Q.1What are the two major sources of human capital in a country?
ANSWER:Two main sources of human capital are investment in education and health.
Q.2 What are the indicators of educational achievement in a country? ANSWER: Educational attainment is measured by primary education, youth literacy and adult literacy.
Q.3 Why do we observe regional differences in educational attainment in India? ANSWER:Regional differences in educational attainment in India is due to :
inequality of income
expenditure by the government in education facilities.
Q.4 Bring out the differences between human capital and human development. ANSWER:Difference between Human Capital and Human Development
Human Capital 1. Human capital considers education and health as a means to increase labour productivity. 2. Human capital is a narrow concept which treats human beings as a means to achieve an end which is higher productivity, failing which the investment is not considered to be productive.
Human Development 1. Human development is based on the idea that education and health are integral to human well-being since only when people have the ability to read and apply their knowledge to derive maximum benefit they will be able to lead a long and healthy life. 2. Human development is a broader concept which considers human beings as ends in themselves. Human welfare can be achieved through investments in education and health. It considers welfare — a right of every individual irrespective of their contribution to labour productivity. Every individual has right to be literate and lead a healthy life.
Q.5 How is human development a broader term as compared to human capital? ANSWER:
Human capital is a narrow concept which treats human beings as a means to achieve an end which is higher productivity, failing which the investment is not considered to be productive.
Human development is a broader concept which considers human beings as ends in themselves. Human welfare can be achieved through investments in education and health. It considers welfare—a right of every individual irrespective of their contribution to labour productivity. Every individual has right to be literate and lead a healthy life.
Q.6 What factors contribute to human capital formation? ANSWER: .Sources of Human Capital Formation :
Expenditure on Education
Training
Expenditure on Health
Migration
Expenditure on Information.
Q.7 Mention two government organisations each that regulate the health and education sectors. ANSWER:n India, the ministries of education at the Centre and State level, departments of education and various organisations such as National Council of Educational Research and Training (NCERT), University Grants Commission (UGC) and All India Council of Technical Education (AICTE) regulate the education sector. Similarly, the ministries of health at the Union and State level, departments of health and various organisations like Indian Council for Medical Research (ICMR) regulate the health sector.
Q.8 Education is considered an important input for the development of a nation. How? or Examine the role of education in the economic development of a nation. ANSWER: Expenditure on education is an important source of capital formation. Education is an important source of human capital formation, because:
It generates technical skills and creates a manpower which is suited for improving labour productivity. It, thus, results in sustained economic development.
It tends to bring down birth rate which, in turn, brings decline in population growth rate. It makes more resources available per person.
It results in social benefits since it spreads to others who may not be skilled. Thus, investment in education leads to higher returns in future.
Q.9 Discuss the following’as a sources of human capital formation (a) Health infrastructure (b) Expenditure on migration. ANSWER:
Health Infrastructure. Health is another important source of human capital formation. Preventive medicine (vaccination), curative medicine (medical intervention during illness), social medicine (spread of health literacy) and provision of clean drinking water and good sanitation are the various forms of health expenditure. Health expenditure directly increases the supply of healthy labour force and is, thus, a source of human capital formation.
Migration. People sometimes migrate from one place to the other in search of better job. It includes migration of people from rural areas to urban areas in India and migration of technical personnel from India to qther countries of the world. Migration in both these cases involves cost of transport, higher cost of living in the migrated places and psychic costs of living in a strange socio-cultural set-up. The enhanced earnings in the new place outweigh the costs of migration. Expenditure on migration is also a source of capital formation.
Q.10 Establish the need for acquiring information relating to health and education expenditure for the effective utilisation of human resources. ANSWER:People need to have information on the cost and benefit of investment in health and education. When people know the benefits of their investment in these two areas, they make more expenditure. The result is more human capital formation.
Q.11 How does investment in human capital contribute to growth? ANSWER: Role of Human Capital Formation in Economic Growth:
Raises Production .
Raises Efficiency and Productivity
Brings Positive Changes in Outlook and Attitudes
Improves Quality of Life
Raises Life Expectancy
Raises Social Justice.
Q.12 ‘There is a downward trend in inequality world-wide with a rise in the average education levels.Comment. ANSWER:This is true, because education makes everyone equal and they earn similar salaries. It reduces inequalities of income world wide.
Q.13 Explain how investment in education stimulates economic growth. (or) Explain the role of education in the development of a country. ANSWER: Education is an important source of human capital formation. Investment in education stimulates economic development in the following ways:
Raises production. Knowledgeable and skilled workers can make better use of resources at their disposal. It will increase production in the economy. An educated and trained person can apply his knowledge and skill at farm, factory and office to increase production.
Raises efficiency and productivity. Investment in education increases efficiency and productivity, and hence yields higher income to the people.
Brings positive changes in outlook and attitudes. Knowledgeable and skilled people have modem outlook and attitudes, that they make rational choice in respect of places and jobs.
Improves quality of life. Education improves quality of life as it provides better job, high income and improves health. It results in better standard of living.
Q.14 Bring out the need forjm-the-j ob-training for a person. ANSWER:Technical training adds to the capacity of the people to produce more. Firms given on-the-job- training to enhance the productive skills of the workers so as to enable them to absorb new technologies and modem ideas. It can be given in two forms:
The workers may be trained in the firm itself under the assistance of a senior and experienced worker.
The workers may be sent off the firm campus for the training.
Q.15 Trace the relationship between human capital and economic growth. ANSWER:Human capital formation raises the process of economic growth and economic growth raises the process of human capital formation. There is a cause and effect relationship between human capital and economic growth. It is shown in the figure.
Q.16 Discuss the need for promoting women’s education in India. ANSWER: Women Education Council has been set up to provide technical education to the women. It has set up many women polytechnics. It is essential to promote women’s education in India to:
improve women’s economic independence and their social status.
make a favourable impact on fertility rate and health care of women and children.
Q.17 Argue in favour of the need for different forms of government intervention in education and health sectors. ANSWER:Government intervention in education and health sectors is necessary because of the following reasons:
Education and health care services create both private as well as social benefits. Both private and public institutions are needed to provide these services and government must keep its control on them.
Expenditure on education and health institutes are important for the growth of a nation. The private providers of education and health services need to be regulated by the government.
Q.18 What are the main problems of human capital formation in India? ANSWER:Main problems of human capital formation in India are:
Rising Population. Rapidly rising population adversely affects the quality of human capital formation in developing countries. It reduces per capita availability of existing facilities. A large population requires huge investment in education and health. This diverts the scarce money to production of human capital at the cost of physical capital.
Long Term Process. The process of human development is a long term policy because skill formation takes time. The process which produces skilled manpower is thus slow.
High Regional and Gender Inequality. Regional and gender inequality lowers the human development levels.
Brain Drain. Migration of highly skilled labour termed as “Brain Drain” adversely affects the economic development.
Insufficient on-the-job-training in agriculture. Agriculture sector is neglected where the workers are not given on-the-job training to absorb emerging new technologies.
High Poverty Levels. A large proportion of the population lives below poverty line and do not have access to basic health and educational facilities. A large section of society cannot afford to get higher education or expensive medical treatment for major disease.
Q.19 In your view, is it essential for the government to regulate the fee structure in education and health care institutions? If so, why? ANSWER: Yes, government intervention is necessary in regulating the fee structure in education and health care institutions:
Q.1 Define poverty. ANSWER: Poverty in India has been defined as that situation in which an individual fails to earn income sufficient to buy him minimum means of subsistence.
Q.2 What is meant by ‘Food for Work’ programme? ANSWER: National Food for Work Programme (NFWP). This programme was initially launched w.e.f. February 2001 for five months and was further extended. This programme aims at augmenting food security through wage employment in the drought affected rural areas in eight States, i.e., Gujarat, Chhattisgarh, Himachal Pradesh, Madhya Pradesh, Maharashtra, Orissa, Rajasthan and Uttaranchal. The centre makes available appropriate quantity of foodgrains free of cost to each of the drought affected States as an additionality under the programme. Wages by the State government can be paid partly in kind and partly in cash. The workers are paid the balance of wages in cash, such that they are assured of the notified minimum wages.
Q.3 State an example each of self-employment in rural and urban areas, ANSWER:PMRY is a self-employment programme in rural areas. SJSRY is a self-employment programme in urban areas.
Q.4 How can creation of income earning assets address the problem of poverty? ANSWER: With the creation of income earning assets, people will have a way to earn their livelihood. It will help in removal of poverty
Q.5 Briefly explain the three-dimensional attack on poverty adopted by the government. ANSWER: A country is caught in a vicious trap once poverty is inbuilt in the system. The government has followed three-dimensional poverty removal programme. These dimensions are:
The rate of economic growth should be raised. Economic growth can be helpful in removing poverty by the trickle down effect. It was felt that raised economic growth would benefit the underdeveloped region and the more backward sections of the society.
Various beneficiary-oriented programmes need to be strengthened. For this, local institutions have to be involved in these programmes. The activities should be organised on a co-operative basis. Major training programmes should be taken up to improve the skills of potential workers.
To provide minimum basic amenities. The provision of basic anenities should be made like water supply, sanitation, nutrition, etc. to the people.
Q.6 What programmes has the government adopted to help the elderly people and poor and destitute women? ANSWER:
National Social Assistance Programme (NSAP). NSAP was introduced on 15 August, 1995 as a 100 per cent Centrally Sponsored Scheme for social assistance to poor households affected by old age, death of primary bread earner and maternity care. The programme has three components, i.e., N ational Old Age Pension Scheme (NOAPS), National Family Benefit Scheme (NFBS) and National Maternity Benefit Scheme (NMBS).
Annapurna. This scheme came into effect from April 1, 2000 as a 100 per cent Centrally Sponsored Scheme. It aims at providing food security to meet the requirement of those senior citizens who though eligible for pensions under the National Old Age Pension Scheme, are not getting the same. Foodgrains are provided to the beneficiaries at subsidised rates of Rs. 2 per kg of wheat and Rs. 3 per kg of rice. The scheme is operational in states and 5 union territories. More than 6.08 lakh families have been identified and the benefits of the scheme are passing on to them.
Q.7 Is there any relationship between unemployment and poverty? Explain. ANSWER: Unemployment means lack of living. It leads to hunger, gloom, pessimism, indebtedness, etc. They all are signs of poverty.
Q.8 What is the difference between relative and absolute poverty? ANSWER:
Q.9 Suppose you are from a poor family and you wish to get help from the government to set up a petty shop. Under which scheme will you apply for assistance and why? ANSWER: The assistance can be given by Aajeevika. In this scheme one can get financial help in the form of bank loans. Other Programmes which can provide help are:
REGP (Rural Employment Generation Programme)
PMRY (Pradhan Mantri Rctegar Yojana).
Q.10 Illustrate the difference between rural and urban poverty. Is it correct to say that poverty has shifted from rural to urban areas? Use the trends in poverty ratio to support your answer. ANSWER: In the rural areas, poor people are those who are landless agricultural labourers, small and mar¬ginal farmers. In the urban areas, poor people are those who are unemployed, underemployed or employed in low productivity occupations with very low wages Rural-Urban Break-up of Poverty Following pattern emerges:
The decline in poverty was comparatively much steep in rural areas where the percentage of people living below poverty line fell to 33.8 per cent (2009-10) from 41.8 per cent (2004-05).
In urban areas, percentage of people living below poverty line fell to 20.9 per cent (2009-10) from 25.7 per cent (2004-05).
The number of people living below poverty line was estimated at 354.7 million in 2009-10.
Q.11 Explain the concept of relative poverty with the help of the population below poverty line in some states of India. ANSWER: Relative Poverty refers to poverty in relative terms. It refers to poverty of people in comparison to other people, regions or nations. It indicates that a group or class of people belonging to the lower income groups is poorer when compared to those belonging to higher income groups. Among the major states, percentage of people living below poverty line was 37.9 per cent in Assam, 23.0 per cent in Gujarat, 20.1 per cent in Haryana, 23.6 per cent in Karnataka, 36.7 per cent in Madhya Pradesh, 24.8 per cent in Rajasthan and 26.7 per cent in West Bengal in 2009-10.
Q.12 Suppose you are a resident of a village, suggest a few measures to tackle the problem of poverty. ANSWER: Some measures that can be taken are:
Making people aware about benefits of sanitation.
Telling people about various programmes of the government.
Helping people to take loan and get self employed.
Keeping a control on growth rate of population.
Helping people to start small scale and cottage industries which would generate employment.
Q.1 Why were reforms introduced in India? ANSWER: In 1991, economic reforms were introduced in India because 1991 was the year of crisis for the Indian economy. It is clear from the following facts: (a) National income was growing at the rate of 0.8%. (b) Inflation reached the height of 16.8%. (c) Balance of payment crisis was to the extent of 10,000 crores. (a) India was highly indebted country. It was paying 30,000 crores interest charges per year. (e) Foreign exchanges reserves were only 1.8 billion dollars which were sufficient for three weeks. (f) India sold large amount of gold to Bank of England. (g) India applied for the loan from World Bank and IMF to the extent of 7 billion dollars. (h) Fiscal deficit was more than 7.5%. (i) Deficit financing was around 3%. (j) Trade relation with Soviet block had broken down. (k) Remmittances from non-residence Indians stopped due to war in Arab countries. (l) Price of petroleum products was very high.
Q.2 How many countries are members of the WTO? ANSWER: At present there are 149 countries which are members of WTO.
Q.3 What is the most important function of RBI? ANSWER: There was a substantial shift in role of the RBI from ‘a regulator’ to ‘a facilitator’ of the financial sector. Earlier as a regulator, the RBI would itself fix interest rate structure for the commercial banks. After liberalisation in 1991, RBI as a facilitator would only facilitate free play of the market forces and leave it to the commercial banks to decide their interest rate structure. Thus, with liberalisation competition prevails rather than controls.
Q.4How was RBI controlling the commercial banks? ANSWER: Prior to 1991, banking institutions were subject to too much control by the RBI through high bank rate, high cash reserve ratio and statutory liquidity ratio. Financial sector includes: (a) banking and non-banking financial’institutions, (b) stock exchange market, and (c) foreign exchange market. In India, financial sector is regulated and controlled by the RBI (Reserve Bank of India). There was a substantial shift in role of the RBI from ‘a regulator’ to ‘a facilitator’ of the financial sector. Earlier as a regulator, the RBI would itself fix interest rate structure for the commercial banks. After liberalisation in 1991, RBI as a facilitator would only facilitate free play of the market forces and leave it to the commercial banks to decide their interest rate structure.
Q.5 What do you understand by devaluation of rupee? ANSWER:Devaluation refers to lowering in the official value of a currrency with respect to gold or foreign currency. It results in costlier imports and cheaper exports.
Q.6 Distinguish between the following: (i) Strategic and Minority sale ANSWER:Government has been disinvesting by many methods. Two main methods are: (a) Minority sale. In this method, equity is offered to investors through domestic public issue. (b) Strategic sale. In this method, government offloads above 51 per cent in strategic sale. (ii) Bilateral and Multi-lateral trade Answer. Trade agreements involving more than two countries are referred to as multilateral trade agreements. Trade agreements involving two countries are referred to as bilateral trade agreements. (iii) Tariff and Non-tariff barriers Answer. Tariff Barriers. Tariff barriers are imposed on imports to make them relatively costly as a measure to protect domestic production. Non-Tariff Barriers. They are imposed on the amount of imports and exports.
Q.7Why are tariffs imposed? ANSWER: Tariffs are imposed on imports to make them relatively expensive. This will protect domestically produced goods.
Q.8 What is the meaning of quantitative restrictions? ANSWER: Quantitative restrictions refers to non-tariff barriers imposed on the amount of imports and exports.
