lines, Vayudoot, Pawan Hans and Private Air services are available. Air India and Indian Air Lines were established under the Air Corporation Act, 1953. The Air India was established with the purpose of international air flights and Indian Air Lines for flights within the country. Air India has extended its Air services in five Continents. Air India LTd. reported a loss of Rs 174 crore for 1998-99 compared to a losse of Rs 181 Crore in 1997-98. This was despite a 7-8 per cent increase in its operating revenue. Its main office is situated in Mumbai. For international flights, the aerodromes of Delhi, Mumbai, Calcutta, Chennai and Thiruvananthpuram have been declared as international aerodromes. The responsibility of management and development of these aerodromes was entrusted to International Airports Authority of India.

 

Ø  Telecom Sector: A revenue sharing regime in place of existing fixed license fee introduced for both basic and cellular service operators. Moreover, a fourth cellular operator in all the circles would be permitted. Additional basic service operator would also be allowed to give the services. Licenses are to be issued to ISPs for setting up of Submarine cable landing station for international gateways for internet. ISPs would be given approval for setting up of international gateways internet using satellite as a medium. National long distance service has been opened up for unrestricted entry. Two categories of infrastructure providers, viz. infrastructure providers’ category-II to provide end-to-end bandwidth and infrastructure provider, category-I to provide dark fibre, right of way, towers, duct, space etc. have been allowed. Termination of monopoly of VSNL for International Long Distance (ILD) services has been proponed to March 31, 2002 from March 31, 2004. There is a limited mobility to fixed service providers in the form of Wireless in Local Loop (WILL).

 

5. Disinvestment

 

The process of disinvestment is conditioned by numerous goals similar in the case with privatization and hence, a trade-off becomes inevitable. There is still one important difference: the government renounces its control over the PSE’s through privatization, while it may retain its control even after disinvestment.

 

The government has to take decisions at least on three important issues while adopting the disinvestment process. These are:

 

Ø  How much of the equity holdings and of which PSEs are to be divested?

Ø   To whom the equities are to be sold?

Ø   What modes are to be adopted for disinvestment?

 

Transparency in disinvestment is important as it reduces the scope for collusion and misuse of inside information which would, otherwise, enable certain privileged sectors of the society to appropriate the gains from the sale of equities held by the State. Transparency also helps the society at large (on whose behalf the state is holding and selling the equities) to evaluate as to whether the prices at which the equities are sold really reflect the true worth of the shares.

Transparency

 

Trust and transparency from the basis of all constructive dialogues, for a country to achieve accelerative growth, the people must trust the government, the government must trust the business, the consumers must trust producers. But synergy relationships between the government and the business can flourish better on the foundation of trust built with transparency.

 

Informatics

 

The information collection system of the government should be standardized and streamlined. Information exchange cannot be managed cost effectively without adequate communication infrastructure. Both public and private sector units should work together in extending internet throughout the country. Cost of leased circuits for data transactions must be brought down to affordable levels.

 

Human Resources and Core Competence

 

Government and business will need to work shoulder to shoulder in removing gaps in the area of human resources development. A more immediate requirement would also be to create a healthy market for job training. Independent and autonomous organizations should be created to give recognition and ensure the quality of training provided by various institutions. Government support, wherever necessary and available, should quickly be forthcoming for new institutions to create the necessary training facilities in emerging areas. The process of interaction between business and educational institutions should be qualitatively enhanced.

 

In a knowledge-based developmental process, human resources become fundamental to productivity-the only sure step to growth. It is people who operate the machines and take decisions on allocating and utilizing all production resources within a company or country. The operational efficiency of all factors of production is essentially lined to the quality of manpower.

 

Opportunities missed will severely limit growth. Decision making processes must be quick enough to intercept opportunities. Needless to say that logistics must not only be there but also be amenable for fast repositioning. Time costs money and money has added cost over time.

 

Organizational Regeneration

 

Every phase of civilization and development creates different kinds of organizations. The economic liberalization process certainly requires new kinds of organizations and organizational culture both in government and business sectors. There must be freedom for creating and disbanding organizations. It should be left to the organizations to decide what the future demands.

 

Social Responsibility and Consumer Interfacing

 

Environmental protection is a major social responsibility for the Government and business. Both will have to work very closely to establish links between environmental health and economic wealth. The biggest burden comes from the accumulated degradation of the environment on account of past investments which were made when the regulations were not even there. It would be better for the Government and business to share the cost of rectification.

 

Business will also need to take advance action to bring in the necessary environmental technologies in time. The goal should be to move to ISO 14000 as early as possible. Small and medium enterprises should use collective efficiency mechanisms to find cost effective solutions to the services environment related problems that they face. Government should also extend a helping hand in this process.

 

Labour Management Relations

 

In spite of labour costs in India being a fraction of the world norm and India having the second largest pool of technically trained manpower, India’s claim to manpower strength is beginning to sound hollow when viewed in the light of critical factors like productivity, quality and competence. The largest World Competitiveness Report ranks India 39 among 48 countries in overall competitiveness. Value added per worker in India’s manufacturing sector is a tenth of that in Japan and a fourth of that in Singapore. Abysmally low productivity levels, poor quality of goods as compared to international standards, high cost of production, comparatively high loss of man days on account of strikes and lockouts and rampant indiscipline, may prove to be the factors that will choke the economic growth of India. The role of trade unions needs to be reoriented from confrontation to cooperation and participation, with the triangle of government business labour working in a true spirit of partnership. Multiplicity of unions is another ppoint of contention which needs to be redressed.

  1. Summary 

    The Indian corporate sector is in a state of turmoil. Quantum change and a paradigm shift in a turbulent world have revolutionized the way business is to be carried out. This decade has seen the globalization of business with intense competition amongst the local as well as the international players. We have moved away from the sellers’ market to the customer-driven market. The boundaries have practically disappeared. Even in India, the government has led to unshackle the business from regulations and controls. All this has brought in the need for a total change in mindsets. While the whole gamut of corporate management needs a review, a hard look is needed at the utilization and effectiveness of its most critical resource-the human resource.

 

Few important sources to learn more about the business and Government are:

  1. Shaikh Saleem (2009). Business Environment. New Delhi-110017: Pearson Education.
  2. Bagchi Amaresh (2011). Readings in Public Finance. New Delhi-110020. Oxford University Press.
  3. Jha Praveen (2011). Progressive Fiscal Policy in India. New Delhi-110044. SAGE Publications India India Pvt. Ltd.
  4. Kapila Uma (2007). India’s Economic Development Since 1947. New Delhi-110002. Academic Foundations.
  5. Datt & Sundharam (2011). Indian Economy. New Delhi-110055. S. Chand & Company Ltd.
  6. Agrawal A.N. (2007). Indian Economy-Problems of Development and Planning. New Delhi-110002. New Age International (P) Limited.
  7. Paul Justin (2009). Business Environment-Text and Cases. New Delhi-110008. Tata McGraw Hill Education Private Limited.
  8. Agrawal Raj (2006). Business Environment. New Delhi-110028. Excel Books.

Points to Ponder

  1. People are among the most important resources of a country and for that matter of any organization and as such their efficiency or productivity is of prime significance as definitely affects their competitiveness.
  2. Five year plans were drawn up with resources allocated to different sectors by the central planning authorities.
  • Accelerative socio-economic development is indeed the common goal for both the government and the business. Agenda for synergy relationship is, therefore, one of finding innovative ways of working together towards the common goal.
  1. The process of disinvestment is conditioned by numerous goals similar in the case with privatization and hence, a trade-off becomes inevitable.