Class 11th

Indian Economy 1950 – 1990 Class 11 Notes Chapter 2 Indian Economic Development

Economic Planning
It is a process under which a central authority defines a set of targets to be achieved within a specified period of time.

Capitalism It is an economic system in which major economic decisions like

• What goods and services are to be produced.
• How goods and services are to be distributed are left to the free play of the market forces or the forces of supply and demand.

Socialism
It is an economic system in which major economic decisions are taken by the government, keeping in view the collective interest of the society as a whole.

Mixed Economy
It is an economic system in which major economic decisions are taken by the Central Government authority as well as are left to the free play of the market forces.

Goals of Five Year Plans
A plan should have some clearly specified goals. The goals of five year plans are

• Growth Economic growth implies a consistent increase in GDP or a consistent increase in the level of output or a consistent increase in the flow of goods and services in the economy over a long period of time.
• Modernisation To increase the production of goods and services to producers with the adoption of new technology.
• Self-reliance It means avoiding imports of those goods which could be produced in India itself. This policy was considered a necessity in order to reduce our dependence on Foreign countries, especially for food.
• Equity It implies equitable distribution of income so that the ^benefits of growth are shared by all sections of the society.

Agriculture
It refers to all those activities which are related to the cultivation of land for the production of crops; food crops and non-food crops.
(i) Importance of Agriculture in the Indian Economy

• Contribution to GDP
• Supply of wage goods
• Employment
• Industrial raw material
• Contribution to international trade
• Contribution to domestic trade
• Wealth of the nation

(ii) Problems of Indian Agriculture

• Lack of permanent means of irrigation
• Deficiency of finance
• Conventional outlook
• Small and scattered holding
• Lack of organised marketing system

Reforms in Indian Agriculture
(i) Technical Reforms

• Use of HYV seeds
• Use of chemical fertilisers
• Scientific farm management practices
• Mechanised means of cultivation

(ii) Land Reforms

• Abolition of intermediaries
• Regulation of rent
• Consolidation of holding
• Ceiling on land holding
• Co-operative farming

(iii) General Reforms

• Expansion of irrigation facilities
• Provision of credit
• Regulated market
• Price support policy

Marketable Surplus
It refers to surplus of farmer’s output over and above his own farm consumption.
Thus, Marketable surplus of wheat = Output of wheat – On farm consumption of wheat

Green Revolution
It started in India in year 1967-68. In the year, 1967-68 itself, foodgrain production increased by nearly 25%. So, much increase in foodgrain production in a country which earlier used to import foodgrains.

Industry
Industry provides employment in agriculture; it promotes modernisation and overall prosperity.
Importance of industry are as follows

• Structural transformation
• Source of employment
• Source of mechanised means of farming
• Imparts dynamism to growth process
• Growth of civilisation
• Infrastructural growth

Industrial Policy Resolution 1956 (IPR-1956)

• Three-fold classification of industries
• Industrial licensing
• Industrial soaps

Private Sector
It was assigned only a secondary role in the process of industrialisation. Industries in the private sector could be established only through a license from the government.

Small Scale Industries (SSI)
These were accorded a high priority with a view to promoting the goals of ‘employment and equity’.

Import Substitution
Inward looking trade strategy is called import substitution.

On 15 th August, 1947, India attained its freedom. After independence, Nehru and many other leaders decided the type of economic system that will prove beneficial for India. In order to achieve the objectives of ‘growth with equity’, mixed economy was introduced as the economic system of India.

Topic 1 Economic System and Planning
Economic System
Economic system is defined as an arrangement by which the central problems of an economy are solved.
The three basic central problems of an economic system are

• Choice of Production What goods and services should be produced in the country?
• Choice of Technology How should the goods and services be produced? Should producers use more human labour or more capital for producing things,
• Distribution of Goods and Services How should goods and services be distributed among people?
  On the basis of government intervention, economic system can be classified as

Socialist Economy
It is an economic system in which all economic decisions are taken by the government. In this system, the government decides what goods are to be produced in accordance with the needs of society, how goods are to be produced and how they should be distributed.

Socialist economy promotes equitable distribution of income. However, it also suffers from the drawbacks of a bureaucratic set up in the form of red-tapism and corruption.
In Cuba and China, most of the economic activities are governed by the socialistic principles.

Capitalist Economy
Capitalist economies depend upon the market forces of demand and supply. In this type of economy, only those consumer goods will be produced that have good demand in the market and yield profit to the producers.

For example, cars will be produced if they are in demand and also if they can earn profits for the producer.
In this economy, the goods and services produced are distributed among people not on the basis of what people need but on the basis of purchasing power.

• Capitalist economy generally manifests unequal distribution of income, but it also generates fastest growth in output and national income
• Capitalist economy is also called laissez faire or free market economy, it exists in North America, Japan, Australia, Western Europe, etc.

Mixed Economy
It is an economic system in which public sector and private sector exist side by side.
In this economy, the market will provide whatever goods and services it can produce well and the government will provide essential goods and services which the market fails to provide.
Merits of Mixed Economy

• Mixed economy gives proper scope to private individuals to co-exist and contribute towards economic development.
• In this, planned economic development ensures stability . and balanced development.
• In this, competition between the private sector and public sector industries is there. It leads to enhanced productivity.

Demerits of Mixed Economy

• Mixed economy cannot effectively control the private sector industries which are outside the government purview.
• It is characterised by red-tapism and high degree of corruption.
• In it, there is concentration of economic power in the hands of private sector, politicians and bureaucrats.

Economic Planning
Economic planning is a process in which a central authority of a country defines a set of goals to be achieved within a specified period, sets out a plan to achieve those goals, keeping in view the country’s resources.

Planning commission defines economic planning as, ‘Economic planning means utilisation of country’s resources in different development activities in accordance with national priorities’. Now, let us understand what a ‘plan’ is?

• A plan spells out how the resources of nation should be efficiendy utilised.
• It should have some general goals which are achieved through specific objectives within a specified period of time.

To formulate plans, Planning Commission was set up in 1950 under the chairmanship of Jawaharlal Nehru, the first Prime Minister of independent India.

Its aim was to promote rapid rise in standard of living of the people, increase production and offer employment opportunities in India. To facilitate economic planning Five Year Plans were forniulated. The first Five Year Plan was introduced in April 1951.

All the Five Year Plans are formulated keeping the below objectives in mind
Growth
It refers to increase in the country’s capacity to produce the output of goods and services within the country. It implies either a larger stock of productive capital or a large size of supporting services like transport and banking.