Q.9 Those public sector undertakings which are making profits should be privatised. Do you agree with this view? Why? ANSWER: No, if profit making PSUs are privatised then there will be only loss making PSUs left. Government needs the profit of the profit.making PSUs to modernise them, to make them, more competitive and more efficient
Q.10 Do you think outsourcing is good for India? Why are developed countries opposing it? ANSWER:Outsourcing is good for India because it provides employment to large number of unemployed Indians. Developed countries oppose it because : (a) They-are not sure about the sincerity of Indian workers. (b) It will narrow down the income disparity between the two countries.
Q.11India has certain advantages which makes it a favourite outsourcing destination. What are these advantages? ANSWER: India is a favourite outsourcing destination. The advantages that India has are: (a) India can provide a ready supply of skilled people at relatively lower price. (b) India has the advantage of time difference as it is located on the other side of the developed countries.
Q.12 Do you think the navratna pdlicy of the government helps in improving the performance of public sector undertakings in India? How? ANSWER:The government has decided to give special treatment to some of the important profit making PSUs and they were given the status of navratnas. These navratnas were granted financial and operational autonomy in the working of the companies. These navratnas are: 1. Indian Oil Corporation Ltd. (IOCL) 2. Bharat Petroleum Corporation Ltd. (BPCL) 3. Hindustan Petroleum Corporation Ltd. (HPCL) 4. Oil and Natural Gas Corporation Ltd (ONGC) 5. Steel Authority of India Ltd. (SAIL) 6. Indian Petrochemicals Corporation Ltd. (IPCL) 7. Bharat Heavy Electricals Ltd. (BHEL) – 8. National Thermal Power Corporation (NTPC) 9. Mahanagar Telephone Nigam Limited (MTNL) 10. Gas Authority of India Limited (GAIL) 11. Videsh Sanchar Nigam Limited (VSNL) The granting of navratna status resulted in better performance of these. companies. The ‘ government partly privatised these companies through disinvestment.
Q.13 What are the major factors responsible for the high growth of the service sector? ANSWER:There has been high growth of the service sector in India. There is too much demand for services because : (a) It is more profitable to contract services from developing countries. (b) There is easy availability of skilled manpower at lower wage rate.
Q.14 Agriculture sector appears to be adversely affected by the reform process. Why? ANSWER: There has been deceleration in agricultural growth. This deceleration is the root cause of the problem of rural distress that reached crisis in some parts of the country. Farmers find themselves into crippling debt due to low farm incomes combined with low prices of output and lack of credit at reasonable prices. This has led to widespread distress migration. Economic reforms have not been able to benefit the agricultural sector because: (a) Liberalisation has forced the small farmers to compete in a global market where prices of goods have fallen while removal of subsidies has led to increase in the cost of production. It has made farming more expensive. (b) Various policy changes like reduction in import duties on agricultural products, removal of minimum support price and lifting of quantitative restrictions have increased the threat of international competition to the Indian farmers. (c) The export-oriented growth has favoured increased production of cash crops rather than food grains. This has increased the prices of food grains. (d) Public investment in agriculture sector especially in infrastructure which includes irrigation, power, roads, market linkages and research has been reduced in the reform period.
Q.15 Why has the industrial sector performed poorly in the reform period? ANSWER:The post-reform period shows that industrial growth has slowed down. This was due to: (a) Globalisation created conditions for free movement of goods and services from foreign countries. It adversely affected the local industries and employment in developing countries. (b) Globalisation led to decrease in demand for domestic industrial products due to cheaper imports. (c) There was inadequate investment in infrastructural facilities such as power supply. (d) A development country like India still does not have the access to markets of developed countries due to high non-tariff barriers.
Q.16 Discuss economic reforms in India in the light of social justice and welfare. ANSWER: Economic reforms have been criticised on the following grounds: (a) Privatisation encourages growth-ofunonopoly power in the hands of big business houses. It results in greater inequalities of income and wealth. (b) Globalisation has devastated local producers since they are unable to compete with cheap imports. (c) Economic reforms have led to mounting workers unrest. Workers have protested against low wages, poor working conditions, autocratic management rule, long work days and fall in social benefits. (d) These have made public employees worse off. Public employees are adversely effected by budget cuts, privatisation and massive loss of purchasing power. (e) Small business class is adversely affected by fall of public subsidies, de-industrialisation and floods of cheap imports. (f) During the globalisation phase, about half a billion people in South Asia have experienced a decline in their income. Data shows that it is the poor who have suffered most. (g) Since the government is unable to help the victims of globalisation, the provisions of social safety net have been weakened. (h) The global village appears deeply divided between the street of the haves and those of the havenots. The average person in Norway (which has highest human development) and the average person in countries such as Niger (which has lowest human development) certainly live in different human development districts of the global village.
Q.1 Define a plan. ANSWER: Plan is a document showing detailed scheme, program and strategy worked out in advance for fulfilling an objective.
Q.2 Why did India opt for planning? ANSWER: India achieved independence in 1947. The colonial government left India in a poor, backward and stagnant situation. From that time efforts have been made to solve people’s problems in a sovereign Indian republic through a system of federal parliamentary democracy. Political independence has no meaning without economic prosperity. Planning was undertaken to sustain political independence and generate economic prosperity
Q.3 Why should plans have goals? ANSWER: Plans should have goals or objectives which the country wants to achieve in a specific time period. Without goals, the planners would not know which sector of the economy should be developed on a priority’basis.
Q.4 What are miracle seeds? ANSWER: Miracle seeds are the high yielding variety of seeds which combined with assured water supply, fertilizer, insecticides, etc. would result in high production levels.
Q.5 What is marketable surplus? ANSWER: It is that part of the agricultural produce which is sold in the market by the farmer.
Q.6 Explain the need and type of land reforms implemented in the agriculture sector. ANSWER: In India, there existed a large army of middlemen like zamindars, mahalwars and ryotwars, who collected rent from the actual cultivators and deposited a part of it to the government as land revenue. They treated cultivators as slaves. The measure of abolition of intermediaries was adopted to make direct link between actual tillers and government, and to pass forests, wasteland, etc. to state government. Tenancy Reforms are concerned with: (a) Regulation of Rent (b) Security of Tenure (c) Ownership Rights for Tenants. Reorganisation of Agriculture is concerned with: (a) Redistribution of Land (b) Consolidation of Holdings (c) Co-operative Farming.
Q.7 What is Green Revolution? Why was it implemented and how did it benefit the farmers? Explain in brief. ANSWER: Green Revolution. This strategy, which was launched in October 1965, has been given different names such as, New Agricultural Strategy (NAS), or Seed-Fertilizers Water Technology. Before adopting the New Agricultural Strategy (NAS), the state of Indian agriculture was as follows: (a) there was low and erratic growth, (b) there was extreme regional unevenness and growing interclass inequality, (c) there were serious droughts for two consecutive years (d) there was a war with Pakistan (e) USA denied India PL 480 imports. India decided to get rid of this dependence on foreign aid in such a vital matter as food supply. And that was the genesis of our Green Revolution, i.e., biochemical technology to step up output per acre by using scientifically inclined techniques and methods of production. Benefits of Green Revolution. (i) Increase in Income. Since the Green Revolution was limited to wheat and rice for a number of years, its benefits were enjoyed by wheat and rice growing areas of Punjab, Haryana, Western Uttar Pradesh and Andhra Pradesh. The income of farmers in these States grew sharply. Green Revolution succeeded in removing rural poverty in these States. (ii) Impact on Social Revolution. Along with economic revolution there was a social revolution. The old social beliefs and customs were destroyed and people were willing to accept changes in technology, seeds and fertilizers.’ The traditional methods of farming were transformed into modern methods of farming. (iii) Increase in Employment. Green Revolution solved the problem of seasonal unemployment to a great extent because with the possibility of growing more than one crop on a piece of land, more working hands were needed throughout the year. Also, package inputs reqired better irrigation facilities which raised the employment rate.
Q.8 Explain ‘growth with equity’ as a planning objective. ANSWER:Economic Growth is an increase in the aggregate output of goods and services in a country in a given period of time. Equity refers to reduction in inequality of income or wealth, uplifting weaker sections of the society and equal distribution of economic power. Higher levels of growth and social justice are two main objectives of India’s economic planning. When these two objectives are clubbed together, it is called development with social justice.
Q.9 Does modernisation as a planning objective create contradiction in the light of employment generation? Explain. ANSWER:Modernisation as a planning objective implies use of advanced technology. Advanced technology requires less labour per unit of output. Thus, modernisation creates unemployment
Q.10 Why was it necessary for a developing country like India to follow self-reliance as a planning objective? ANSWER: On the eve of independence, India was poor, stagnant and backward. There were heavy imports of foodgrains. It was important to be self-reliance. Features of Self reliance are: (a) Self-sufficiency in foodgrains. (b) Fall in foreign aid and reduced dependence on imports which is possible when there is growth in domestic production. (c) Rise in exports. (d) Rise in contribution of industries in grass domestic product.
Q.11 What is sectoral composition of an economy? Is it necessary that the service sector should contribute maximum to GDP of an economy? Comment. ANSWER: The contribution made by each of these sectors in the GDP of a country is called sectoral composition of the economy. If the service sector or tertiary sector contributes maximum to GDP of an economy, then the country is economically developed.
Q.12 Why was public sector given a leading role in industrial development during the planning period? ANSWER:Public sector has been playing a very significant role in the development of industries in the following way: (a) Creation of a strong industrial base. (b) Development of Infrastructure. (c) Development of backward areas. (d) To mobilise savings and earn foreign exchange. (e) To prevent concentration of economic power. (f) To promote equality of income and wealth distri-bution. (g) To provide employment. (h) to promote import substitution.
Q.13 Explain the statement that green revolution enabled the government to procure sufficient foodgrains to build its stocks that could be used during times of shortage. ANSWER:Green revolution refers to the tremendous increase in agricultural production and productivity that has come about with the introduction of new agricultural technology. It transformed the economy of scarcity into an economy of plenty. Rise in Production and Productivity. Green Revolution helped in removing continuing food shortages. HYVP was restricted to only five crops namely, wheat, rice, jowar, bajra and maize. Commercial crops were excluded from the ambit of the new strategy. Substantial increase in wheat production was noticed. The wheat production increased from 11.1 million tonnes in the Third Plan to 93.9 million tonnes in 2011-12. Rice production initially increased slowly and later at a fast pace. The production increased from 35.1 million tonnes in the Third Plan to 92.8 million tonnes in 2011-12. The production of coarse cereals (jowar, bajra and maize) fell to 26.1 million tonnes in 1965-66 and then increased to 32.5 million tonnes in 2011-12
Q.14 While subsidies encourage farmers to use new technology, they are a huge burden on government finances. Discuss the usefulness of subsidies in light of this face. ANSWER: Subsidy is an economic benefit, direct or indirect, granted by a government to domestic producers of goods or services, often to strengthen their competitive position against foreign companies. It helps farmers to buy HYV seeds, fertilizers and other inputs. The burden of granting subsidies falls on the government. The government has to bear the burden of financing subsidies. There is scope for improving the resource use efficiency by reducing subsidies and aiming them better to small farmers and regions lagging behind.
Q.15 Why, despite the implementation of green revolution, 65 per cent of our population continued to be engaged in the agriculture sector till 1990? ANSWER: The structural change in composition of GDP shows that India is on the path of sustained devel- opihent. But the occupational structure pattern shows that India is still underdeveloped. When nearly 60.8 per cent of the working force is engaged in agriculture where productivity is low and employment uncertain this would surely lead to low per capita income and widespread poverty for the rural masses which form about 72.2 per cent of India’s population. It also means that ex¬cessive pressure of population on land would be a hindrance in the way of productivity improve¬ment in agriculture sector.
Q.16 Though public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in the light of this fact. ANSWER:Though many public sector undertakings are incurring huge losses, they are still very useful in the areas of strategic concerns and hazardous chemicals. Public sector undertaking are required for: 1. Creation of a Strong Industrial Base 2. Development of Infrastructure 3. Development of Backward Areas 4. To Mobilise Savings and Earn Foreign Exchange 5. To Prevent Concentration of Economic Power 6. To Promote Equality of Income and Wealth Distri-bution 7. To Provide Employment 8. To Promote Import Substitution.
Q.17 Explain how import substitution can protect domestic industry. ANSWER:The import substituting industrialisation was the objective of second FYP (1956-61) till the Seventh FYP (till 1990). The Mahalanobis strategy of development was based on import substitution. The rationale of the import substitution strategy is based on infant industry argument. It helped to save foreign exchange by drastically reducing import of goods. The foreign exchange saved was to be used for the developmental imports such as capital goods, sophisticated technology, etc. It created a protected market and large demand for domestically produced goods.
Q.18 Why and how was private sector regulated under the IPR 1956? ANSWER:Private sector was given minimum role in IPR 1956. New industry could start operation after it had obtained licence from the government. Licence was given after scrutiny by the government.
Q.1 What was the focus of the economic policies pursued by the colonial government in India? What were the impacts of these policies?
ANSWER: The main aim of the economic policies adopted by the colonial government was to make India just a supplier to Britain’s flourishing industries. The policies were made to benefit and strengthen their own country. They completely ignored the interests of the Indian economy. These discriminatory policies made the Indian economy a supplier to British economy and consumer of finished goods of British economy. The effects of these policies are given below:
1. Low Economic Development
During British rule, there was a very little economic development. This was because the British government was more focused on the promotion of their own economic interest. Consequently, the colonial rule converted India’s agriculture sector into a supplier of raw materials for the British industrial base. This affected the production of the agricultural sector of India. It also destroyed the small manufacturing industries such as handicrafts and cotton industries. These manufacturing units suffered a cut throat competition from the British machine made textiles and handlooms.
2. Backwardness of Indian Agriculture
India was basically an agricultural economy employing almost of its population in the colonial rule. There was a meagre growth in agriculture sector. It was caused by the presence of various land settlement systems, particularly the Zamindari system. In this system, the zamindars (landowners) had to pay very high revenue (lagaan) to the British government, which they collected from the peasants (landless labourers). The zamindars were focused on extracting high revenues from the peasants but never took any interest in the improvement of the productivity of the land using cheap raw materials. As a result, Indian peasants grew cash crops (e.g., indigo and cotton) in order to feed British industries at the expense of food crops instead of food crops (such as, rice and wheat). This commercialisation of agriculture increased the burden of high revenues on the poor peasants. It also led Indians face shortage of food grains. Hence, Indian agriculture remained backward and primitive.
3. Deindustrialisation of Indian Economy
India, during colonial era, was not able to develop a sound and strong industries. The term ‘systematic` deindustrialisation’ can be used to define the status of industrial sector during the colonial rule. The downfall of India’s handicraft industry led to deindustrialisation and the cause of meager growth of modern industry was the lack of investment. Indian handicraft products were taxed heavily by the British government, which permitted free exports to Britain of raw materials and free imports of British products from India. Because of these, the Indian exports became dearer and its demand in the international market fell miserably that led to the decline of Indian handicrafts industries. Simultaneously, the demand for the Indian products fell in the domestic markets as machine made textiles were cheaper than Indian handicrafts. Hence, the domestic industries lacked investment and growth initiatives.
4. Regression in Foreign Trade
In the colonial era, the British government had the monopoly over India’s foreign trade. According to the British government, the trade policies were based on the government’s interests. Until the end of the 19th century, exports and imports were restricted to India and Britain. India’s exports provided cheap raw materials for the British industries, and Britain’s imports from India provided a untouched market for British goods. In every way, British industries were benefitted. The surplus money generated from the foreign trade was not even invested in the Indian economy. It was used for administrative and war activities by Britain.
Q.2 Name some notable economists who estimated India’s per capita income during the colonial period.
ANSWER: The British government was never interested in upliftment of people of our country. They didn’t take any initiative to measure India’s national and per capita income. There were some attempts by economists of that time to estimate India’s per capita income and national income during the colonial rule, but the figures were contradictory. The following are the names of some of the notable economists who were engaged in estimation of national income and per capita income:
a. Dadabhai Naroji
b. William Digbay
c. Findlay Shirras
d. V.K.R.V Rao
e. R.C. Desai
As part of the development process, an essential measurement during the colonial period was made by V.K.R.V Rao. According to these studies, the Indian economy had an average annual growth rate of half a percent in the period 1900-50.
Q.3 Name some modern industries which were in operation in our country at the time of independence.
ANSWER: In the mid-19th century, modern industries began emerging. At theinitial stage, development was confined to setting up of cotton and jute textile mills. Cotton textile mills were located in Maharashtra and Gujarat in the western part of the country, mainly controlled by Indians, while jute industries were majority British controlled and concentrated in Bengal. Iron and steel industries began to emerge gradually at the beginning of the 20th century. In 1907, India’s Tata Iron and Steel Company (TISCO) was formed. In the British era, small businesses also operated in the sugar, cement, and paper industries.
Q.4 What was the two-fold motive behind the systematic deindustrialisation affected by the British in pre – independent India?
ANSWER:There are two major factors contributing to systematic deindustrialisation affected by theBritish:
1. Making India a source of raw materials: The main purpose of the British government was to make India a source of inexpensive raw materials so that its own industrial base could flourish.
2. Use of India as a market to export finished goods: Another objective of the British government was to export British manufactured goods to Indian markets.
Q.5 The traditional handicrafts industries were ruined under the British rule. Do you agree with this view? Give reasons in support of your answer.
ANSWER:Yes, we agree that the traditional handicrafts industries under British rule were destroyed. The above sentence can be proved by the following points.
1. Discrimination in Tariffs: India’s industrialization correlated with the British rule. The British used India as both a source of cheap raw materials as well as an easy market to sell their finished products. Consequently, they imposed high tariffs (export duties) on India’s handicraft exports, while allowing free exports of India’s raw materials to Britain and free imports of British goods into India. As a result, Indian exports became more expensive. Handicrafts industries collapsed when the international demand for handicrafts collapsed drastically.
2. Competition from British manufactured products: Handicrafts products also suffered a downward trend on the domestic market. This was due to tough competition from the machine made textiles that were manufactured by Britain. It was due to the fact that Britain’s mechanically produced goods were comparatively less expensive and of better quality than Indian handicrafts. Indian industries were thus confined to a smaller market.
3. An emerging class in India: The British rulers popularized western lifestyles in the country. There was an emergence of a new class of zamindars (majority of who liked British goods) in India. Spending extravagantly on British products provided an impetus for the development of British industries at the cost of destruction of Indian industries. Eventually, Indian industries were extinguished.
4. Abolition of the princely state: Prior to the arrival of the British, India was ruled by princely states. As a result, Indian handicrafts gained reputation on the international market due to their patronage of handicraft industries. As a result, their handicrafts industries were destroyed under the British rule. Hence, Indian handicrafts started to lose its reputation and its importance also got deteriorated.
Q.6 What objectives did the British intend to achieve through their policies of infrastructure development in India?
ANSWER: Under the British rule, infrastructure development in the country was significant. The British, however, had no other motive than colonial interests in mind when they were developing the infrastructure. Transportation and communication infrastructures were developed. In addition to roads, ports were also constructed for the ease and fast transportation of goods to and from Britain, as well as to facilitate transport of raw materials. Similarly, railways were introduced and developed to transport finished goods from British industries to India’s interior. Railways facilitated the expansion of the market for British industries. British administration was made more efficient and effective by post and telegraph. Therefore, infrastructural development was not aimed at the growth and development of the Indian economy, but at serving its own interests. British rulers developed infrastructure in India to have effective control and administration of Indian Territory, to make money through foreign trade, to take advantage of profitable investment and to mobilise the Indian army.
Q.7Critically appraise some of the shortfalls of the industrial policy pursued by the British colonial administration.
ANSWER:The goal of Britain’s industrial policies in India was to make our country a mere supplier of Britain’s own thriving industry. The policies were primarily concerned with strengthening and developing their own country. Under British colonial rule, the industrial policy had the following shortcomings:
1. Neglect of Indian Handicraft Sector: The British adopted a discriminatory tariff policy in which they imposed hefty taxes (export duties) on Indian handicraft goods while permitted free export of Indian raw materials to Britain and free import of British finished products from India. This made Indian exports dearer and its international demand fell dramatically that led to the collapse of handicrafts industries. In addition, Indian handicrafts faced a very harsh competition from machine made textiles manufactured in Britain. The emergence of a new section of people who liked the British goods more rather than domestic goods boosted British industries at the cost of destruction of Indian industries. This led to the decline in demand for Indian products and encouraged foreign products.
2. A lack of foreign direct investment in Indian industries: Indian investors lacked the capital necessary to modernize their industries. On the other hand, British government was not interested and never bothered in investing in Indian industries. British government mainly focused on establishing cotton, jute and coal industries that would benefit their interest. Consequently, due to insufficient investments in the other sectors, Indianindustries was acutely constrained.
3. Limited operation of the public sector: Public industries were restricted to railways, power generation, post, ports and some other departmental undertakings.
Q.8 What do you understand by the drain of Indian wealth during the colonial period?
ANSWER:The nineteenth century was the century of Dadabhai Naroji’s ‘Drain of Wealth’. Resources from the native peoples were exploited during the colonial era. As a means of sustaining its industrial base in Britain, Britain needed a source of cheap raw materials to conquer India. Moreover, the British government used Indian manpower to spread its colonial influence outside of India. As a result, the British drained Indian wealth to further their own interests.
Q.9 Which is regarded as the defining year to mark the demographic transition from its first to the second decisive stage?
ANSWER:It is considered the defining year or the ‘Year of Great Divide’ because prior to 1921, India’s population growth was erratic. India was in the first phase of demographic transition till 1921 that was characterised by high birth rate and high death rate.The period before 1921 was characterized by low survival rates (or low life expectancy), which were nearly 8 per thousand annually. Therefore, the rate of population growth was stagnant. After 1921, population of Indian growth never declined and showed a consistent increment.
Q.10 Give a quantitative appraisal of India’s demographic profile during the colonial period.
ANSWER:During the British rule, India’s demographic conditions depict our economy as stagnant and backward. There was a high birth rate of 48 per thousand and a high death rate of 40 per thousand. Population growth was stagnant due to high birth and death rates. A very high infant mortality rate of 218 per thousand was also recorded. Approximately 32 years ago, the life expectancy rate was 32, and since then it has increased to 63.5 years. Literacy rates were below 16 percent, which indicates social backwardness and gender discrimination in the economy. According to the above figures, we can infer that India had a low standard of living, a low standard of living and a low rate of survival. India’s demographic situation was primarily caused by a lack of health care facilities and a lack of health awareness. The Indian’s standard of living was so lowthat people were not getting basic amenities like food, clothes and shelter. Moreover, some parts of India came under severe famine conditions. The famines were so severe that millions died.
Q.11 What was the focus of the economic policies pursued by the colonial government in India? What were the impacts of these policies? ANSWER: The economic policies pursued by the colonial government in India were concerned more with the protection and promotion of the economic interests of their home country rather than with the development of the Indian economy. Thus, at the time of independence in 1947, India was a poor and underdeveloped country. At that time, agriculture was in a poor condition and mineral resources were not fully used. There were only a few industries and many of the cottage and small-scale industries had declined under the British rule. Millions of people were unemployed, not because they were unwilling to work but because there were no jobs to be found. The per capita income of Indians was one of the lowest in the world, indicating that the average Indian was extremly poor and could not afford even the basic necessities of life. For instance, the staple food of average Indian consisted of rice, wheat and millets (like jowar and bajra). Most Indians could not afford to buy nutritious and balanced diet. The vast majority of people in India led a miserable life.
Q.12 What were the main causes of India’s agricultural stagnation during the colonial period? ANSWER: Indian agriculture was primitive and stagnant. The main causes of stagnation of agriculture sector were as follows:
Land Tenure System. There were three forms of Land tenure system introduced by the British rulers in India. These were: (a) Zamindari system (b) Mahalwari system (c) Ryotwari system In the Zamindari system, Zamindars or landlords were the owners of land. The actual collections by Zamindars was much higher than what they had to pay to the Government. Zamindari system led to multiplication of middlemen between cultivators and Government, absentee landlordism, exploitation of peasants by unsympathetic agents and enmity between landlords and tenants. Under the system, intermediaries benefited at the cost of both actual cultivators and the state.
Commercialisation of Agriculture. Commercialisation of agriculture means production of crops for sale in the market rather than for self consumption. Farmers were forced to cultivate commercial crops like Indigo. Indigo was required by the textile industry in Britain for dyeing of the textile. As a result, there was fall in the production of food crops. The farmers had to suffer from frequent occurence of famine. Indian agriculture was transformed into a raw material exporting sector for England.
Partition of the Country. Partition of the country in 1947 also adversely affected India’s agricultural production. The rich food producing areas of West Punjab and Sindh went to Pakistan. It created food crisis in the country. Also, the whole of fertile land under jute production went to East Pakistan. The jute industry was most severely affected due to partition. Thus, Indian agriculture became backward, stagnant and non-vibrant under the British rule. Indian Economy on the Eve of Independence .
Q.13Name some modem industries which were in operation in our country at the time of independence. ANSWER: The Tata Iron and Steel company (TISCO) was incorporated in August 1907 in India. It established its first plant in Jamshedpur (Bihar). Some other industries which had their modest beginning after Second World War were: sugar, cement, chemical and paper industries.
Q.14 What was the two-fold motive behind the systematic de-industrialisation effected by the British in pre-independent India? ANSWER: De-industrialisation-Decline of India Handicraft Industry. Britishers followed the policy of systematically de-industrialising India. The primary motive behind the de-industrialisation by , the British government was two-fold:
to get raw materials from India at cheap rates in order to reduce India to a mere exporter of raw materials to the British industries.
to sell British manufactured goods in Indian market at higher prices.In this way, they exploited India through the device of double exploitation.
Q.15The traditional handicraft industries were mined under the British mle. Do you agree with this view? Give reasons in support of your answer. ANSWER: The main cause of exploitation of traditional handicraft industries was de-industrialisation introduced by British rulers in India. They got raw materials from India at cheap rates and reduced India to a mere exporter of raw materials to the British industries. They sold British manufactured goods in Indian market at higher prices. It resulted in decline of world famous traditional handicrafts. Britishers followed discriminatort tariff policy. It allowed free export of raw materials from India and free import of British final goods to India, but placed heavy duty on the export of Indian handicrafts. In this way, Indian . markets were full of manufactured goods from Britain which were low priced. Indian handicrafts 1 started losing both domestic market and export market. Ultimately, the handicraft industry declined.
Q.16 What objectives did the British intend to achieve through their policies of infrastructure development in India? ANSWER: During the British rule, some basic infrastructure was developed in the form of railways, water transport, ports, post and telegraph, etc. However, the real intention behind these developments 1 was to serve their own colonial interest. The main motives of British rulers behind the development of infrastructure in India were:
To have effective control and administration over the vast Indian territory. For this, Britishers linked important administrative and military centres through railway lines.
To earn profits through foreign trade. For this they linked railways with major ports and the marketing centres (or Mandies).
To create an opportunity for profitable investment of British funds in India.
To mobilise army within India and carrying out raw materials through roads to the nearest railway station or to the port to send it to Britain.
Q.17 What do you understand by the drain of Indian wealth during the colonial period? ANSWER: Drain of wealth means that economic policies of the British in India were primarily motivated to snatch maximum benefits from India’s trade. India’s foreign trade generated large export surplus. This export surplus did not result in any flow of gold or silver into India. There was drain of India’s wealth into Britain. It is clear from the following facts :
The surplus was used to make payments for the expenses incurred by the office set up by the colonial government in Britain.
The surplus was used to pay expenses on war fought by the British government.
Surplus was used to pay for the import of invisible items.
Q.18 Which is regarded as the defining year to mark the demographic transition from its first to the second decisive stage? 1921 is the defining year. It is called ‘Year of Great Divide’.
Q.19 Give a quantitative appraisal of India’s demographic profile during the colonial period. ANSWER:The demographic condition on the eve of independence was as follows:
High Birth Rate and Death Rate. High birth rate and high death rate are treated as indices of backwardness of a country. Both birth rate and death rate were very high at 48 and 40 per thousand of persons res-pectively.
High Infant Mortality Rate. If refers to death rate of children below the age of one year. It was about 18 per thousand live births.
Low Life Expectancy. Life expectancy means the number of years that a new bom child on an average is expected to live. It was as low as 32 years.
Mass Illiteracy. Mass illiteracy among the people of a country is taken as an indicator of its poverty and backwardness. The population census of 1941 (which was the last census under the British rule) estimated the literacy rate at 17 per cent. This means that 83 per cent of the total population was illiterate.
Low Standard of Living. At the time of independence, people used to spend between 80 to 90 percent of their income on basic necessities, that is on food, clothing and housing. Even then, people did not get adequate quantity of food or clothing or housing and millions of people starved, went naked and lived in huts or in the open. Moreover, some parts of India came under severe famine conditions. The famines were so severe that millions died. One of the worst famines in India was the Bengal famine of 1943, when three million people died.
Q.20 Highlight the salient features of India’s pre-independence occupational structure. ANSWER: Occupational structure means the distribution of work-force among different sectors of an economy. The state of occupational structure on the eve of independence was as follows:
Pre-dominance of Agriculture Sector. The agricultural sector accounted for the largest share of work-force, which was 72 per cent. The manufacturing and service sectors accounted for 10 per cent and 18 per cent respectively.
Growing Regional Variations. There was growing regional variation. In the states of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Maharashtra and West Bengal, the dependence of the workforce on the agricultural sector declined. On the other hand, there was increase in the share of work force in the agriculture sector in the states of Orissa, Rajasthan and Punjab. Thus, India’s occupational structure was static and imbalanced.
Q.21 Were there any positive contributions made by the British in India? Discuss. ANSWER: British rule exploited India in many ways. But, the ways to achieve the motives sometimes yield positive effects. Their exploitative programmes and policies resulted in some positive impact on India. Some of these positive effects were:
Commercialisation of agriculture implied a good breakthrough in agriculture and resulted in self-sufficiency in fiSodgrain production.
The development of infrastructure, railways and roadways generated new opportunities for economic and social growth and broke cultural and geographical barriers.
Railways promoted commercialisation of agriculture through long distance movement of goods and it enabled people to move from one place to another easily.
The supply of food and essentials could be made available to drought affected areas through transportation.
Indian economy witnessed a huge expansion of monetary system and growth in production through division of labour and specialisation.
Q.1Under which consumer right does a business firm set up a consumer grievance cell?
ANSWER: The consumer right that requires a business to establish a consumer grievance cell is known as the “Right to be Heard.” Consumers have the right to file a complaint if they are dissatisfied with a service they have received.
Q.2 Which quality certification mark is used for agricultural products?
ANSWER: The AGMARK sign, issued and certified by the Directorate of Marketing and Inspection of the Government of India is the quality certification mark used for agricultural products.
Q.3 What is the jurisdiction of cases that can be filed in a State Commission?
ANSWER: The state commission will accept cases where the value of the disputed goods and services, as well as the compensation sought, fall between 1 crore and 10 crore.
Q.4 State any two relief available to consumers under CPA.
ANSWER: Consumers can obtain the following reliefs under the CPA, or Consumer Protection Act:
Removal of the deficiencies in the services.
Replacement of damaged goods with new ones that are free of flaws.
Q.5 Name the component of the product mix that helps the consumer to exercise the right to information.
ANSWER: The component of the product mix that enables the consumer to exercise his or her right to information is known as the product’s quality certification.
Q.6 Enumerate the various Acts passed by the Government of India which help in the protection of consumers’ interests.
ANSWER: The following are some of the Acts passed by the Government of India to protect the interests of consumers.
The 1986 Consumer Protection Act: This Act protects consumer interests against various forms of exploitation, such as defective goods, deficiencies in services, unfair trade practices, and so on. For the redressal of consumer grievances, the Act established a three-tier machinery consisting of District Forums, State Commissions, and the National Commission.