Increase is GDP is a good indicator of economic growth. Gross Domestic Product (GDP) is the market value of all final goods and services produced in the different sectors of an economy, viz the primary sector, the secondary sector and the tertiary sector during an year within the domestic teritory of a country.

Modernisation
Adoption of new technology is called modernisation. It is done with an aim to increase the production of goods and services. For example, a farmer can increase the output on the farm by using new seed varieties instead of using old ones.

Modernisation refers to not only change in production methods, but also change in the social outlook of a society by granting equal status to women and making use of their talent in the productive process.

Self-Reliance
A nation can promote economic growth and modernisation by using its own resources or by using resources imported from other nations. The first seven Five Year Plans gave importance to self-reliance by avoiding imports. This policy was considered a necessity in order to reduce our dependence on foreign countries especially for food.

Equity
It refers to reduction in disparity of income or wealth, by uplifting weaker sections of the society. It also refers to distribution of economic power equally or in such way that every Indian should be able to meet his or her basic needs such as food, a decent house, education, healthcare, etc.

Mahalanobis
The Architect of Indian Planning
Prasanta Chandra Mahalanobis was born in 1893 in Calcutta. He was educated at the Presidency College in Calcutta and at Cambridge University in England. His contributions to the subject of statistics brought him international fame. In 1946, he was made a Fellow (member) of Britain’s Royal Society, one of the most prestigious organisations of scientists.

Mahalanobis established the Indian Statistical Institute (ISi) in Calcutta and started a journal, Sankhya. Mahalanobis had contributed a lot in the formulation of our Five Year Plans. The Second Plan, became the landmark of his contribution.

During the Second Plan period, Mahalanobis invited many distinguished economists from India and abroad to advise him on India’s economic development. Some of these economists became Nobel Prize winners later, which shows that he could identify individuals with talent.

Many economists today reject the approach to planning formulated by Mahalanobis but he will always be remembered for playing a vital role in putting India on the road to economic progress and statisticians continue to profit from his contribution to statistical theory.

Indian Economy on the Eve of Independence Class 11 Notes Chapter 1 Indian Economic Development

Agricultural Sector on the Eve of Independence
India’s agricultural sector (on the eve of independence) exhibited three principal characteristics, these characteristics pointed to backwardness of India’s agriculture as well as its stagnation

• Low level of productivity
• High degree of vulnerability
• A wedge between owners of the soil and tillers of the soil.

Factors causing backwardness and stagnation of Indian agriculture during the British rule

• Land revenue settlement under the British Raj
• Forced commercialisation of agriculture

Industrial Sector
“Systematic de-industrialisation” is the term that describes the status of industrial sector during the British rule. It implied two things

• Decay of world famous traditional handicraft industry owing to discriminatory policies of the British Government.
• Bleak growth of modern industry now to lack of investment opportunities.

Two-fold motive behind the systematic .(industrialisation during the British Rule in India.

• To exploit India’s wealth of raw material and primary products. It was required to fulfill the emerging needs of industrial inputs in the wake of industrial revolution in Britain.
• To exploit India as a potential market for the industrial products of Britain.

Foreign Trade India had occupied a place of eminence in the area of Foreign trade, since ancient times. But the British rule in India ended this eminence.

Drain of India’s Wealth
Huge administrative expenses were incurred by the British Government to manage their colonial i ale in India. Also huge expenses were incurred by the British Government to fight wars in pursuit of their policy of imperialism.

Demographic Condition
Demographic conditions during the British rule exhibited all features of a stagnant and backward economy. Both birth rate and death rate were very high nearly 48 and 40 per thousand respectively.

Occupational Structure
Greater dependence on agriculture as suggested by occupational structure on the eve of independence implied lesser availability of land per head for the farming population. Accordingly agriculture was taken largely as a means of subsistence and less as an occupation for profit.

Infrastructure
Infrastructure refer to the elements of economic change as well as elements of social change which serve as a foundation for growth and development of a country. Development of infrastructure is a precondition to the economic and social development of a country.

Economy of a country includes all production, distribution or economic activities that relates with people an determines the standard of living. On the eve of independence Indian economy was in a very bad shape due to the presence of British colonial rule.

The Britishers generally framed policies that favoured England. The only purpose of Britishers was to unjustly enrich themselves at the cost of India’s economic development. Thus, in 1947, when British transferred power back to India, we inherited a crippled economy.

India’s National and Per Capital Income
Under Colonial Rule There were no efforts from the part of the colonial government to measure the national and per capital income of India. Some individual attempts were made to measure such incomes but produced conflicting and inconsistent results. The contribution of VKRV Rao and Dadabhai Naoroji are considered very significant in this context.

Low Economic Growth Under Colonial Rule
India had an independent economy before the arrival of British rule. But the Britishers, dominated it for over a period of 200 years. Britishers framed policies that protected and promoted the economic interests of their own country. They transformed India into supplier of raw materials and consumer of finished goods from the factories of Britain. Such policies affected Indian economy very adversely.

In this context, we will discuss the conditions of certain sectors that were badly affected by the presence of colonial rule, i.e. on the eve of independence.

State of Agriculture Sector
Agriculture was the main source of livelihood for most of the people of India, and about 85% of the country’s population lived mostly in villages and derived livelihood directly or indirectly from agriculture.
Inspite of such a large segment of the population being dependent of agriculture, either directly or indirectly, this sector was facing stagnation and constant deterioration, as is brought forward through the following points.

• Low Level of Productivity Productivity, i.e. output per hectare of land was very low. This led to a low level of output, inspite of a large area under cultivation.
• High degree of Vulnerability Agriculture was vulnerable to climatic factors and mostly affected by erratic rainfall. Poor rainfall generally led to a low level of output and also to crop failures. No effort was made by British Government to provide permanent source of irrigation facilities for the farmers.

The reasons for stagnation of agricultural sector were
(i) Land Revenue System
The Britishers introduced the zamindari system. The zamindars were recognised as permanent owners of the soil. Zamindars were to pay a fixed sum to the government as land revenue and they were absolutely free to extract as much from the tillers of the soil as they could.
Their main interest was in rent collection regardless of the economic conditions of cultivators and this caused misery and social tension among the latter.
Apart from this there are two more systems namely, the Ryotwari and the Mahalwari were prevalent.

(ii) Lacking of Resources
Because the tillers had to pay huge amount of rent, referred to as ‘Lagaan’, they were not left with any surplus to be able to provide for resources needed in agriculture in the form of fertilisers or providing for irrigation facilities. This further lowered the agricultural productivity.