The Contract Act of 1982: This Act defines the conditions under which a contract’s promises are binding. Furthermore, the Act specifies the remedies available in the event of a breach of contract.
The Sale of Goods Act, 1930: The Act provides consumers with protection and relief if the goods they purchase do not conform to the express or implied conditions and warranties.
The Agriculture Produce (Grading and Marking) Act of 1937: This Act establishes grade specifications for agricultural and livestock commodities. It specifies the process for grading, packing, and labeling agricultural products. AGMARK is the quality certification mark provided by the Act.
The Prevention of Food Adulteration Act of 1954: This Act was enacted to prevent food adulteration and to ensure the purity of food items.
The Standards of Weights and Measures Act of 1976: This Act protects consumers from exploitative practices involving under-weight and under measurement of goods.
The Essential Commodities Act of 1955: This Act establishes control over the production, supply, and distribution of essential goods. It also regulates inflationary trends and ensures that goods are distributed equally. It also keeps an eye out for anti-social activities like hoarding and black marketing.
Trade Marks Act of 1999: This Act was enacted to prevent the use of false marks on goods and, as a result, to protect consumers from such goods.
The Competition Act of 2002: This Act was enacted to prevent business firms from engaging in practices that impede market competition.
The Bureau of Indian Standards Act (1986) : The Bureau of Indian Standards was established under the Act to develop standards for the quality of goods and to provide quality certification through the BIS certification scheme based on these standards. ISI is the quality certification mark provided by the Act. In addition, a grievance cell has been established to address complaints about the quality of the products.
Q.7 What are the responsibilities of a consumer?
ANSWER: A consumer is responsible for protecting his or her own interests and avoiding exploitation. The following are some of a consumer’s responsibilities.
Awareness: A consumer should be aware of the various goods and services that are available so that he can choose and purchase carefully and wisely.
Seeking Quality Marks: Before purchasing goods, a consumer should always look for quality certification marks such as ISI in the case of electrical goods, AGMARK in the case of agricultural goods, and so on.
Requesting Cash Memo: When purchasing goods and services, a consumer should always request cash memos or bills. The bill serves as proof of purchase and can be used in the future.
Reading Labels: Product labels provide information such as price, weight, and expiration date. The labels must be carefully read.
Honest Transactions: A consumer should always opt for legal transactions and avoid illegal trade practices such as black marketing and hoarding.
Ensure Safety: To ensure the safe use of the product, a consumer must carefully read the manuals and instructions provided by the manufacturer.
Complaint Filing: If the product is found to be defective or if there is a deficiency in the product’s quality, a complaint must be filed in the appropriate forum.
Consumer Societies: Consumer organizations and societies must be established in order to promote consumer education and awareness.
Environmental Protection: Consumers must also work to protect the environment by avoiding waste, pollution, and so on.
Q.8Who can file a complaint in a consumer court?
ANSWER: Consumer courts and consumer forums have been established under the Consumer Protection Act to address consumer complaints.
The following people have the right to file a complaint in a consumer court.
a consumer; or
voluntary consumer association which is registered under any appropriate law for the time being in force; or
the Central Government or State Government; or
the Central Authority; or
one or more consumers, where they all share a common interest; or
legal heir or legal representative of the consumer in case of death of a consumer, ; or
Parent or legal guardian of the consumer, in case of a consumer being a minor.
Q.9 FSSAI (Food Safety and Standards Authority of India) has made a proposal for hotels and other food outlets to declare the kind of oil/fat used in cooking each of the food items on their menus. Name and explain the Consumer Right being reinforced by this proposal.
ANSWER: The “right to be informed” is a consumer right that is reinforced by this proposal. In this right, the consumer has the right to complete information about the product that he or she wishes to purchase, which can include details such as the date of manufacture, quantity, expiry date, and directions for use. As a result of this legal obligation, manufacturers are required to publish all such information on the product’s packaging.
Q.10 Who is a consumer as per CPA?
ANSWER: Under the Consumer Protection Act 2019, a consumer is a person who buys any goods or avails services for a consideration, which has been paid or promised, or partly paid and partly promised, or under any scheme of deferred payment.
Q.11 Explain the importance of consumer protection from the point of view of a business.
ANSWER: Consumer protection refers to the education of consumers about their rights and responsibilities, as well as the resolution of their grievances and complaints. Consumer protection is critical not only for consumers but also for businesses.
The following points emphasize the importance of consumer protection from a business standpoint.
Long-Term Interest of Business: With rising competition and a desire to stay in business, consumer satisfaction and interest are critical for any company. A company’s goodwill and reputation are built by taking care of the interests of its customers. A satisfied customer not only returns and generates repeated sales for the company, but also attracts new customers by spreading the word. Thus, it is in the long run benefit of the business to protect the interests of consumers.
Business Uses Society’s Resources: A business uses societal resources to produce a variety of goods and services. A business earns profits by selling these goods and services to society. As a result, it is their responsibility to provide goods and services that are in the best interests of society as a whole.
Moral Justification: Moral values and ethics are important in business today. Every business has a moral obligation to protect the interests of its customers. They must adhere to ethical and moral values and avoid any form of consumer exploitation, such as unfair trade practices, adulteration, and so on.
Social Responsibility: As a business earns profits by selling various goods and services to customers, it becomes their responsibility to look after their interests and satisfaction.
Government Interference: Any business that engages in any form of consumer exploitation, such as unfair trade practices, adulteration, and so on, invites government intervention. Such government meddling taints the company’s goodwill and image. As a result, it is in the best interests of the business to voluntarily follow such practices that protect the interests of the consumers.
Long Answer Type Questions:
1. Explain the rights and responsibilities of a consumer. Ans: The Consumer Protection Act provides six rights to consumers. They are as follows (i) Right to Safety The consumer has a right to be protected against goods and services which are hazardous to life, e.g., sometimes we purchased the food items of low quality which causes severe problems. Thus, in this case, we should purchased good quality and FPO labelled products. (ii) Right to be Informed The consumer has a right to have complete information about the product, which he intends to buy including its ingredients, date of manufacture, price , quantity, directions for use etc. Under the legal framework of India manufactures have to provide such information on the package and label of the product. (iii) Right to Choose The consumer has the freedom to choose from a variety of products. The marketers should offer a wide variety of products and allow the consumer to make a choice and choose the product which is most suitable. ‘ (iv) Right to be Heard The consumer has a right to file a complaint and to be heard in case of dissatisfaction with a good or a service. It is because of this reason that many enlightened business firms have set up their own consumer service and grievance cells. (v) Right to Seek Redressal The Consumer Protection Act provides a number of reliefs to the consumer including replacement of the product, removal of defect in the product, compensation paid for any loss or injury suffered by the consumer etc. (vi) Right to Consumer Education The consumer has a right to acquire knowledge about products. He should be aware about his rights and the reliefs available to him in case of a product/service falling short of his expectations. Many consumer organisations and some enlightened businesses are taking an active part in educating consumers in this respect. Consumer Responsibilities A consumer must be aware about these responsibilities while purchasing, using and consuming goods and services (i) Consumer must be aware of all their rights. (ii) Consumer must be careful while purchasing a product. (iii) He should file complaint for the redressal of genuine grievances. (iv) Consumer must buy a standardised good. (v) He should ask for a cash-memo on purchase of goods and services
2. What are various ways in which the objective of consumer protection can be achieved? Explain the role of consumer organisations and NGOs in this regard? Ans: There are various ways in which the objective of consumer protection can be achieved (i) Self Regulation by Business Socially responsible firms follow ethical standards and practices in dealing with their customers. Many firms have set up their customer service and grievance cells to redress the problems and grievances of their consumers. (ii) Business Associations The associations of trade, commerce and business like Federation of Indian Chambers of Commerce of India (FICCI) and Conference of Indian Industries (ClI) have laid down their code of conduct which lays down for their members the guidelines in their dealings with the customers. (iii) Consumer Awareness A consumer, who is well informed about his rights and the reliefs, would be in a position to raise his voice against any unfair trade practices or exploitation. (iv) Consumer Organisations Consumer organisations plays an important role in educating consumers about their rights and protecting them. These organisations can force business firms to avoid malpractices and exploitation of consumers. (v) Government The Government can protect the interests of the consumers by enacting various legislations. The legal framework in India encompasses various legislations which provide protection to consumer, the most important of these regulations is the Consumer Protection Act, 1986. The Act provides for a three-tier machinery at the District, State and National levels for redressal of consumer grievance. Role of Consumer Orgs and NGOs Consumer organisation and NGOs perform several functions for the protection and promotion of interest of consumers. In India, these associations are performing lots of functions some of them are (i) Educating the general public about consumer rights by organising training programmes, seminars and workshops. (ii) Publishing periodicals and other publications to impart knowledge about consumer problems, legal reporting, reliefs available and other – matters of interest. (iii) Carrying out comparative testing of consumer products in accredited laboratories to test relative qualities of competing brands and publishing the test results for the benefit of consumers. (iv) Encouraging consumers to strongly protest and take an action L against unscrupulous, exploitation and unfair trade practices of sellers. (v) Providing legal assistance to consumers by providing aid, legal advice etc in seeking legal remedy. (vi) Filing complaints in appropriate consumer courts on behalf of the consumers. (vii) Taking an initiative in filing cases in consumer court in the interest of the general public, not for any individual.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-7398766921532682&output=html&h=280&adk=1731550593&adf=20262191&pi=t.aa~a.1381849204~i.22~rp.4&w=750&fwrn=4&fwrnh=100&lmt=1639029454&num_ads=1&rafmt=1&armr=3&sem=mc&pwprc=3683862639&psa=1&ad_type=text_image&format=750×280&url=https%3A%2F%2Fwww.learncbse.in%2Fncert-solutions-for-class-12-business-studies-chapter-12-consumer-protection%2F&flash=0&fwr=0&pra=3&rh=188&rw=750&rpe=1&resp_fmts=3&wgl=1&fa=27&adsid=ChEIgJ7hjQYQtOusuuXdh6XRARI5AFfg2fGkZA9HNEq3kSPeCuB5NVBhdpfFJaenmEVHPH9mTXT88J0KxsJk-nSOMWDeC_FscMmPNKm4&uach=WyJXaW5kb3dzIiwiMTAuMC4wIiwieDg2IiwiIiwiOTYuMC40NjY0LjkzIixbXSxudWxsLG51bGwsIjY0Il0.&tt_state=W3siaXNzdWVyT3JpZ2luIjoiaHR0cHM6Ly9wYWdlYWQyLmdvb2dsZXN5bmRpY2F0aW9uLmNvbSIsInN0YXRlIjoxN31d&dt=1639542068540&bpp=2&bdt=18957&idt=2&shv=r20211207&mjsv=m202112060101&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dc1df342b19723764-227cad9c69cf0002%3AT%3D1639218299%3ART%3D1639218299%3AS%3DALNI_Ma8TICz7yUoaoG-9IftcUzf9aclAQ&prev_fmts=0x0%2C728x280%2C1254x579&nras=3&correlator=5997228378489&frm=20&pv=1&ga_vid=818115747.1639218298&ga_sid=1639542050&ga_hid=955185195&ga_fc=1&u_tz=330&u_his=1&u_h=715&u_w=1270&u_ah=681&u_aw=1270&u_cd=24&u_sd=1.513&dmc=8&adx=57&ady=5587&biw=1254&bih=579&scr_x=0&scr_y=3305&eid=31063751%2C182982000%2C182982200%2C31063858%2C31063247%2C21067496&oid=2&pvsid=237601351877984&pem=742&tmod=717&eae=0&fc=1408&brdim=0%2C0%2C0%2C0%2C1270%2C0%2C1270%2C681%2C1270%2C578&vis=1&rsz=%7C%7Cs%7C&abl=NS&fu=128&bc=31&ifi=4&uci=a!4&btvi=1&fsb=1&xpc=aSOJBfzGek&p=https%3A//www.learncbse.in&dtd=55
3. Explain the redressal mechanism available to consumers under the Consumer Protection Act, 1986? Ans: For the redressal of consumer grievances, the Consumer Protection Act provides for setting up of a three-tier enforcement machinery at the District, State and the National levels.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-7398766921532682&output=html&h=280&adk=1733057069&adf=2420699232&pi=t.aa~a.1680580231~i.4~rp.1&w=750&fwrn=4&fwrnh=100&lmt=1639029454&num_ads=1&rafmt=1&armr=3&sem=mc&pwprc=3683862639&psa=1&ad_type=text_image&format=750×280&url=https%3A%2F%2Fwww.learncbse.in%2Fncert-solutions-for-class-12-business-studies-chapter-12-consumer-protection%2F&flash=0&fwr=0&pra=3&rh=188&rw=750&rpe=1&resp_fmts=3&wgl=1&fa=27&adsid=ChEIgJ7hjQYQtOusuuXdh6XRARI5AFfg2fGkZA9HNEq3kSPeCuB5NVBhdpfFJaenmEVHPH9mTXT88J0KxsJk-nSOMWDeC_FscMmPNKm4&uach=WyJXaW5kb3dzIiwiMTAuMC4wIiwieDg2IiwiIiwiOTYuMC40NjY0LjkzIixbXSxudWxsLG51bGwsIjY0Il0.&tt_state=W3siaXNzdWVyT3JpZ2luIjoiaHR0cHM6Ly9wYWdlYWQyLmdvb2dsZXN5bmRpY2F0aW9uLmNvbSIsInN0YXRlIjoxN31d&dt=1639542068548&bpp=2&bdt=18965&idt=2&shv=r20211207&mjsv=m202112060101&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dc1df342b19723764-227cad9c69cf0002%3AT%3D1639218299%3ART%3D1639218299%3AS%3DALNI_Ma8TICz7yUoaoG-9IftcUzf9aclAQ&prev_fmts=0x0%2C728x280%2C1254x579%2C750x280&nras=4&correlator=5997228378489&frm=20&pv=1&ga_vid=818115747.1639218298&ga_sid=1639542050&ga_hid=955185195&ga_fc=1&u_tz=330&u_his=1&u_h=715&u_w=1270&u_ah=681&u_aw=1270&u_cd=24&u_sd=1.513&dmc=8&adx=57&ady=5945&biw=1254&bih=579&scr_x=0&scr_y=3677&eid=31063751%2C182982000%2C182982200%2C31063858%2C31063247%2C21067496&oid=2&psts=AGkb-H-xShvOcvFo31tv9SJinAw9SZsm91qxLcN117-lZ5iUK1fK8wKsLKzzVZBnWTNvwnQp7oShXakQsw10%2CAGkb-H8aty6eLlCpBu8d7eJzie0AbZyxU5CmYOTSpW3z_7Eow1r9gPsPCUtW-wkW–ZweuPrRmY4wmXZyT41&pvsid=237601351877984&pem=742&tmod=717&eae=0&fc=1408&brdim=0%2C0%2C0%2C0%2C1270%2C0%2C1270%2C681%2C1270%2C578&vis=1&rsz=%7C%7Cs%7C&abl=NS&cms=2&fu=128&bc=31&ifi=5&uci=a!5&btvi=2&fsb=1&xpc=GP1ViUK5WA&p=https%3A//www.learncbse.in&dtd=2689 (i) District Forum A complaint can be made to the appropriate District Forum when the value of goods or services, along with the compensation claimed, does not exceed ? 20 lakhs. In case the aggrieved party is not satisfied with the order of the District Forum, he can appeal before the State Commission within 30 days.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-7398766921532682&output=html&h=280&adk=1733057069&adf=2554531097&pi=t.aa~a.1680580231~i.8~rp.1&w=750&fwrn=4&fwrnh=100&lmt=1639029454&num_ads=1&rafmt=1&armr=3&sem=mc&pwprc=3683862639&psa=1&ad_type=text_image&format=750×280&url=https%3A%2F%2Fwww.learncbse.in%2Fncert-solutions-for-class-12-business-studies-chapter-12-consumer-protection%2F&flash=0&fwr=0&pra=3&rh=188&rw=750&rpe=1&resp_fmts=3&wgl=1&fa=27&adsid=ChEIgJ7hjQYQtOusuuXdh6XRARI5AFfg2fGkZA9HNEq3kSPeCuB5NVBhdpfFJaenmEVHPH9mTXT88J0KxsJk-nSOMWDeC_FscMmPNKm4&uach=WyJXaW5kb3dzIiwiMTAuMC4wIiwieDg2IiwiIiwiOTYuMC40NjY0LjkzIixbXSxudWxsLG51bGwsIjY0Il0.&tt_state=W3siaXNzdWVyT3JpZ2luIjoiaHR0cHM6Ly9wYWdlYWQyLmdvb2dsZXN5bmRpY2F0aW9uLmNvbSIsInN0YXRlIjoxN31d&dt=1639542068556&bpp=1&bdt=18973&idt=1&shv=r20211207&mjsv=m202112060101&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dc1df342b19723764-227cad9c69cf0002%3AT%3D1639218299%3ART%3D1639218299%3AS%3DALNI_Ma8TICz7yUoaoG-9IftcUzf9aclAQ&prev_fmts=0x0%2C728x280%2C1254x579%2C750x280%2C750x280&nras=5&correlator=5997228378489&frm=20&pv=1&ga_vid=818115747.1639218298&ga_sid=1639542050&ga_hid=955185195&ga_fc=1&u_tz=330&u_his=1&u_h=715&u_w=1270&u_ah=681&u_aw=1270&u_cd=24&u_sd=1.513&dmc=8&adx=57&ady=6355&biw=1254&bih=579&scr_x=0&scr_y=4044&eid=31063751%2C182982000%2C182982200%2C31063858%2C31063247%2C21067496&oid=2&psts=AGkb-H-xShvOcvFo31tv9SJinAw9SZsm91qxLcN117-lZ5iUK1fK8wKsLKzzVZBnWTNvwnQp7oShXakQsw10%2CAGkb-H8aty6eLlCpBu8d7eJzie0AbZyxU5CmYOTSpW3z_7Eow1r9gPsPCUtW-wkW–ZweuPrRmY4wmXZyT41&pvsid=237601351877984&pem=742&tmod=717&eae=0&fc=1408&brdim=0%2C0%2C0%2C0%2C1270%2C0%2C1270%2C681%2C1270%2C578&vis=1&rsz=%7C%7Cs%7C&abl=NS&fu=128&bc=31&ifi=6&uci=a!6&btvi=3&fsb=1&xpc=s2F7QDO69i&p=https%3A//www.learncbse.in&dtd=2779 (ii) State Commission A complaint can be made to the appropriate State Commission when the value of the goods or services, along with the compensation claimed, exceeds ? 20 lakhs but does not exceed Rs 1 crore. The appeals against the orders of District Forum can also be filed before the State Commission. In case the party is not satisfied with the order of the State Commission, he can appeal before the National Commission within 30 days of the passing of the order by State Commission.https://googleads.g.doubleclick.net/pagead/ads?client=ca-pub-7398766921532682&output=html&h=280&adk=1733057069&adf=3755065469&pi=t.aa~a.1680580231~i.12~rp.1&w=750&fwrn=4&fwrnh=100&lmt=1639029454&num_ads=1&rafmt=1&armr=3&sem=mc&pwprc=3683862639&psa=1&ad_type=text_image&format=750×280&url=https%3A%2F%2Fwww.learncbse.in%2Fncert-solutions-for-class-12-business-studies-chapter-12-consumer-protection%2F&flash=0&fwr=0&pra=3&rh=188&rw=750&rpe=1&resp_fmts=3&wgl=1&fa=27&adsid=ChEIgJ7hjQYQtOusuuXdh6XRARI5AFfg2fGkZA9HNEq3kSPeCuB5NVBhdpfFJaenmEVHPH9mTXT88J0KxsJk-nSOMWDeC_FscMmPNKm4&uach=WyJXaW5kb3dzIiwiMTAuMC4wIiwieDg2IiwiIiwiOTYuMC40NjY0LjkzIixbXSxudWxsLG51bGwsIjY0Il0.&tt_state=W3siaXNzdWVyT3JpZ2luIjoiaHR0cHM6Ly9wYWdlYWQyLmdvb2dsZXN5bmRpY2F0aW9uLmNvbSIsInN0YXRlIjoxN31d&dt=1639542068563&bpp=1&bdt=18980&idt=1&shv=r20211207&mjsv=m202112060101&ptt=9&saldr=aa&abxe=1&cookie=ID%3Dc1df342b19723764-227cad9c69cf0002%3AT%3D1639218299%3ART%3D1639218299%3AS%3DALNI_Ma8TICz7yUoaoG-9IftcUzf9aclAQ&prev_fmts=0x0%2C728x280%2C1254x579%2C750x280%2C750x280%2C750x280&nras=6&correlator=5997228378489&frm=20&pv=1&ga_vid=818115747.1639218298&ga_sid=1639542050&ga_hid=955185195&ga_fc=1&u_tz=330&u_his=1&u_h=715&u_w=1270&u_ah=681&u_aw=1270&u_cd=24&u_sd=1.513&dmc=8&adx=57&ady=6791&biw=1254&bih=579&scr_x=0&scr_y=4601&eid=31063751%2C182982000%2C182982200%2C31063858%2C31063247%2C21067496&oid=2&psts=AGkb-H-xShvOcvFo31tv9SJinAw9SZsm91qxLcN117-lZ5iUK1fK8wKsLKzzVZBnWTNvwnQp7oShXakQsw10%2CAGkb-H8aty6eLlCpBu8d7eJzie0AbZyxU5CmYOTSpW3z_7Eow1r9gPsPCUtW-wkW–ZweuPrRmY4wmXZyT41&pvsid=237601351877984&pem=742&tmod=717&eae=0&fc=1408&brdim=0%2C0%2C0%2C0%2C1270%2C0%2C1270%2C681%2C1270%2C578&vis=1&rsz=%7C%7Cs%7C&abl=NS&fu=128&bc=31&ifi=7&uci=a!7&btvi=4&fsb=1&xpc=SkkocALiuP&p=https%3A//www.learncbse.in&dtd=3505 (iii) National Commission A complaint can be made to the National Commission when the value of the goods or services, along with the compensation claimed exceeds Rs 1 crore. The appeals against the orders of a State Commission can also be filed before the National Commission. An order passed by the National Commission in a matter of its original justification is appealable before the supreme court. This means that only those appeals, where the value of goods + services in question, along with the compensation claimed, exceeded Rs. 1 crore and where the aggrieved party was not satisfied with the order of the National Commission, can be taken to the Supreme Court of India.
Q.1 What is marketing? What functions does it play with the process of exchange of goods and services? Explain.
ANSWER: Marketing is the process by which buyers and sellers interact with one another in order to purchase and sell goods and services. Previously, different approaches to marketing’s definition were taken. It is also sometimes called as a process which occurs post-production involving the purchase of the final products, and other times as a pre-production process involving the merchandising (designing) of the product. In reality, marketing is said to be a much broader concept. It includes all of the activities involved in the exchange of goods and services between producers and consumers. These are the functions that fall under the purview of marketing. It entails product planning, design, packaging and labeling, standardization, branding, warehousing, transportation, advertising, pricing, and distribution. It also includes activities that are carried out even after the product has been sold, such as maintaining customer relations and gathering feedback. As a result, marketing plays an important role in the exchange of goods as well as services.
Q.2 Distinguish between the product concept and production concept of marketing.
ANSWER:The difference between two concepts of marketing are mentioned below:
Basis of Difference
Product Concept
Production Concept
Belief
It was believed that consumers preferred superior quality products, and that by increasing the quality of the product, profits could be maximized.
It was believed that consumers preferred readily available and affordable products, and that by increasing production volume, profits could be maximized.
Focus of the business
The emphasis was on improving the product’s quality, adding new features, and so on.
The emphasis was on increasing the quantity of production and lowering the average cost of production.
Odology
The emphasis is on improving the product’s features and quality.
The emphasis is on increasing the business’s production efficiency.
Q.3 Product is a bundle of utilities? Do you agree? Comment.
ANSWER: When a customer decides to purchase a product, his or her primary focus is on the utility that he or she will receive from using it. A customer seeks various levels of satisfaction from a product. A product’s benefits can be classified into three types: functional benefits, psychological benefits, and social benefits. For example, when a consumer buys a car, it provides him with functional utility as a mode of transportation. In addition, having purchased a car provides him with a psychological benefit in the form of pride and self-esteem. It also comes with a social benefit in the form of peer acceptance. As a result, a product is said to be a bundle of utilities, and a buyer values all such utilities when purchasing a product.
Q.4 What are industrial products? How are they different from consumer products? Explain.
ANSWER:Industrial products are those that are used as inputs in the manufacture of other goods. These items are not intended for final consumption; rather, they are used as raw materials and inputs by manufacturers in the production of consumer goods. Machines, tools, and so on are examples of industrial products. In contrast, consumer products are those that are used by the ultimate customers for their personal consumption. Consumer goods include items such as toothpaste, edible oil, furniture, and so on. The distinctions between industrial and consumer products are highlighted in the following points.
Basis of Difference
Industrial Products
Consumer Products
Number of customers
There are a limited number of customers. For example, oil seeds (an industrial product) are primarily used by mustard oil producers.
The number of customers has increased. Many people, for example, consume mustard oil (a consumer product).
Channel of distribution
Such products necessitate shorter distribution channels, such as direct selling or a one-level channel.
Such products must travel through significantly longer channels before reaching the final consumer. However, the distribution channel for perishable consumer goods is limited.
Location
Industrial products are concentrated only in areas where the industries that produce them are located.
Consumer goods are easily and conveniently available.
Demand
The demand for industrial products is obtained from consumer goods demand.
Consumer product demand is not derived demand; rather, it serves as the foundation for demand for industrial products.
Role of technical features in decision making
When purchasing these products, technical features play an important role.
Manufacturing of such products does not involve any technical complexities. As a result, technical features play little of a role in purchasing decisions.
Q.5 Distinguish between convenience products and shopping products.
ANSWER:The difference between convenience products and shopping products is given below:
Basis of differenceDemand
Convenience productsConvenience products are in high demand all the time.
Shopping productsShopping products are in relatively low demand.
Nature of products
Convenience goods fall under the category of essential commodities.
In general, such goods are long-lasting in nature.
Unit of purchase and price
These items are sold in small quantities and at a low unit cost. As a result, these items have a low profit margin.
These items are typically larger in size and have high unit prices. As a result, the pro gin is also high.
Nature of purchase
Such items are purchased on the spur of the moment, without much thought or planning.
Such products are not purchased on the spur of the moment; instead, the consumer takes the time to compare the price, quality, and other features of the product.
Example
Ice cream, medicines, newspapers, and stationery items.
Jewelry, furniture, clothing, and so on.
Q.6 ‘Products is a mixture of tangible and intangible attributes’. Discuss.
ANSWER:In general, a product is a tangible asset with physical characteristics. For example, we consider a motorcycle or a laptop to be products. However, when it comes to marketing a product, it is important to consider not only the physical or tangible attributes of the product, but also certain intangible attributes. That is, a consumer’s decision to buy a product is influenced not only by its tangible characteristics, but also by certain intangible characteristics. In other words, a consumer buys a product for reasons other than its functional utility, such as brand recognition, reputation, social satisfaction, and so on. When a person buys a laptop, he looks for intangible attributes such as guarantee, brand, and so on, in addition to the physical attributes and functional utility of the model, size, features, and so on. As a result, a product is a combination of tangible as well as intangible attributes.
Q.7 Describe the functions of labelling in the marketing of products.
ANSWER:Labeling plays an important role in product packaging during the marketing process. Labeling essentially provides information about the product in the form of a tag (in the case of unbranded local products such as rice, wheat, and so on) or graphics (such as a lady applying cream on face for a face cream). Labeling serves several functions, the most important of which are as follows.
i) Contents and Description of Use: The primary function of labeling is to provide information about the product’s use, application, warnings, content, and so on. For example, the contents of a shampoo bottle are written on the bottle, along with warnings such as “keep away from children under the age of 10.” Similarly, a picture of noodles describing its appearance can be found on food products such as Maggie Cuppa Mania. Along with this, the ingredients and method of preparation are specified.
ii) Identification and Distinction: A label makes it easier to identify a product. It assists consumers in differentiating their preferred products from others. In a potato chip product, for example, a man eating potato chips is imprinted for identification. A label also contains useful information such as the manufacturer’s name or address, net weight, maximum retail price, batch number, and so on.
iii) Standardization and Evaluation: A label also aids in the determination of a product’s grade. This allows marketers to categorize the product into different categories based on specific qualities or features. For example, a face-cream brand may be divided into three categories: oily skin, dry skin, and normal skin.
iv) Encourages Production: An appealing label also aids marketers in promoting the product. It aids in attracting new customers to the product. For example, the label for Maggi Noodles reads, “Taste bhi, Health bhi.” In this case, the label is crucial in highlighting the product and promoting its sale.
v) Information Necessary for Law: The label also provides and mentions the information that is required by law to be included. On a packet of tobacco, for example, it says, ‘chewing tobacco is harmful to your health.’
Q.8 Discuss the role of intermediaries in the distribution of consumer non-durable products.
ANSWER: Intermediaries are crucial in the distribution of consumer nondurables. They facilitate the movement of goods from the point of manufacture to the point of consumption. In the case of nondurables, the intermediaries perform the following functions.
i) Arrangement: An intermediary receives goods from a variety of sources. He then categorizes these items into homogeneous groups based on characteristics such as size, quality, and so on. For example, an electronic goods seller may receive a supply of various electronic goods (TV, washing machine, etc.) and then sort them according to their functions.
ii) Collection: An intermediary keeps a large stock of goods on hand to ensure an easy flow of supply. For example, an electronic goods seller may keep a large stock of each type of electronic item.
iii) Allocation and Packing: This function entails dividing larger stock into smaller units. For example, each electronic item and its spare parts are packed separately.
iv) Creating Variety: An intermediary obtains various goods from various sources and assembles them in a single location. As a result, it keeps a wide range of goods. He obtains the products and then sells them in various combinations as desired by the customers. Most people, for example, prefer a television and a video player together. As a result, the retailer can sell a mix of the two.
v) Promotion of Product: They help the manufacturers with their promotional efforts. Manufacturers, for example, use advertising to promote their product. Intermediaries can help this process by displaying banners and other advertisements. For example, an electronic goods retailer may display banners highlighting the features of various products.
vi) Mediation: Middlemen are responsible for negotiating a deal that will satisfy both the producers and the consumers. They negotiate the price, quality, quantity, and so on for an efficient transfer of ownership that meets the needs of both parties.
vii) Bearing Risk: Intermediaries buy goods from manufacturers and keep them in their possession until the final sale. During the process, they are vulnerable to fluctuations in demand, price, spoilage, and so on. Assume a retailer purchases a large number of air conditioners. However, after a few months, winter arrives, and demand for air conditioners decreases. As a result, the stock remains unsold, and the retailer suffers a loss.
Q.9 Explain the factors determining choice of channels of distribution.
ANSWER: One of the most important marketing decisions is deciding which channel of distribution to use. The following factors influence channel selection.