(iii) Commercialisation of Agriculture
Commercialisation of agriculture refers to shift from cultivation for self-consumption to cultivation for sale in the market. It also refers to cultivation of cash-crops like cotton, indigo, etc.
Due to commercialisation of agriculture, there was some evidences of a relatively higher yield of cash crops in certain areas of the country. But this could not help in improving the conditions of Indian farmers.
Instead of producing food crops, farmers were producing cash crops, which were ultimately to be used by British industries.

State of Industrial Sector
In the pre-british period, India was particularly well-known for its handicraft industries, in the fields of cotton and silk textiles, metal and precious stone works, etc. These products enjoyed a worldwide market based on the reputation of the fine quality of material used and the high standards of craftsmanship.

But the Britishers followed a policy of systematic de-industrialisation by creating circumstances conducive to the decay of handicraft industry and not taking any steps to promote modern industry and reduced India to a mere exporter of raw material and importer of finished goods.
The following points bring farword the state of the industrial sector at the eve of independence
1. Decay of Handicraft Industry
The traditional handicraft industry in India enjoyed worldwide reputation, but the British misrule in India led to the decline of Indian handicraft industry. The Britishers adopted the following policies to systematically destroy the handicraft industry.

• Discriminatory Tariff Policy of the State The Britishers followed a discriminatory tariff policy by allowing tariff free exports of raw material from India (to provide for the requirements of their industries in Britain) and tariff free import of British Industrial products (to promote British goods in India), but placed a heavy duty on the export of handicraft products. So, Indian handicraft products started loosing their domestic as well as foreign markets.
• Competition from Machine-made Products Machine-made products from Britain were cheap and better in quality than the handicraft products. This competition forced many a handicrafts to shut down their business.
• Introduction of Railways in India The Britishers introduced Railways in India, to expand the market of its low priced industrial products. Consequently, the demand of high-priced handicraft products started to fall, thus leading to the downfall of handicraft industry.

2. Slow Growth of Modem Industry
Under second half of 19th. century, modern industry showed slow growth. This development was confined to the setting up of cotton and jute textile mills.

Subsequently, the iron and steel industries began coming up in the beginning of the 20th century.
In this context, the Tata Iron and Steel Company (TISCO) was incorporated in August, 1907 in India. It established its first plant in Jamshedpur [Bihar, at present Jharkhand].

But, these industries were the result of private endeavour. The state participation in the process of modem industrialisation was very limited, as is evident from the following points

• Limited Growth of Public Sector Enterprises The public sector enterprises such as railways, power, post and telegraph were confined to areas which would enlarge the size of market for British products in India.
• Lopsided Industrial Structure The industrial growth was lopsided, in the sense that consumer goods industry was not adequately supported by the capital goods industry.
• Lack of Basic and Heavy Industries No priority was given for the development of basic and heavy industries. Tata Iron and Steel Mills was the only basic industry in India.

Textile Industry in Bengal
Muslin is a type of cotton textile which had its origin in Bengal,particularly, places in and around Dhaka (now the capital city of Bangladesh). Daccai Muslin had gained worldwide fame as an exquisite type of cotton textile.
The finest variety of muslin was called malmal. Foreign travellers also used to refer to it as malmal shahi or malmal khas meaning that it was worn by or fit for, the royalty.

State of Foreign Trade
India has been an important trading nation since ancient times.
But when the restrictive policies of commodity production, trade and tariff were imposed by the colonial government, it adversely affected the structure, composition and volume of India’s foreign trade.
Following were the reasons behind the poor growth of foreign trade
1. Exporter of Primary Products and Importer of Finished Goods
Under the colonial rule, India became an exporter of primary products such as raw silk, cotton, wool, sugar, indigo, jute, etc and an importer of finished consumer goods like cotton, silk and woollen clothes and capital goods like light machinery produced in the factories of Britain.

2. Britain’s Monopoly Control
Britain maintained a monopoly control over India’s exports and imports. Due to this, more than half of India’s foreign trade was restricted to Britain while the rest was allowed with a few other countries like; China, Ceylon (Sri Lanka) and Persia (Iran). The opening of Suez Canal in 1869 further intensified British control over India’s foreign trade.

3. Drain of India’s Wealth
An important characteristic of foreign trade throughout the colonial period was the generation of a large export surplus. But this surplus came at a huge cost to the country’s econo Several essential commodities like food grains, kerosene, were scarcely available in the domestic market.
Also, this surplus was not used in any developmental activity of India. Rather, it was used to maintain the administrative set-up of the Britishers or bear the expenses of war taught by Britain.
All of this, led to the drain of Indian wealth.

State of Occupational Structure
During the colonial period, the occupational structure of India exhibited its backwardness. The agricultural sector accounted for the largest share of the work force which remained at a high of 70-75% of the work force and the manufacturing and services sectors accounted for only 10 and 15-20% respectively.

There existed a growing regional disparity with few states such as Orissa, Rajasthan and Punjab witnessing an increase in agricultural workforce while the states which were the parts of Madras presidency. Bombay and Bengal witnessed a decline in the percentage of work force dependent on agriculture.

State of Infrastructure
Infrastructure comprises of such industries which help in the growth of other industries. Under the colonial period, basic infrastructure such as railways, port per transport, posts and telegraphs developed.
However, the real motive behind this development was not to provide basic amenities to the people but to sub serve various colonial interests.
The state of infrastructure under the colonial rule can be understood with the help of following points
1. Roads
Roads constructed before independence were not fit for modern transport. It was very difficult to reach rural areas during rainy season.
The roads were built only to serve the purpose of mobilising the army within India and transporting raw materials from the countryside to the nearest railway station or the port for exporting it.

2. Railways
British rulers introduced railways in India in 1850 and it began its operation in 1853. It is considered as one of the important contribution of Britishers.
The railways affected the structure of the Indian economy in the following two ways

• It enabled people to undertake long distance travel and thereby break geographical and cultural barriers.
• It fostered commercialisation of Indian agriculture which adversely affected the self-sufficiency of the village economies in India.

So, the social .benefits provided by the Railways was outweighed by the country’s huge economic loss.

3. Water and Air Transport
The colonial rulers took measures for the development of water transport. The inland waterways, at times, also proved uneconomical as in the case of the coast canal on the Orissa coast. The main purpose behind their development was to serve Britain’s colonial interest.
The colonial government also showed way to the air transport in 1932 by establishing Tata Airlines. Thus, in this way it inaugurated the aviation sector in India.