(i) Product Category: The channel of distribution chosen is determined by the type of product produced. It is critical to determine whether the product is perishable or non-perishable, whether it is an industrial or consumer product, whether its unit value is high or low, and the product’s degree of complexity. For example, if a product is perishable, short channels should be used rather than long ones. Likewise, if a product has a low unit value, a longer channel is preferred. Similarly, consumer goods are distributed via long channels, whereas industrial goods are distributed via short channels.
ii) The Company’s Characteristics: The two most important characteristics of a company that influence channel selection are its financial strength and the level of control it desires over intermediaries. Shorter channels necessitate more funds than longer channels, but they also provide greater control over the channel’s members (intermediaries). As a result, companies that are financially strong or want to have more control over the distribution channel choose shorter distribution channels.
iii) Factors of Competition: The degree of competition and the channels chosen by other competitors influence the distribution channel selection. Depending on its policies, a company may choose to use the same channel as its competitors or a different channel. For example, if a company’s competitors choose to sell through a retail store, the company may do the same, or it may choose a different channel, such as direct selling.
iv) Environmental Aspects: Environmental factors such as economic constraints and legal policies all play a role in channel of distribution selection. For example, the requirement of complex legal formalities at each stage of distribution encourages companies to choose shorter distribution channels.
v) Market Elements: Other factors influencing channel selection include market size, geographical concentration of buyers, quantity demanded, and so on. Shorter channels, for example, are used when potential buyers are concentrated in a small geographical area. In contrast, if the buyers are spread out over a larger area, longer distribution channels may be used.
Q.10 Explain briefly the components of physical distribution.
ANSWER:Physical distribution is the movement of goods from the point of manufacture to the point of consumption. The components of physical distribution are as follows.
i) Processing of Order: Order processing consists of several steps, including order placement, transmission of the order by intermediaries to the manufacturer, inventory maintenance as needed, delivery of goods, and so on. Because all of these processes take time, a physical distribution system should be designed to ensure quick and accurate order processing. In summary, order processing speed and accuracy are directly related to customer satisfaction. Fast and accurate order processing leads to higher levels of customer satisfaction.
ii) Transportation of Products: The physical movement of goods from the point where they are manufactured to the point where they are consumed is referred to as product transportation. Transporting goods from the point of production to the point of consumption is required to make them physically available to consumers.
iii) Warehousing: The process of storing manufactured goods prior to the final act of sale is known as warehousing. If we suppose that a company has a lot of warehouses then it indicates that the company will be able to provide goods at various locations more quickly and also on time. However, maintaining warehouses comes with its own set of expenses. As a result, a company must weigh the relative benefits and costs of warehousing and strike a balance between the two as needed.
iv) Maintenance of Inventory: Inventory is kept on hand by the companies to ensure that products are delivered on time. Inventory maintenance, like warehousing, has a positive relationship with customer service. However, inventory maintenance comes at a cost because a large amount of capital remains locked up in the stock until it is sold. As a result, the companies must strike a balance between customer service and cost.
Q.11 Define advertising. What are its main features? Explain.
ANSWER: Advertising is a marketing technique that is used to promote a product. Companies use advertising to attract customers to their products and persuade them to buy them. Newspapers, magazines, television, and other forms of advertising are common. The following are some of the most important aspects of advertising.
(i) Cost Involved: Advertising is not free. It is a form of paid promotion. The costs of advertising will be borne by the sponsors.
ii) Impersonal Mode: Advertising is a form of impersonal communication. In other words, there is no direct interaction between the customer and the advertiser. As a result, it lacks personality and creates a monologue.
iii) Specific Sponsor: There are always a few individuals or sponsors who take on the responsibility of designing it and bearing the associated costs.
Q.12 Discuss the role of ‘sales promotion’ as an element of promotion mix.
ANSWER: Sales promotion refers to the incentives provided to buyers in order to persuade them to purchase the product. It included activities such as providing discounts, gifts, and free samples, among others. These activities supplement the company’s other promotional efforts, such as advertising and direct selling. They are increasingly attracting customers and persuading them to buy the product right away. Such activities are especially beneficial during the launch of a new product. They provide a temporary boost to sales. Discounts are given by selling the product at a lower price than the listed price, for example. Quantity gifts are given away as freebies (such as 20 percent extra or buy 2, get 1 free). When a new brand is launched, free samples are distributed in the form of small packets. Companies use such incentives to attract more customers and increase sales.
Long Answer Type Question:
Q.1 Define Marketing. How is it different from selling? Discuss. ANSWER: Marketing is a total system of business activities designed to plan, price, promote and distribute want, satisfying goods and services to present and potential customers. Q.2 What is the marketing concept? How does it help in the effective marketing of goods and services? ANSWER: Orientation of marketing implies that focus on the satisfaction of customers need, is the key to the success of any organisation in the market. All the decisions in the firm are taken from the point of view of the customers, e.g., What product will be produced, with what features and at what price shall it be sold or where shall it be made available for sale will depend on what do the customer wants. Marketing concept helps in effective marketing of goods and services by using the following (i) Identification of market or customer who are chosen as the target of (ii) Understanding needs and wants of customers in the target market. (iii) Development of products or services for satisfying needs of the target market. (iv) Satisfying needs of target market better than the competitors. (v) Doing all this at a profit.
Q.3 What is marketing mix? What are its main elements? Explain. ANSWER: Marketing mix refers to the combination of four basic elements known as four P’s — Product, Price, Promotion and Place. Product Mix (i)Product mix basically concerns with the features related to a product e.g., range, quality, size, labelling, packaging, branding etc. All products must satisfy consumer needs and expectations. It aims at providing good quality products at fair prices. (ii)Price Mix It includes decisions relating to price determination, discounts and allowances credit terms. It covers pricing objectives and pricing policies. Price should cover not only cost of production and selling expenses but also a reasonable profit margin. The price policy adopted by the enterprise should not only be cost based but also demand based and competition based. (iii) Place Mix Place mix links the seller and buyer. The choice of channels of distribution and transport are the two major issues here. There are various factors which help in deciding the channel e.g., the time and the place, where the goods have to reach or transportation. It is the nature of goods, place of destination, cost and availability etc. (iv) Promotion Mix It refers to all marketing activities to increase the volume of sales of the product of an enterprise. It consists of means of marketing communication with a view to informing and persuading the prospective buyers to buy a certain product. It includes advertising, personal selling, publicity and sales promotion.
Q.4 How does branding help in creating product differentiation? Does it help in marketing of goods and services? Explain. ANSWER: Branding helps a firm in distinguishing its products from that of its competitors. This helps the firm to secure and control the market for its products. If products were sold by generic names, it would be very difficult for the marketers to distinguish their products from its competitors. Thus, most marketers give a name to their product, which helps in identifying and distinguishing their products from their competitors product. This process of giving a name or a sign or a symbol etc to a product is called Branding.
Q.5 What are the factors affecting determination of the price of a product or service? Explain. ANSWER: There are number of factors which affect the fixation of the price of a product. Some of the important factors in this regard are discussed as below (i) Product Cost The cost sets the minimum level or the floor price at which the product may be sold. There are broadly three types of cost—fixed costs, variable costs and semi variable cost. Total cost is the sum of all these three. Generally, all firms try to cover all their costs, atleast in the long Sun. In addition, they aim at earning a margin of profit over and above the costs. (ii) The Utility and Demand The utility provided by the product and the intensity of demand of the buyer sets the upper limit of price, which a buyer would be prepared to pay. Infact the price must reflect the interest of both the parties to the transaction — the buyer and the seller. The buyer may be ready to pay up to the point, where the utility from the product is atleast equal to the sacrifice made in terms of the price paid. The seller would, however, try to cover the costs. According to the law of demand, consumers generally purchase more units at a low price than at a high price. (iii) The Extent of Competition in the Market The price is also affected by the nature and degree of competition. The price will tend to reach the upper limit in case there is less degree of competition while under free competition, the price will tend to be set at the lowest level. (iv) Government and Legal Regulations In order to profit the interest of public against unfair practices in the field of price fixing, Government can intervene and regulate the price of commodities. Government can declare a product as essential product and regulate its price. (v) Pricing Objectives Pricing objectives are another important factor affecting the fixation of the price of a product or a service. Apart from price maximisation, the pricing objectives of a firm may include. (a)Obtaining Market Share Leadership If a firm objective is to obtain larger share of the market, it will keep the price of its products at lower level, so that greater number of people are attracted to purchase the products. (b)Surviving in a Competitive Market If a firm is facing difficulties surviving in the market because of intense competition or introduction of a more efficient substitute by a competitor. (c) Attaining Product Quality Leadership In this case, normally higher prices are charged to cover high quality and high cost of R & D (Research and Development). (vi) Marketing Methods used Price Fixation Price is also affected by other elements of marketing such as distribution system, quality of salesmen employed, quality and amount of advertising, sales promotion efforts, the type of packaging, product differentiation, credit facility and customer service provided.
Q.6 What do you mean by ‘Channels of distribution’? What functions do they play in the distribution of goods and services? Explain. ANSWER: People, institutions, merchants and functionaries, who take part in the distribution of goods and services are called ‘Channels of Distribution’. Channels of distribution are set of firms and individuals that take title or assist in transferring title, to particular goods or services as it moves from the producers to the consumers. Channels of distribution smoothen the flow of goods by creating possession, place and time utilities. They facilitate movement of goods by overcoming various barriers The important function performed by middlemen are (i) Sorting Middlemen procure supplies of goods from a variety of sources, which is often not of the same quality, nature and size. These goods are sorted into homogeneous groups on the basis of the size or quality. (ii) Accumulation This function involves accumulation of goods into larger homogeneous stock, which help in maintaining continuous flow of supply. (iii) Allocation Allocation involves breaking homogeneous stock into smaller, marketable lots to sell them to different types of buyers. (iv) Assorting Middlemen build assortment of products for resale. There is usually a difference between the product lines made by manufacturers and the assortment or combinations desired by the users. Middlemen produce variety of goods from different sources and delivers them in combinations, desired by customers. (v) Product Promotion Middlemen also participate in some sales promotion activities, such as demonstration, special display, contests etc. to increase the sale of products. (vi) Negotiation Channels operate with manufacturers on the one hand and customer on the other. They negotiate the price, quality, guarantee and other related matters with customers, so that transfer of ownership is properly affected. (vii) Risk Taking In the process of distribution of goods, the merchant middlemen take title of the goods and thereby assume risks on account of price and demand fluctuations, spoilage, destinations etc.
Q.7 Explain the major activities involved in the physical distribution of products. ANSWER: Physical distribution covers all the activities required to physically move goods from manufacturer to the customers. Important activities involved in the physical distribution include transportation, warehousing, material handling and inventory control. (i) Order Processing In a typical buyer-seller relationship order placement is the first step. Products flow from the manufacturers to customers via channel members while orders flow from customers to manufacturers. Therefore, a good speedy and accurate system of order processing becomes a necessity. (ii) Transportation Transportation is the means of carrying goods and raw materials from the point of production to the point of sale. It is one of the major element in the physical distribution of goods. It is important because unless the good are physically made available, the sale can not be completed. (iii) Warehousing Warehousing refers to the act of storing and assorting products in order to create time utility in them. The basic purpose of warehousing activities is to arrange placement of goods and provide facilities to store them. The need for warehousing arises because there may be difference between the time, a product is produced and the time it is required for consumption. Generally, the efficiency of a firm in serving its customers will depend on, where these warehouses are located and where are these to be delivered. (iv) Inventory Control A very important decision in respect of inventory is deciding about the level of inventory. Higher the level of inventory, higher will be the level of service to customers but the cost of carrying the inventory will also be high because lot of capital would be tied up in the stock. The decision regarding level of inventory involves prediction about the demand for the product. A correct estimate of the demand helps to hold inventory and cost level down to a minimum. The major factors determining inventory levels include. (a) Firm’s policy regarding the level of customer service. Higher the level of service, greater will be the need to keep more inventories. (b) Degree of accuracy of the sales forecast. In case more accurate estimates are available, the need for keeping very high level of inventory can be minimised. (c) Responsiveness of the distribution system i.e., ability of the system to transmit inventory needs back to the factory and get products to the market. (d) Cost of inventory, which includes holding cost, such as cost of warehousing, tied up capital etc and the manufacturing cost
Q.8 ‘Expenditure on advertising is a social waste’ Do you agree? Discuss. ANSWER: The opponents of advertising say that the expenditure on advertising is a social waste as it adds to the cost, multiplies the needs of the people and undermines social values. The proponents, however argue that advertising is very useful as it increases the reach, brings the per unit cost of production down and adds to the growth of the economy. Following are the points of criticism (i) Adds to Cost The opponents of advertising argue that advertising unnecessarily adds to the cost of product, which is ultimately passed on to the buyers in the form of high prices. It is line that advertisement of a product cost lots of money but it helps to increase the demand for the product as large number of potential buyers come to know about the availability of the products, its features etc and are persuaded to buy it. This increases the demand and therefore the – production. As a result, the per unit cost of production comes down as the total cost is divided by larger number of units. (ii) Undermines Social Values Advertising undermines social values and promotes materialism. It breeds discontentment among people as they come to know about new products and feel dissatisfied with their present state of affairs. This criticism is not entirely time. Advertisement in fact helps buyer by informing them about the new products which may be improvement over the existing products. (iii) Confuses the Buyers Another criticism against advertisements is that so many products are being advertised which makes similar claims that the buyer gets confused as to which one is true and which are should be relied upon, e.g., there are so many brands of soaps, shampoos, cars, TVs, cell phones etc which are advertised. The supporters of advertisement, however argued that we are all rational human beings who make our decisions for purchase of products on factors, such as price, style, size, etc. Thus the buyers can clear their confusion by analysing the information provided on the advertisements and other sources before taking a decision to purchase a product. (iv) Encourages Sale of Inferior Product Advertising does not distinguish between superior and inferior products and persuade people to purchase even the inferiors products. The desired level of quality will depend on the economic states and preferences of the target customers. Advertisements sell products of a given quality and the buyers will buy, if it suits their requirements. (v) Some Advertisements are in Bad Taste Another criticism against advertising is that some advertisements are in bad taste. They show something which is not approved by some people. Some advertisement spoil the relationship between employer and employee, husband and wife etc. From the above discussion, we have learnt that through advertisements are crticised but still they have their own advantages. It is not a social waste, rather it adds value to the social cause by giving a boost to production and generating employment.
Q.9 Distinguish between advertising and personal selling.
ANSWER: A financial market is a market for the creation and exchange of financial assets such as shares and debentures. A financial market performs the following functions.
i) Savings mobilization and channeling into the most productive uses. A financial market serves as a conduit between savers and investors. It serves as a channel for the transfer of savings from households to investors. It provides savers with a variety of investment options, assisting in the allocation of surplus funds to the most productive use.
ii)Make Price Discovery Easier. The price of a financial asset, like a commodity, and generally determined by the forces of demand and supply for funds. The financial market serves as a platform for the interaction of fund demand (represented by business firms) and fund supply (represented by the households). As a result, it aids in determining the price of the traded asset.
iii) Gives Financial Assets Liquidity. In a financial market, an asset or security can be easily bought and sold. This gives the assets liquidity. That is, assets can be easily converted into cash or cash equivalents through financial market trading.
iv) Reduce Transaction Costs. Financial markets provide useful information about the securities that are traded on the market. It saves time, effort, and money that both buyers and sellers of a financial asset would otherwise have to spend trying to find each other. As a result, the financial market serves as a common platform where buyers and sellers can meet to meet their individual needs.
Q.2 ”Money Market is essentially a Market for short term funds”. Discuss.
ANSWER:The money market is a market for trading short-term securities and funds. Money market securities have a very short maturity period ranging from one day to one year. These assets can be used as a close substitute for cash or money. These are also called as ‘Near Money instruments’ due to their short maturity period. These instruments are considered as an vital source of financing for working capital needs. They have a high level of liquidity. DFHI offers a discount on money market securities and a ready market for them. Furthermore, securities traded in the money market are safe and secure because transactions are made in instruments issued by financially strong financial institutions and companies. Treasury bills, commercial paper, call money, certificates of deposit, and other common instruments traded in the money market include treasury bills, commercial paper, call money, certificates of deposit, and so on.
Q.3What is a Treasury Bill?
ANSWER: The Reserve Bank of India issues Treasury Bills on behalf of the Central Government of India. They are issued to meet the Government of India’s short-term funding needs. Treasury Bills have maturities ranging from 14 to 364 days. These bills are typically introduced by commercial banks, LICs, UTIs, non-banking financial institutions, and so on. They’re also known as Zero-Coupon Bonds. Treasury bills are highly liquid instruments because the RBI is always willing to purchase them. Furthermore, because they are issued by the RBI, they are regarded as the safest instrument. They are available for a minimum of Rs 25,000 and in multiples of that amount. Treasury Bills are issued at a discount, that is, at a lower price than the face value, and are redeemed at par. The interest received during redemption is denoted by the discount (the difference between the issue price and the redemption value). The purpose of issuing T-Bills is to meet the government’s short-term money borrowing needs. T-bills have several advantages over other bills, including:
1. They have a zero risk weighting because of issuance by the government, and on the other hand sovereign papers carry no risk.
2. High liquidity because the maturities are 91 and 364 days, respectively.
3. Accountability.
4. Because T-Bills have a very active secondary market, they have a higher degree of tradability.
Q.4 Distinguish between Capital Market and Money Market.
ANSWER:The following points highlight the difference between Capital Market and Money Market:
Basis of difference
Capital Market
Money Market
Time Span of Securities
The capital market is primarily concerned with the trading of medium and long-term securities with maturities of more than one year.
This Market is usually concerned with the short-term trading of securities with maturities ranging from one day to a maximum of one year.
Liquidity
Capital market securities are liquid in the sense that they can be traded on stock exchanges, but they are less liquid than money market securities.
The traded securities are extremely liquid. DFHI offers a discount on money market securities and a ready market for them.
Return expected
Because of the possibility of long-term and regular dividends or bonuses, expected returns are higher.
Because of the shorter duration, expected returns are lower.
Instruments
Equity shares, preference shares, debentures, bonds, and other long-term securities are among the instruments traded in the capital market.
Treasury bills, commercial bills, certificates of deposit, and other short-term securities are among the instruments traded in the money market.
Risk
In terms of principal repayment, capital market securities carry a higher level of risk.
The securities here are less risky due to the short time period and the issuers’ strong financial position.
Q.5 What are the functions of a Stock Exchange?
ANSWER: The term “stock exchange” refers to a market where existing securities are bought and sold. The primary functions of a stock exchange are as follows.
(i) Provides Liquidity and Marketability: The stock exchange provides a ready-to-trade platform for existing securities. In another way we can say, it provides a continuous market for the sale and purchase of securities. Securities can be easily converted into cash via stock exchange whenever needed. Furthermore, long-term securities can be converted to medium-term and short-term securities via stock exchange.
(ii) Determination of Prices: A stock exchange aids in determining the value of the monetary assets traded in that market. It provides a platform for interaction between buyers and sellers of securities, assisting in the determination of securities prices through the forces of demand and supply.
(iii) Fair and Safe Market: As a legal and well-regulated market, the stock exchange. It operates within the boundaries of the defined and existing legal framework. As a result, it ensures transactional safety and fairness.
(iv) Facilitates Economic Growth: Securities are constantly bought and sold on a stock exchange. This ongoing process of disinvestment and reinvestment aids in directing savings and investments to the most productive uses. This boosts capital formation as well as economic growth.
(v) Spreading Equity Cult: A stock exchange can help educate people about investing by regulating issues and improving trading practices. It encourages and promotes people to invest in ownership securities.
(vi) Acts as an Economic Barometer: A stock exchange reflects changes in economic conditions through changes in share prices. For example, the rise (or fall) in share prices reflects a boom (or recession).
(vii) Scope for Speculation: It is widely assumed that some degree of speculation is required for improved liquidity and the maintenance of demand and supply for securities. Within the confines of the law, the stock exchange allows for a reasonable and controlled scope of speculation.
Q.6What are the objectives of the SEBI?
ANSWER: The Securities and Exchange Board of India (SEBI) was formed to promote the orderly and healthy growth of India’s securities market. The following points highlight SEBI’s overall goals:
1.To regulate the stock exchanges market as well as the securities industry in order to ensure their smooth operation.
2. To protect and guide individual investors’ rights and interests, as well as to educate and guide them.
3. To prevent trading malpractices and strike a balance between the securities industry’s self-regulation and statutory regulation.
4. Regulating as well as developing a code of conduct and fair practices for intermediaries such as brokers, merchant bankers, and so on. , in order to make them more competitive and professional.
Q.7State the objectives of the NSE.
ANSWER: The National Stock Exchange of India was established in 1992. It was established as a stock exchange in 1993 and began operations in 1994. It was founded by major banks, financial institutions, insurance firms, and financial intermediaries. NSE was founded with the following goals in mind.
(i) The NSE aimed to establish a single nationwide trading system to provide trading in all types of securities. This type of system boosts investor confidence.
(ii) It ensured that all investors throughout the country have easy and equal access to a suitable communication network. It improves the security’s liquidity. In the transaction, the people involved were limited under the regional stock exchange system. In contrast, the NSE incorporates transactions from all over the country, increasing the liquidity of the securities.
(iii) The NSE aims to provide a fair, efficient, and transparent securities market by utilizing an electronic trading system. Anyone can obtain information about the trading of various securities from the NSE’s local terminals. As a result, it aids in the reduction of trading fraud.
(iv) One of the NSE’s goals is to enable shorter settlement cycles and book entry settlements.
(v) The NSE aimed to meet international stock exchange standards and benchmarks.
Long Answer Type Questions:
Q.1 Explain the various money Market Instruments. ANSWER: Money Market Instruments (i) Treasury Bill A treasury bill is an instrument of short term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by Reserve Bank of India on behalf of the Central Government to meet its short term requirements of funds. They are issued in the form of a promissory note. They are highly liquid and issued at a price which is lower than their face value and repaid at par. Treasury bills are available for a minimum amount of Rs.25,000. (ii) Commercial Paper Commercial paper is a short term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be finally strong. It is sold at discount and redeemed at par. (iii) Call Money Call money is a short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial Banks have to maintain a minimum cash balance known as cash reserve ratio. Call money is a method by which banks borrow from each other. (iv) Certificate of Deposit Certificates of deposit are unsecured, negotiable, short term instruments in bearer form, issued by Commercial Banks and development financial institutions. They can be issued to individuals, corporations and companies during periods of tight liquidity when the deposit growth of banks is slow but the demand for credit is high. They help to mobilise a large amount of money for short periods. (v) A Commercial Bill A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short term negotiable, self-liquidating instrument which is used to finance the credit sales of firms, when goods are sold on credit, the buyer becomes liable to make payment on a specific date in future.
Q.2 What are the methods of floatation in Primary Market? ANSWER: The primary market is also known as the new issues market. It deals with new securities being issued for the first time. There are various methods of floating new issues in the primary market (i) Offer Through Prospectus This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines. The issues may be under written and also required to be listed on at least one stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI disclosure and investor protection guidelines. (ii) Offer for Sale Under this method securities are not issued directly to the public but offered for sale through intermediaries like issuing houses or stock brokers. In this case, company sells securities enblock at an agreed price to brokers who, in turn, resell them to the investing public. (iii) Private Placement Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. (iv) Rights Issue This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholder are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess. (v) e-IPOs A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange. This is called an Initial Public Offer (IPO). SEBI registered broker’s have to be appointed for the purpose of accepting applications and placing orders with the company the issuer company should appoint a registrar to the issue having electronic connectivity with the exchange. The issuer company can apply for listing of its securities on any exchange other than the exchange through which it has offered its securities. The lead manager co-ordinates all the activities amongst intermediaries connected with the issue.
Q.3 Explain the Capital Market reforms in India. ANSWER: The National Stock Exchange is the latest, most modern and technology driven exchange. NSE has setup a nationwide fully automated screen based trading system. The NSE was setup by leading financial institutions, banks, insurance companies and others financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange. The trading rights are with the trading members who offer their services to the investors. The Board of NSE comprises senior executives from promoter institutions and eminent professionals, without having any representation from trading members. Objectives of NSE (i) Establishing a nationwide trading facility for all types of securities. (ii) Ensuring equal access to investors all over the country through an appropriate communication network. (iii) Providing a fair, efficient and transparent securities market using electronic trading system. (iv) Enabling shorter settlement cycles and book entry settlements. (v) Meeting international bench marks and standards.. Within a span of 10 year, NST was able to achieve its objectives for which it was set up. It has been playing a leading role as a change agent in transforming the Indian capital market
Q.4 Explain the objectives and functions of SEBI. ANSWER: Objectives of SEBI Functions of SEBI Keeping in mind the emerging nature of the securities market in India, SEBI was entrusted with the twin task of both regulation and development of the securities market. It has certain functions Regulatory Functions (i) Registration of brokers and sub-brokers and other players in the market. (ii) Registration of collective investment schemes and mutual funds. (iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges and any other securities market. (iv) Regulation of takenover bids by companies. (v) Calling for information by undertaking inspection conducting enquiries and audits of stock exchanges and intermediaries. (vi) Levying for or other charges for carrying out the purposes of the act. (vii) Performing and exercising such power under Securities Contracts Act, 1956, as may be delegated by the Government of India. Development Functions (i) Training of intermediaries of the securities market. (ii) Conducting research and publishing information useful to all market segments. (iii) Undertaking measures to develop the capital markets by adopting a flexible approach. Protective Functions (i) Prohibition of fraudulent and unfair trade practice like making misleading statements, manipulations, price rigging etc. (ii) Controlling insider trading and imposing penalties for such practices. (iii) Undertaking steps for investor protection. (iv) Promotion of fair practices and code of conduct in securities market
Q.5 Explain the various segments of NSE. ANSWER: NSE provides trading in the following two segments (i) Whole Sale Debt Market Segment This segment provides a trading platform for a wide range of fixed income securities that include central government securities, treasury bills, state development loans, bonds issued by public sector undertakings, floating rate bonds, zero coupon bonds, index bonds, commercial paper, certificate of deposit, corporate debentures and mutual funds. (ii) Capital Market Segment The capital market segment of NSE provides efficient and transparent platform for trading in equity, preference, debentures, exchange traded funds as well as retail government securities.
ANSWER: The proportion of debt and equity used to fund a company’s operations is referred to as its capital structure. In other words, capital structure is the proportion of debt and equity capital in the capital structure. It is difficult to say what type of capital structure is best for a company. The capital structure should be designed to maximize the wealth of equity shareholders by increasing the value of their equity shares. Alphabetically, the Capital structure is Debt Equity Debt Equity or Debt Equity +Debt Debt Equity +Debt.
Q.2 Discuss the two objectives of Financial Planning.
ANSWER:Financial planning entails creating a blueprint for a company’s financial operations. It ensures that the appropriate amount of funds are available for organizational operations at the appropriate time. As a result, it ensures that everything runs smoothly. Firms use financial planning to forecast how much money will be needed at what time, taking into account growth and performance. The two primary goals of financial planning are as follows.
To ensure availability of funds whenever these are required: The primary goal of financial planning is to ensure that sufficient funds are available in the company for various purposes such as the purchase of long-term assets, meeting day-to-day expenses, and so on. It ensures that funds are available on time. In addition to availability, financial planning attempts to specify the sources of finance.
To see that firm does not raise resources unnecessarily: Excessive funding is just as bad as insufficient or scarce funding. If there is a surplus of funds, financial planning must invest it as wisely as possible, as keeping financial resources idle is a significant loss for an organization.
Q.3 What is financial risk? Why does it arise?
ANSWER:Financial risk occurs when a company is unable to meet its fixed financial charges, such as interest payments, preference dividends, and repayment obligations. In other words, it refers to the likelihood of the company failing to meet its fixed financial obligations. It manifests itself as the proportion of debt in the capital structure rises. This is due to the fact that the company is required to pay the interest charges on debt in addition to the principal amount. As a result, the greater the debt, the greater the payment obligations, and thus the greater the chances of payment default. As a result, increased use of debt entails increased financial risk for the company.
Q.4Define a ‘current asset’. Give four examples of such assets.
ANSWER: Current assets are assets that are retained in the business with the intention of converting them anytime into cash within a short period of time i.e. one year. For example, goods are purchased with the intent of reselling them and earning a profit, debtors exist to convert them into cash, i.e., receive the amount from them, and bills receivable exist to receive cash against them. Current assets include short-term investments, debtors, stocks, and cash equivalents.
Q.5Financial management is based on three broad financial decisions. What are these?
ANSWER: Financial management is the efficient acquisition, allocation, and utilization of a company’s funds. It focuses on three major aspects of financial decisions: investment decisions, financial decisions, and dividend decisions.
1.Investment decisions include the purchase of fixed assets (called capital budgeting). Investment in current assets is also a type of investment decision that is referred to as a working capital decision.
2. Financial decisions – They concern the raising of funds from various sources, which will be determined by the decision on the type of source, the period of financing, the cost of financing, and the resulting returns.
3. Dividend decision – The finance manager must make a decision on net profit distribution. Net profits are typically divided into two categories:
1. Dividend for shareholders- A dividend, as well as the rate at which it will be paid, must be determined.
2. Retained profits- The amount of retained profits must be finalized, which will be determined by the enterprise’s expansion and diversification plans.
Q.6 What are the main objectives of financial management? Briefly explain.
ANSWER:Financial management is generally concerned with the procurement, allocation, and control of a company’s financial resources. The goals could be
Ensure a consistent and adequate supply of funds to the concern.
To ensure adequate returns to shareholders, which will be determined by earning capacity, market price of the share, and shareholder expectations.
To ensure that funds are used as efficiently as possible. Once the funds are obtained, they should be used in the most efficient and cost-effective manner possible.
To ensure investment safety, funds should be invested in safe ventures to achieve an adequate rate of return.
To plan a sound capital structure-Capital should be composed in a sound and equitable manner so that a balance between debt and equity capital is maintained.
Q.7How does working capital affect both the liquidity as well as profitability of a business?
ANSWER:A company’s working capital is defined as the excess of current assets (such as cash on hand, debtors, stock, and so on) over current liabilities. Working capital has an impact on a company’s liquidity as well as its profitability. The liquidity of the business increases as the amount of working capital increases. However, because current assets provide a low return, increasing working capital reduces business profitability. For example, increasing the business’s inventory increases its liquidity, but because the stock is kept idle, the profitability falls. Low working capital, on the other hand, impedes the day-to-day operations of the business. As a result, working capital should be allocated in such a way that a balance between profitability and liquidity is maintained.
Long Answer Type Questions:
Q.1 What is meant by working capital? How is it calculated? Discuss five important determinants of working capital requirements. ANSWER: Working capital is that part of total capital which is required to H meet day-to-day expenses, to buy raw materials, to pay wages and other expenses of routine nature in the production process or we can say it refers 2 to excess of current assets over current liabilities. Working Capital = Current Assets – Current Liabilities Factors affecting working capital requirement are 2 (i) Nature of Business The basic nature of a business influences the amount of working capital required. A trading organisation usually needs a lower amount of working capital compared to a manufacturing organisation. This is because in trading, there is no processing required. In a manufacturing business, however, raw materials need to be converted into finished goods, which increases the expenditure on raw material, labour and other expenses, (ii) Scale of Operation The firms which are operating on a higher scale of operations, the quantum of inventory, debtors required is generally high, Such organisations, therefore, require large amount of working capital as compared to the organisations which operate on a lower scale. (iii) Production Cycle Production cycle is the time span between the receipts of raw materials and their conversion into finished goods. Some businesses have a longer production cycle while some have a shorter one. Working capital requirement is higher in terms with longer processing cycle and lower in firms with shorter processing cycle. (iv) Credit Allowed Different firms allow different credit terms to their customers. A liberal credit policy results in higher amount of debtors, increasing the requirements of working capital. (v) Credit Availed Just as a firm allows credit to its customers it also may get credit from its suppliers. The more credit a firm avails on its purchases, the working capital requirement is reduced.