4. Communication
Modern postal system started in India in 1837. The first telegraphy line was opened in 1857. The introduction of the expensive system of electric telegraph in India served the purpose of maintaining law and order.

Demographic Condition
Various details about the population of British India were first collected through a census in 1881. Before 1921, India was in the first stage of demographic transition. The second stage began after 1921. However neither the total population of India nor the rate of population growth at this stage was very high. Though suffering from certain limitations, it revealed the Unevenness in India’s population growth. The population grew at a rate of 1.2% up to the year 1951.
On the eve of independence the demographic condition was as follows

• The overall literacy level was less than 16%.
• The female literacy level was at a negligible low rate of about 7%.
• Public health facilities were either unavailable to large chunks of population or when available, were highly inadequate. Infant mortality rate was 218 per thousand in contrast to present infant mortality rate of 63 per thousand.
• Life expectancy was very low 44 years in contrast to the present 66 years.
• Both birth rate and death rate were very high at 48 and 40 per thousand of persons respectively.

Notes Class 11 Business Studies International Business – II

1. Export Procedure The main steps involved in export procedure are

(i) Receipt of enquiry and sending quotations
(ii) Receipt of order or indent
(iii) Assessing importer’s credit guarantee for payment worthiness and securing
(iv) Obtaining export licence

According to the customs law, a firm must acquire an export licence before exporting goods

The pre-requisites of export licences are

(i) Obtaining IEC Number (Import-Export Code)
(ii) Obtaining RCMC (Registration Cum Membership Certificate)
(iii) Registration with ECGC (Export Credit Guarantee Corporation)
(iv) Obtaining Pre-shipment Finance
(v) Production and Procurement of goods
(vi) Pre-shipment inspection

There are three methods of pre-shipment inspection

(i) Consignment-wise inspection
(ii) In-process quality control
(iii) Self certification
(iv) Excise clearance
(v) Obtaining certificate of origin
(vi) Reservation of shipping space
(vii) Packing and forwarding
(viii) Insurance of goods
(ix) Custom clearance
(x) Obtaining Mate’s receipts
(xi) Payment of freight and Insurance of Bill of Landing
(xii) Preparation of Invoice
(xiii) Securing Payment

The importer may accept a bill of exchange of two types

(i) Documents against right
(ii) Documents acceptance

2. Import Procedure Steps involved in import procedure are

(i) Trade enquiry
(ii) Procurement of import licence
(iii) Obtaining foreign exchange
(iv) Placing order or indent
(v) Obtaining letter of credit
(vi) Arranging for finance
(vii) Receipt of shipment advice
(viii) Retirements of import documents
(ix) Arrival of goods
(x) Custom clearance

3. Export-Import Documents

(i) Principal Export Documents

(a) Commercial invoice
(b) Packing list
(c) Bill of lading The bill of lading is considered an important document due to the following reason

• A receipt of goods
• A document of Title to goods
• A contract of affreightment

(d) Airway bill
(e) Certification of inspection
(f) Certificate of origin
(g) Bill of exchange

4. Auxiliary Export Documents

(i) Proforma invoice
(ii) Intimation of inspection
(iii) Shipping instruction
(iv) Insurance declaration
(v) Shipping order
(vi) Mate’s receipt
(vii) Application for certificate of origin
(viii) Letter to banks for collection of documents

5. Import Documents The important documents used in import procedure is

6. Bill of Entry There are three types of bill of entry

(i) Bill of entry for home consumption
(ii) Bill of entry
for warehousing
(iii) Ex-bond bill of entry

7. Important Terms Used in External Trade

(i) Free on Boards (FOB)
(ii) Cost and Freight (CFR)
(iii) Cost Insurance and Freight (CIF)

8. International Trade Institution and Agreements

(i) World Bank The World Bank was established in 1944, in Buttonwoods. It was setup with a purpose to provide loans to countries whose infrastructure was destroyed by the war.

(a) Nature of World Bank

• It was set-up to rebuild post World War -II Europe.
• It offers loan advice and training to private and public sector of poor countries.

(ii) United Nation Conferences on Trade and Development (UNCTAD)
(iii) International Development Association
(iv) International Finance Corporation (IFC)
(v) The Multinational Guarantee Agency (MIGA)

(vi) World Trade Organisation (WTO) The world trade organisation is the only global international organisation which deals with the rules and regulations of trade between different nations.

(a) Nature of WTO

• WTO deals with sales of trade between nations at global level.
• It operates with a purpose liberalising trade and free flow of goods and services in trade policy within agreed limits.
• WTO settles disputes through some neutral procedures.

(b) Role of WTO

• Promotes international peace
• Settles disputes among member nations
• Makes international trades very smooth by framing common rules and regulations.
• Helps in economic growth of developing countries by giving them preferential treatment.

(c) Agreements of WTO

• General Agreements on Tariffs and Trade (GATT)
• Agreement of Textile and Clothing (ATC)
• Agreement on Agriculture
• General Agreements in Trade in Services (GATS)
• Agreements on Trade Related Aspects of Intellectual Property Rights (TRIPS)

Notes Class 11 Business Studies International Business – I

1. International Business International business refers to buying and selling of goods and services beyond the geographical limits of a country. It is also called trade between two countries.

International trade is of three types

(i) Export
(ii) Import
(iii) Entrepot (Re-export)

(i) Nature of International Business

(a) Involvement of two
(b) Payment in foreign countries currency
(c) Legal procedures
(d) Restrictions
(e) High risk
(f) Different languages

(ii) Reasons for International Business

(a) The countries can not produce equally well or cheaply all that they need.
(b) There is a unequal distribution of natural resources among different countries.
(c) Availability of different factors of production such as land labour, capital and raw material differs among different nations.
(d) Difference in labour. productivity and production cost due to socio economic geographical and political reasons.
(e) There is not even a single country which is in a better position to produce better quality products at lower cost.

2. International Business us Domestic Business The key areas, in respect of which domestic and international business differ from each other

(i) Nationality of buyers and sellers
(ii) Nationalities of other stake holders
(iii) Mobility of factors of production
(iv) Customer heterogeneity across markets
(v) Differences in business systems and practices
(vi) Political system and risk
(vii) Business regulation and policies
(viii) Currency used in business transactions

3. Scope of International Business

(i) Merchandise exports and imports
(ii) Service export and import
(iii) Licensing and franchising
(iv) Foreign investment

It is of two types

(a) Direct investment
(b) Portfolio investment

4. Benefits of International Business

(i) Benefits to Nations

(a) Earning of foreign exchange
(b) More efficient use of resources
(c) Improving growth prospectus and employment potential
(d) Increases standard of living

(ii) Benefits to Firms

(a) Prospects for higher profit
(b) Increased capacity utilization
(c) Prospects for growth
(d) Way out from intense competition in the domestic market
(e) Improved business vision

5. Mode of Entering into International Business

(i) Contract Manufacturing With many business facing high start up cost and limited resources, companies are turning to contract manufacturing. Contract manufacturing allows a company to use the products or services that are manufactured by another external production company.

(a) Merits

• There is almost no investment risk involved as there is hardly any investment in the foreign country.
• Contract manufacturing gives the advantage to international firms to get the goods manufactured at a lower cost.
• Local manufacturers also get the benefits to be involved with international business and start. exporting.

(b) Demerits

• Local firms might not follow and provide the same quality standards. causing problems to international rums.
• The local manufacturer loses his control as goods are manufactured strictly according to the terms and specifications of international firms.
• The local manufacturer is not free to sell the goods according to his will.

(ii) Licensing and Franchising Licensing is an agreement between licensor and licensee where by licensor permits licensee to use the permits/patent rights 01′ trade secret acquired by the licensor.

Franchising is an agreement between franchisee and franchiser.

(a) Benefits

• Established brand
• Quality product
• Advertisement
• Financing
• Training
• Technological upgradation
• Uniform control system
• Better start
• Expansion
• Enhancing the goodwill
• Direct feedback

(iii) Joint Venture When two or more firms join together to establish a new enterprise then it is known as a joint venture.

The two firms contribute capital and participate in management enterprise.

(a) Merits

• Reduces competition
• Reduces risk
• Protection for small companies
• Advance technology
• Reduction in cost
• Better competence
• Large capital

(b) Demerits

• Problem in sharing capital
• Legal restrictions
• Conflicts
• Mergers and monopolies
• Lack of co-ordination

(iv) Setting-up WhOlly Owned Subsidies According to Indian Companies Act a foreign company can set up its subsidiary by acquiring more than 50% voting power (equity share) in a company.

(a) Advantages

• The parent company is able to exercise full control over its operation in foreign countries.
• There is no disclosure of technology or trade secret as the parent company itself looks after the entire operations.

(b) Limitations

• The entire loss is for the parent company as the parent company alone invests the 100% investment.
• This form of business is subject to higher political risks as some countries do not permits 100% wholly owned subsidiaries.

(v) Exporting and Importing Exporting refers to sending of goods and services from the home country to a foreign country and importing means buying goods and services from a foreign country. The exporting and importing can be done in two ways; direct or indirect.

(a) Advantages

• It is easiest way to get entry in a foreign country.
• Firms have to invest less as compared to joint venture and manufacturing plants.
• Foreign investment risk is nil or very less as compared to other options.

(b) Demerits

• Since goods physically move from one country to another so it involves additional packaging, insurance and transportation cost.
• Some countries put import restrictions. In such cases, exporting is not a good option for other foreign countries.
• The exporters are not near the customers so they cannot serves the customer better than a local firm.

6. India’s Place in World Business

(i) India’s Export and Import of Goods After the new economic policy of liberalisation and globalisation there is a tremendous increase in India’s foreign trade. The share of foreign trade in the GDP has increased from 14.6% in 1990·91 to 24.1% in 2003 – 2004.

(ii) India’s Export and Import of Services India’s share of software export has increased from 10.2% in 1995-96 to 49% in 2003-04. Where as share of travel and transportation has declined from 64.3% in 1995 – 96 to 29.6% in 2003-04.

7. India’s Foreign Investment The inflow as well as out flow of foreign investment has grown after the new economic policy of 1991. India’s investment in foreign countries has also increased from Rs 19 crore in 1990-91 to Rs 83,616 crore in 2003-04.

Notes of Class 11 Internal Trade

1. Internal Trade When buying and selling of goods and services takes place within the geographical limits of a country. It is known as internal trade.

The main features of internal trade are

(i) The buying and selling of goods and services takes place within a country.
(ii) The payment are made and received in the home country only.
(iii) There are no or very few formalities to be completed by the traders.

2. Types of Internal Trade Internal trade can be classified into two categories.

(i) Wholesale Trade It refers to the trade in which goods are sold in large quantities. The person who carries on wholesale trade is known as wholesaler.

A wholesaler provides many valuable services to the manufacturer as well as the retailer.

(a) Services to Manufacturer

• Facilitating large scale production
• Bearing risk
• Financial assistance
• Expert advice
• Help in marketing function
• Facilitate production continuity
• Storage

(b) Services to Retailer

• Availability of goods
• Marketing support
• Grant of credit
• Specialised knowledge
• Risk sharing

(ii) Retail Trade Retail trade refers to sale of goods in small lots to the final consumers. A retailer buys goods from a wholesaler and sells them to the consumer.

(a) Services to Consumers

• Ready or quick supply
• Wide variety
• Guiding consumers
• Demonstration and after sale services
• Home delivery
• Convenient location
• Credit facility

(b) Services to Wholesaler and Manufacturer

•  Ready market
• Providing information
• Risk bearing
• Distribution of goods to distant places

3. Classification of Retailers

Retailers can be classified on the following basis

(i) Size
(ii) Product mix
(iii) Pricing
(iv) Service level
(v) Form of ownership

4. Types of Retail Trade Keeping in mind all the above criteria, that is size product mix, pricing and service level, the retail trade can be classified in to the following categories

(i) Itinerants retailers
(ii) Fixed shop retailers

5. Itinerants Itinerants refers to retailers who have no fixed place of sale. They move from one place to another in search of customers.

6. Types of Itinerants

(i) Hawkers and Peddlers Hawkers and Pedlars moves from street to street in search of customers.

The main features of hawkers and pedlars are

(a) They sell a variety of goods such as fruits, vegetables, toys etc.
(b) They deal with non-branded and local items.
(c) They supply the goods at the door step of the customer.

(ii) Periodic Market Trader These traders sell their goods on fixed days in different market places. Their weekly market are fixed

The main features of periodic market traders

(a) They sell their goods in the weekly market.
(b) They deal in low price and low quality goods.
(c) These traders also set up shops on the occasion of Diwali, Christmas, etc.

(iii) Street Traders These retailers display their articles on busy street corners, pavements, bus stands etc.

The main features of street traders are

(a) They generally operate near public places such as railway stations.
(b) They deal in a variety of goods such as towels, things of daily use mirrors etc.