Q.2 Capital structure decision is essentially optimisation of risk-return relationship. Comment. ANSWER: Capital structure refers to the mix between owners and borrowed funds. It can be calculated as Debit/Equity. Debt and equity differ significantly in their cost and riskiness for the firm. Cost of debt is lower than cost of equity for a firm because lender’s risk is lower than equity shareholder’s risk, since lenders earn on assured return and repayment of capital and therefore they should require a lower rate of return. Debt is cheaper but is more risky for a business because payment of interest and the return of principal is obligatory for the business. Any default in meeting these commitments may force the business to go into liquidation. There is no such compulsion in case of equity, which is therefore, considered riskless for the business. Higher use of debt increases the fixed financial charges of a business. As a result increased, use of debt increases the financial risk of a business. Capital structure of a business thus, affects both the profitability and the financial risk. A capital structure will be said to be optimal when the proportion of debt and equity is such that it results in an increase in the value of the equity share.
Q.3 A capital budgeting decision is capable of changing the financial fortune of a business. Do you agree? Why or why not? ANSWER: Investment decision can be long term or short term. A long term investment decision is also called a capital budgeting decision. It involves commiting the finance on a long term basis, e.g., making investment in a new machine to replace an existing one or acquiring a new fixed assets or opening a new branch etc. These decisions are very crucial for any business. They affect its earning capacity over the long-run, assets of a firm, profitability and competitiveness, are all affected by the capital budgeting decisions. Moreover, these decisions normally involve huge amounts of investment and are irreversible except at a huge cost. Therefore, once made, it is almost impossible for a business to wriggle out of such decisions. Therefore, they need to be taken with utmost care. These decisions must be taken by those who understand them comprehensively A bad capital budgeting decision normally has the capacity to severely damage the financial fortune of a business.
Q.4 Explain factors affecting the dividend decision. ANSWER: Dividend decision relates to distribution of profit to the shareholders and its retention in the business for meeting the future investment requirements. How much of the profits earned by a company will be distributed as profit and how much will be retained in the business is affected by many factors. Some of the important factors are discussed as follows (i) Earnings Dividends are paid out of current and past year earnings. Therefore, earnings is a major determinant of the decision about dividend. (ii) Stability of Earnings Other things remaining the same, a company having stable earning is in a position to declare higher dividends. As against this, a company having unstable earnings is likely to pay smaller dividend. (iii) Growth Opportunities Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. The dividend in growth companies, is therefore, smaller than that in non-growth companies. (iv) Cash Flow Position Dividends involve an outflow of cash. A company may be profitable but short on cash. Availability of enough cash in the company is necessary for declaration of dividend by it. (v) Shareholder Preference If the shareholder in general, desire that at least a certain amount should be paid as dividend, the companies are likely to declare the same. (vi) Taxation Policy If tax on dividend is higher it would be better to pay less by way of dividends. As compared to this, higher dividends may be declared if tax rates are relatively lower. (vii)Stock Market Reaction For investors, an increase in dividend is a good news and stock prices react positively to it. Similarly, a decrease in dividend may have a negative impact on the share prices in the stock market. (viii) Access to Capital Market Large and reputed companies generally have easy access to the capital market and therefore, depend less on retained earnings to finance their growth. These companies tend to pay higher dividends than the smaller companies which have relatively low access to the market. (ix) Legal constraints Certain provisions of the Company’s Act place restriction on payouts as dividend. Such provisions have to be adhered, while declaring dividends. (x) Contractual Constraints While granting loans to a company, sometimes the lender may impose certain restrictions on the payment of dividends in future. The companies are required to ensure that the dividends does not violate the terms and conditions of the loan agreement in this regard.
Q.5 Explain the term ‘trading on equity’. Why, when and how it can used by a business organisation? ANSWER: Trading on equity refers to the increase in profit earned by the equity shareholders due to presence of fixed financial charges. When the rate of earning or Return on Investment (ROI) of a company is higher than the rate of interest on borrowed funds only then a company should opt for trading on equity. Let us consider the following example It should be clear from the above example, that shareholders of the company ‘X’ have a higher rate of return than company ‘Y’ due to loan component in the total capital of the company.
ANSWER: Controlling is the function of evaluating and assessing the progress of work. It entails establishing specific criteria or standards for the work and then comparing the actual work to the established standards. It aids in identifying deviations from the set targets and, as a result, in taking the necessary corrective actions. It also ensures that everything goes as per the plan. It also ensures that resources are used fully and efficiently. Controlling is an essential managerial function because it keeps a close eye on the progress of work and thus serves as the foundation for future actions and planning.
Q.2 ‘Planning is looking ahead and controlling is looking back’. Comment.
ANSWER:Planning is forward-thinking, while controlling is backward-thinking. This statement is only partially correct. Planning is a psychological process that involves “thinking and deciding ahead of time” about “what is to be done” and “how it is to be done.” It is a mental activity that entails deciding on goals as well as the actions that will be taken to achieve them. Thus, planning is said to be looking ahead because it involves predicting the future. Controlling, on the other hand, entails assessing past performance and comparing it to predetermined standards. Controlling is a backward-looking function in this sense. Both of these statements, however, are only partially correct. Though planning is a forward-thinking concept, it is founded on past actions and experiences. Without looking into the past, it is impossible to plan for the future. Similarly, while controlling involves evaluating past performance, it also aims to improve future performance by implementing necessary corrective actions. As a result, we can say that planning and controlling are both backward and forward looking functions.
Q.3 ‘An effort to control everything may end up in controlling nothing’. Explain.
ANSWER: The statement, ‘an effort to control everything may end up controlling nothing,’ refers to the ‘Management by Exception’ principle. It emphasizes the fact that nothing can be effectively controlled. Rather than controlling every deviation in performance, this principle states that an acceptable range of deviations in various activities should be established, and only deviations that exceed the acceptable range should be brought to the attention of managers for control. In other words, only major deviations that exceed the allowable limit should be acknowledged. Assume, for example, that the acceptable range of increase in input cost is set at 3%. In this case, only an increase of more than 3% in input costs (say, 7%) should be brought to the managers’ attention. A decrease of less than 3% (say, 1% ) should, on the other hand, be ignored. As a result, instead of attempting to control everything, an effort should be made to control only the major things.
Q.4 Write a short note on budgetary control as a technique of managerial control.
ANSWER: Budgetary control is a control technique that entails creating plans in the form of budgets. A budget is considered as a financial or quantitative statement that defines the goals to be achieved and the policies to be implemented over a specific time period. The actual results are then compared to the budgetary standards. This comparison aids in identifying deviations and, as a result, guides in the implementation of appropriate corrective measures. Budgets can be created for various divisions of an organization, such as sales, production, and purchasing. However, in order for budgeting to be effective, future estimates must be carefully made. Budgeting also serves as a source of motivation for employees by establishing the benchmarks against which their performance will be measured. As a result, it motivates them to meet their goals. Furthermore, it is used to facilitate coordination among the organization’s various divisions/departments. Furthermore, proper budgeting ensures that resources are allocated to different divisions based on their needs. As a result, it aids in the most efficient use of resources.
Q.5 Explain how management audit serves as an effective technique of controlling.
ANSWER:Management auditing is the comprehensive and constructive evaluation of an organization’s management’s overall performance. It aims to improve management’s overall effectiveness and efficiency. It evaluates all of the functions performed by managers and aids in the identification of deficiencies in work performance. The following factors can be used to assess the effectiveness of management auditing for controlling.
i. Identification of Deficiencies: Management auditing assists in identifying current as well as potential deficiencies in performance. As a result, it aids in the implementation of necessary corrective measures.
ii. Increases Efficiency: Management auditing allows various management activities to be continuously monitored. As a result, it aids in improving management’s overall efficiency.
iii.Improves Coordination: As it continuously oversees the work, it improves coordination between employees as well as within the various functions of the organization.
iv.Adapting to Environmental Changes: It assists the organization in appropriately adapting to environmental changes. This is accomplished by ensuring that management policies and strategies are up to date.
Long Answer Type Questions:
Q.1 Explain the various steps involved in the process of control. ANSWER: Controlling is a systematic process involving following steps (i) Setting Performance Standards The first step in the controlling process is setting up of performance standards. Standards are the criteria against which actual performance would be measured. Standards can be set in both quantitative as well as qualitative terms. Some of the qualitative standards are—cost to be incurred, product units to be produced, time to be spent in performing a task etc. Improving goodwill and motivation level of employees are examples of qualitative standards. (ii) Measurement of Actual Performance Once performance standards are set, the next step is measurement of actual performance. Performance should be measured in an objective and reliable manner. Some of the techniques used for measuring the performance are personal observation, sample checking performance reports etc. (iii) Comparing Actual Performance with Standards This step involves comparison of actual performance with the standards. Such comparison will reveal the deviation between actual and desired results. Comparison becomes easier when standards are set in quantitative terms. For instance, performance of a worker in terms of units produced in a week can be easily measured against the standard output for the week. (iv) Analysing Deviations Some deviations in performance can be expected in all activities. It is therefore, important to determine the acceptable range of deviations. Also, deviations in key areas of business need to be attended more urgently as compared to deviations in certain insignificant areas. Critical point control and management by exception should be used by a manager in this regard. (v) Taking Corrective Action The final step in the controlling process is taking corrective action. No corrective action is required when the deviations are within acceptable limits. However, when the deviations go beyond the acceptable range, especially in the important areas, it demands immediate managerial attention so that deviations do not occur again and standards are accomplished. Incase the deviations cannot be corrected through managerial action, the standards may have to be revised.
Q.2 Explain the techniques of managerial control. ANSWER:The various techniques of managerial control may be classified into broad categories (i) Traditional Techniques Those techniques which have been used by the companies for a long time now are traditional techniques. However, these have not become obsolete and are still being used by companies. (a) Personal Observation Personal observation enables the manager to collect first hand information. It also creates a psychological pressure on the employees to perform well as they are aware that they are being observed personally in their job. (b) Statistical Reports Statistical analysis in the form of averages, percentages, ratios, correlation etc. Present useful information to the managers regarding performance of the organisation in various areas. Such information when presented in the form of charts, graphs, tables etc enables the managers to read them more easily and allow a comparison to be made with performance in previous periods and also with the benchmarks. (c) Break-even Analysis It is a technique used by managers to study the relationship between costs, volume and profits. It determines the probable profits and losses at different levels of activity. The sales volume at which there is no profit, no loss is known as break-even point. It is a useful technique for the managers as it helps in estimating profits at different levels of activities. (d) Budgetary Control It is a technique of managerial control in which all operations are planned in advance in the form of budgets and actual results are compared with budgetary standards. This comparison reveals the necessary actions to be taken so that organisational goals are accomplished. A budget is a quantative statement for a definite future period of time for the purpose of obtaining a given objective. It is also a statement which reflects the policy of that particular period. It will contain figures of forecasts both in terms of time and quantities
(ii) Modern Techniques Modern techniques of controlling are those which are of recent origin and are comparatively new in management literature. They provide a new thinking on the ways in which various aspects of an organisation can be controlled. (a) Return on Investment Return on Investment (ROI) is a useful technique which provides the basic yardstick for measuring whether or not invested capital has been used effectively for generating reasonable amount of return. It can be calculated as under ROI provides top management an effective means of control for measuring and comparing performance of different departments. It also permits departmental managers to find out the problem which affects ROI in an adverse manner. (b) Ratio Analysis It refers to analysis of financial statements through computation of ratios. The most commonly used ratios are Liquidity Ratios Liquidity ratios are calculated to determinedly short term solvency of business. Solvency Ratios Ratios which are calculated to determine the long term solvency of business are known as Solvency ratios. Profitability Ratios These ratios are calculated to analyse the profitability position of a business. Turnover Ratios They are calculated to determine the efficiency of operations based on effective utilisation of resources. (iii) Responsibility Accounting Responsibility accounting is a system of accounting in which different sections, divisions and departments of an organisation are set up as ‘responsibility centres’. The head of the centre is responsible for achieving the target set for his centre. Responsibility centres may be of the following types (a) Cost Centre A cost or expense centre is a segment of an organisation in which managers are held responsible for the cost incurred in the centre but not for the revenues e.g., production department. (b) Revenue Centre A revenue centre is held responsible for generating revenue, e.g., marketing department. (c) Profit Centre A profit centre is responsible for both cost and revenue e.g., repair and maintenance department. (d) Investment Centre An investment centre is responsible not only for profits but also for investments made in the centre in the form of assets. (iv) Management Audit Management audit refers to systematic appraisal of the overall performance of the management of an organisation. The purpose is to review the efficiency and effectiveness of management and to improve its performance in future periods. It is helpful in identifying the deficiencies in the performance of management functions. The main advantages are (a) Helps to locate weaknesses. (b) It helps to improve control system. (c) Ensures updating of existing managerial policies and strategies in the light of environmental changes. (v) PERT and CPM Programme evaluation and review technique and critical path method are important network techniques useful in planning and controlling. These techniques are especially useful in planning, scheduling and implementing time bound projects involving performance of a variety of complex, diverse and inter-related activities. These techniques deal with time scheduling and resource allocation for these activities and aims at effective execution of projects within given time schedule and structure of costs. (vi) Management Information System MIS is a computer based information system that provides information and support for effective managerial decision-making. A decision maker requires up-to-date accurate and timely information. MIS provides the required information to the managers by systematically processing a massive data generated in an organisation. Thus, MIS is an important communication tool for managers.
Q.3 Explain the importance of controlling in an organisation. What are the problems faced by the organisation in implementing an effective control system? ANSWER:Control is an indispensable function of management. Without control the best of plans can go away. A good control system helps an organisation in the following way (i) Accomplishing Organisational Goals The controlling function measures progress towards the organisational goals and brings to light the deviations. If any, and indicates corrective action. It thus, guides the organisation and keeps it on the right track so that organisational goals might be achieved. (ii) Judging Accuracy of Standards A good control system enables management to verify whether the standards set are accurate and objective an efficient control system keeps a careful check on the changes taking place in the organisation and in the environment and helps to review and revise the standards in light of such changes. (iii) Making Efficient Use of Resources By exercising control, a manager seeks to reduce wastage and spoilage of resources. Each activity is performed in accordance with pre-determined standards and norms. This ensures that resources are used in the most efficient and effective manner. (iv) Improving Employee Motivation A good control system ensures that employees know well in advance what they are expected to do and what are the standards of performance on the basis of which they will be appraised. It, thus motivates them and helps them to give better performancer. (v) Ensuring Order and Discipline Controlling creates an atmosphere of order and discipline in the organisation. It helps to minimise dishonest behaviour on the part of the employees by keeping a close check on their activities. (vi) Facilitating Co-ordination in Action Controlling provides direction Jo al! activities and efforts for achieving organisational goals. Each department and employee is governed by pre-determined standards which are well co-ordination with one another. This ensures that overall organisational objectives are accomplished. Although controlling is an important function of management. It suffers from the following limitations also (i) Difficulty in Setting Quantitative Standards Control system loses some of its effectiveness when standards cannot be defined in quantitative terms. This makes measurement of performance and their comparison with standards a difficult task. Employee morale, job satisfaction and human behaviour are such areas where this problem might arise. (ii) Little Control on External Factors Generally an enterprise cannot control external factors such as government policies, technological changes competition etc. (iii) Resistance from Employees Control is offer resisted by employees. They see it as a restriction on their freedom. For instance, employees might object when they are kept under a strict watch with the help of Closed Circuit Televisions (CCTVs). (iv) Costly Affair Control is a costly affair as it involves a lot of expenditure, time and effort. A small enterprise cannot afford to install an expensive control system. It cannot justify the expenses involved. Managers must ensure that the costs of installing and operating a control system should not exceed the benefits derived from it.
Q.4 Discuss the relationship between planning and controlling. ANSWER:Planning and controlling are inseparable, they are twins of management. A system of control pre-supposes the existence of certain standards. These standards of performance which serve as the basis of controlling are provided by planning. Once a plan becomes operational controlling is necessary to monitor the progress, measure it, discover deviations and initiate corrective measures to ensure that events conform to plans. Planning is clearly a pre-requisite for controlling. Controlling cannot be accomplished with planning. With planning there is no pre-determined understanding of the desired performance, planning seeks consistent, integrated and articulated programmes while controlling seeks to compel events to conform to plans.