(iv) Cheap Jacks They display their goods in hired shops or intents for a temporary period in different localities.

The main features of cheap jacks are

(a) They hire small shops.
(b) They shift from locality depending upon the prospectus of business.
(c) They deal in low price, household articles.

7. Fixed Retailers The retailer having a fixed place of sale are known as fixed shop retailers.

Fixed shop retailers can be further classified into t\VO categories

(i) Small scale fixed retail shops
(ii) Large scale fixed retail shops

8. Small Scale Fixed Retailer

(i) General Stores General stores are small shops located in residential areas.

The main features of general stores are

(a) They have a large variety in each line of product.
(b) They provides free home delivery, credit facility.

(ii) Single Line Stores Single line stores are small shops which deal with one line of products.

The main features of single line stores are

(a) These stores deal with one line of products.
(b) These stores deal in a variety of goods in that line of product.

(iii) Speciality Stores These stores deal in a particular type of product under one product line only.

The main features of speciality stores are

(a) These stores are specialised in one product only.
(b) They keep all the brands of that product.

(iv) Street Shops These shops are situated at street crossings, They are also known as street stalls

The main features of street shops aTe

(a) These shops have a limited space.
(b) These retailers display their goods on tables, stands etc.

(v) Second Hand Goods Shops These shops deal with second-hand goods or used articles such as books.

The main features of second- hand good shop

(a) These shops sell used goods.
(b) The goods are generally priced low because these are used goods.

(vi) Seconds Shops There are the shops to sell goods which are not produced according to the required specification.

The main features of second-hand goods shop

(a) These shops deal in the products which have some manufacturing defect.

(b) Goods are sold at a heavily discounted price.

9. Large Scale Retailers Large scale retailers deal in a large stock of goods and purchase goods in bulk. Features of large scale retailers are.

(i) They require a huge investment.
(ii) They have large size show rooms to sell goods.

The most common forms or types of large scale retailers are

(a) Departmental stores
(b) Multiple shops or chain stores
(c) Mail order retailing
(d) Consumer co-operative stores
(e) Super markets
(f) Franchise

10. Departmental Stores A departmental store is a large retail showroom having a number of departments under one roof each department specialised in one line of product.

(i) Advantages

(a) Convenient shopping
(b) Central location
(c) Economies of scale
(d) Elimination of middleman

(ii) Limitations

(3) High operating cost
(b) Lack of personal attention
(c) High price
(d) Not located in residential colonies
(e) Huge capital

11. Multiple Shops Multiple shops refer to a number of identical retail shops located in different parts of the city.

(i) Advantages
(a) Economies of scale
(b) Standardised products
(c) Public confidence
(d) Division of risk
(e) No, bad debts

(ii) Limitations

(a) Limited variety
(b) Lack of personal touch
(c) Inflexibility
(d) Divided attention
(e) No facilities

12. Mail Order Retailing In mail order retailing seller contact the potential buyers through advertisements and mail publicity

(i) Advantages

(a) Limited capital
(b) Convenience
(c) Wider market
(d) No, bad debts
(e) Elimination of middleman

(ii) Limitations

(a) No personal contact
(b) No personal inspection
(c) Limited variety
(d) Postal delay
(e) Heavy advertising cost

13. Consumer Co-operative Store It can be defined as “A voluntary association of persons based on co-operative principles by buying in common and selling in common”.

(i) Advantages

(a) Reasonable prices
(b) Low operating cost
(c) Cash sales
(d) Economies of scale
(e) Benefits from government

(ii) Limitations

(a) Limited capital
(b) Inefficient management
(c) Lack of incentives
(d) Lack of storage facilities

14. Super Markets Super market are organised by co-operative societies as well as by private traders.

(i) Advantages

(a) Wide choice
(b) Low price
(c) No, bad debts
(d) Convenience in shopping

(ii) Limitations

(a) No credit
(b) Lack of personal touch
(c) High cost
(d) Mis handling of goods
(e) Limited scope

15. Vending Machines A vending machine is a new form of direct retailing. It is a machine operated by coins or tokens. The buyer inserts a coin or token in the machine and receive a specific quantity of product from the machine.

(i) Advantages

(a) Buying round the clock is possible.
(b) The customer gets fresh supply of goods.
(c) No, requirement of salesman.

(ii) Limitations

(a) Initial investment to install the machine is quite high.
(b) Machine requires regular repair and maintenance.
(c) Coins of exact shape and size are required to operate the machine.

16. Role of Commerce and Industry Association is in promotion of internal trade.

(i) Interstate movement of goods
(ii) Octroi and other local levies
(iii) Harmonisation of sales tax structure and value added tax
(iv) Marketing of agro products and related issues
(v) Weights and measures and prevention of duplication
(vi) Excise duty
(vii) Promoting sound infrastructure
(viii) Labour legislation

Class 11 Business Studies Small Business notes

1. Small Business The definition of small business by the Government of India is based on the investment in Plant and Machinery, This approach is justified because we have scarce capital and abundant labour. ‘the small scale industries includes.

(i) Small scale industries
(ii) Ancillary industrial undertaking
(iii) Export-oriented units
(iv) Tiny units
(v) Small scale industries owned by women
(vi) Cottage industries
(vii) Khadi and village industries
(viii) Agro based industries

2. Nature of Small Scale Industries

(i) The business is organised by individuals in the private sector.
(ii) The use of family labour and locally available talent is made.
(iii) Simple equipments are used.
(iv) Capital investment is small, generally restricted to one crore.
(v) The use of indigenous technology.

3. Administrative Setup for the Small Scale

(i) Agro and Rural Industries

(a) The government of India created the Ministry of small scale industry and Agro and Rural Industries as the nodal ministry for formulation of policy.

(b) This ministry was divided into following two separate ministries in September 2001 .

• Ministry of Small Scale Industries
• Ministry of Agro and Rural Industries

(c) A part from the ministries state government also makes various promotional and development projects for SSI and then are executed.

4. Role of Small Business in India In developing countries like India there is a greater scope for small business enterprise. The following factors help in the scope of small business enterprises

(i) Limited resources
(ii) Flexibility of operation
(iii) Personal attention
(iv) Individual attitude
(v) Suppliers of large scale business
(vi) Social utility

5. Role of Small Business in Rural India

Small scale industries provide the following benefits in rural area.

(i) Employment
(ii) Improves economic condition
(iii) Promotion of artistic and creative sense
(iv) Rural development
(v) Mobilisation of local resources

6. Problems of Small Business in India

(i) Shortage of Fund Small enterprises have a chronic shortage of finance both for fixed and working capital requirement.

(ii) Shortage of Raw Materials and Power Most of the small factories have shortage of raw materials and other equipments because of limited means to buy in bulk and suppliers hesitate to provide credit policy (facility) to small business.

(iii) Old Techniques of Production and Lack of Latest Technical Knowledge Most of the small scale enterprise use old techniques of production because they cannot afford new technique.

(iv) Marketing Problems Small scale industries face many difficulties in marketing their products because of many reasons

(a) The cost of production is high.
(b) They cannot afford to have their own marketing organisation.
(c) Products of many small firms are not having uniform quality.

(v) Personal Problem Securing the right type of personal is a major problem of small business. A more important problem is the problem of proper training reasonable compensation etc.

(vi) In perfect Organisational Setup In most of the small enterprise the ownership and management functions are performed by the owner himself. Generally the owners may not have the necessary skill to manage the business also.

7. Government Assistance and Special Schemes for Industries in Rural Backward and Hilly Areas Some of the support measures and programmes meant for the promotion of small and rural industries are grouped in following two categories.

(i) Institutional Support

(a) National Bank for Agriculture and Rural Development (NABARD) The NABARD provides loans and advances to State Government for a period not exceeding 20 years to enable to State Government.

(b) The Rural Small Business Development Centre (RSBDC) It is set up by the World Association for small and medium enterprises and is sponsored by NABARD. It aims at providing management and technical support to current and prospective micro and small entrepreneurs in rural areas.

(c) National Small Industries Corporation (NSIC) Its main focus was on

• To supply indigenous and imported machines in easy instalments.
• To procure and supply imported raw materials.
• To export of products of SSI.

(d) Small Industries Development Bank of India (SIDBl) SlDBI was established in 1989 as a public corporation. Its main object is to promote. Finance and develop the small scale sector in India.

(e) The National Commission for Enterprises in the Unorganised Sector (NCEDS) The NCEUS was constituted in September 2004, with the following objectives

• TO improve productivity of small scale enterprises.
• To generate more employment opportunities.

(f) Rural and Women Entrepreneurship Development (RWED) This programme encourages rural people and women RWED provides the following

• Enhancing human and institutional capacities.
• Providing training for women entrepreneurs.

(g) World Association for Small and Medium Enterprises (WASME) Common schemes offered by WASMe are

• Integrated Rural Development Programme
• Prime Minister Rozgar Yojana
• Training of Rural Youth for self-employment
• Jawahar Rozgar Yojana

(h) Scheme of Fund for Regeneration of Traditional Industries (SFURTl) This fund is used

• To improve the technology of traditional units.
• To create sustained employment opportunities.
• To set up traditional industries in various parts of the country.

(i) The District Industries Centre (DIC) The DIC Programme was started on 1 May 1978 to provide assistance to small scale industries at the district level.

These centres provides all the promotional activities such as identification of suitable scheme preparation of feasibility report arranging for credit etc.

(ii) Incentives Some of the common incentives offered are below

(a) Land
(b) Power
(c) Water
(d) Sales Tax
(e) Octroi
(f) Raw materials
(g) Finance
(h) Industrial estates
(j) Tax holiday

Notes Class 11 Business Studies Sources of Business Finance

1. Business Finance It refers to capital funds and credit funds invested in the business.

According to BO Wheeler, “Finance is thai business activities which is concerned with acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.”

The financial needs of a business can be classified into two categories.

(i) Fixed capital requirement
(ii) Working capital requirement

2. Classification of Sources of Funds

(i) Period Basis On the basis of time period, a business finance can be classified in three categories.

(a) Long Term Finance Funds which are required to be invested In a business for a long period of time, that is more than five years are known as long term finance.

(b) Medium Term Finance The finance required by business enterprises for more than one year but less than five years is known as medium term finance.

(c) Short Term Finance The finance required for a short period upto one year is known as short term finance.

(ii) Ownership Basis On the basis of ownership, the sources can be classified into ‘owner’s fund’ and ‘borrowed fund’,

(a) Owner Fund It refers to the funds contributed by owners as well as the accumulated profit of the company this fund remains with the company and it has no liability to return this fund. e.g., equity shares, retained earnings.

(b) Borrowed Fund It refers to the borrowing of the firm. It includes all funds available by way of loans or credit

(iii) Source of Generation Basis Another basis of categorising the sources of funds can be whether the funds are generated from with in the organisation internal or from external sources.

3. Sources of Finance Companies can raise finance from the following methods.

(i) Retained Earning Retained undistributed profits after payment earning refers to of dividend and taxes. It provides the basis of expansion and growth of companies.

(ii) Features of Retained Earnings

(a) Cushion of security
(b) Funds for new and innovative projects
(c) Medium and long term finance
(d) Conversion into ownership fund

4. Trade Credit It refers to an arrangement whereby a manufacturer is granted credit from the supplier of raw materials, inputs spare parts etc. The supplier allow their
customers to pay their outstanding balance, with in a credit period.

The availability of trade credit depends upon

(i) Nature of the firm
(ii) Size of the firm
(iii) Status or credit worthiness of the firm

5. Factoring Factoring is a financial service’under which factor renders the following services

(i) Discounting of Bills of Exchange When goods are sold on credit then a supplier generally draws bills of exchange upon customers who are required to accept the same.

(ii) Providing Information Regarding the Creditworthiness of Prospective Clients Factors collect detailed information regarding the financial history of different companies which can used by the financier who may lend money to these companies.

6. Lease Financing Leasing is a contract between lessor and lessee. whereby the lessor permits the lessee to use the asset acquired by the lessor in return of a payment called rent.

Lessor is called the owner of the assets and lessee hires the assets by paying rent. With leasing contract the lessee can use the assets without investing a high amount of fund for buying it.

7. Public Deposits Public deposits refers to unsecured deposits invited from the public. A company wishing to invite public deposit places an advertisement in newspapers. Any member of the public can fill up the prescribed form and deposit money with the company. Different features of public deposits are

(i) Unsecured
(ii) Finance of working capital
(iii) Time period
(iv) Simple procedure to raise
(v) Repayment

8. Commercial Papers Commercial paper is a source of short finance. The commercial paper was introduced in India for the rust time in 1990. It is an unsecured promissory note issued by public or private sector company with a fixed maturity period, which varies from 3 to 12 months. Since these are unsecured that is why these are generally issued by companies having a good reputation.

9, Issue of Shares Share is the smallest unit in which owner’s capital of the company is divided. A share may also be defined as a unit of measure of a shareholder’s interest in the company.

According to Companies Act, a public company can issue two types of shares.

(i) Equity shares
(ii) Preference shares

10. Equity Shares Equity shares is a common security issued under permanent or owner’s fund capital. Equity shares are the most important source of raising long term capital.

In Companies Act permitting companies to issue two categories of equity shares.

(i) Equity shares with equal rights.
(ii) Equity shares with differential rights as to divided.

11. Preference Shares Preference shares are those shares which get preference over equity shares in respect to

(i) The payment of dividend.
(ii) The repayment of investment amount during winding up.
Different features of preferences shares are
(i) Fixed rate of dividend
(ii) No security
(iii) Voting rights
(iv) Hybrid security

12. Debentures Debentures are common securities issued under borrowed fund capital. Debentures are instruments for raising long term debt capital. Debentures are called creditorship securities because debenture holder are called creditors of a company.

Different features of debentures are

(i) Borrowed fund
(ii) Fixed rate of interest
(iii) Compulsory payment of interest
(IV) Security
(v) Redeemable
(vi) No, voting right
(vii) Appointment of trustee

13. Commercial Banks Commercial banks occupy a very important position as they provide funds for different purposes and different periods. Firms of all sizes can approach commercial banks. Generally, commercial banks provide short and medium term loans but now-a-days they have started giving long term loans against security.

14. Financial Institutions Public financial institutions are referred to as lending institutions. development banks or financial institutions, After independence the Government of India realised that for economic development of a country only commercial banks are not sufficient. There must be financial institutions to provide financial assistance and guidance to industries and business enterprises.

15. International Source of Finance After the new economic policy of liberalisation or globalisation. the doors of foreign companies and investors were opened to invest In the Indian companies. After 1991. the Indian companies tap international sources of finance for both debt and equity. The main securities used by Indian companies to tap international sources of finance are given below

(i) Loans from Commercial Bank!’;
(ii) International Agencies and Development Bank
(iii) International Capital Market

(a) GDR
(b) ADR
(c) lDR

The businessman must keep in mind the following factors

(i) Cost involved
(ii) Financial capacity of the firm
(iii) Form of business organisation
(iv) Time period
(v) Risk involved
(vi) Control
(vii) Flexibility
(viii) Claim over the assets
(ix) Tax benefits

Notes Class 11 Business Studies Formation of a Company

1. Business Finance It refers to capital funds and credit funds invested in the business.

According to BO Wheeler, “Finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and over all objectives of business enterprise.

2. Formation of Company There are two stages in the formation of private company, promotion and incorporation. A public company has to under go capital subscription stage and to the get certificate of commencement of business, to begin operation.

3. Promotion of a Company Promotion is the first stage in the formation of a company. It involves conceiving a business opportunity and taking and initiative to form a company so the particular shape can be given to exploiting the available business opportunity.

4. Functions of a Promoter

(i) Identification of Business Opportunity The foremost activity of a promoter is to identify a first and business opportunity.

(ii) Feasibility Studies The promoters undertake detailed feasibility studies to investigate all aspects of the business they intend to start. There are three types of feasibility

(a) Technical feasibility
(b) Financial feasibility
(c) Economic feasibility

(iii) Name Approval Having decided to launch a company. the promoters have to select a name for it and submit.

(iv) Fixing up Signatories to the Memorandum of association Promoters have to decide about the members who will be signing the memorandum of association of the proposed company.

(v) Appointment of Professionals Certain professionals such as mercantile bankers. auditors etc are appointed by the promoters.

(vi) Preparation of Necessary Documents The promoter takes up steps to prepare certain legal documents. Which have to be submitted under the law

5. Documents Required to be Submitted

(i) Memorandum of Association
(ii) Articles of Association
(iii) Consent of Proposed Directors
(iv) Agreement
(v) Statutory Declaration
(vi) Payment of Fee

6. Position of Promoters Promoters undertake various activities to get a company registered and get it to the position of commencement of business. But they are neither the agents nor the trustee of the company. They can’t be the agents as the company is yet to be incorporated.

7. Incorporation After completing the afore said formalities, promoters make an application for the incorporation of the company. The app cause is to be filed With the registrar of companies of the state within which they plan to establish the registered office of the company.

8. Effect of the Certificate of Incorporation A company is legally born on the date printed on the certificate of incorporation. It becomes a legal entity with perceptual succession on such date.

The certificate of incorporation is a conclusive evidence of the regularity of the incorporation of a company certificate of incorporation has been issued the company has been legal business entity irrespective of any flow in its registration.

9. Capital Subscription A public company can raise the required funds from the public means of Issue of shares and debentures. For doing the same. It has to issue a prospectus which is an invitation to the public to subscribe to the capital of the company.

The following steps are required for raising funds from the public

(i) SEBl approval
(ii) Filling of prospectus
(iii) Appointment of bankers brokers underwriters
(iv) Minimum subscription
(v) Application to stock exchange
(vi) Allotment of shares

10. Conunencement of Business If the amount of minimum subscription is raised through new issue of shares, a public company applies to the registrar of companies for the issue of certificate of commencement of business.

Commencement of business along with the following documents

(i) A declaration about meeting minimum subscription requirement
(ii) A declaration about details in respect of allotment to directors
(iii) A declaration about no money being payable to applicants
(iv) A statutory declaration

A public company raising funds privately has to submit only

(ii) and (iv) listed above

The registrar, upon satisfaction issues certificate of commencement of business. This certificate is also a conclusive evidence of completion of formation requirements.

11. Preliminary Contracts Contracts signed by promoters with third parties before the incorporation of company.

12. Provisional Contracts Contracts signed after incorporation but before commencement of business.

Class 11 Business Studies Social Responsibilities of Business and Eussiness Ethics

1. Social Responsibility

Social responsibility is the obligation of businessmen towards the society. Businessmen must review the impact of their decisions and actions on the other sections of the society.

According to Peter F Druker, “Social responsibility requires managers to consider whether their action is likely to promote the public good, to advance the basic beliefs of our society, to contribute to its stability, strength and harmony.”

2. Need for Social Responsibilities

A businessman must perform social responsibilities because of the following reason

(i) Self interest
(ii) Better environment for business
(iii) Public image
(iv) Avoidance of government interference
(v) Social power
(vi) Resources used for moral justification
(vii) Contribution to social problems

3. The Case Against Social Responsibility

Some experts criticise the concept of social responsibility, some of the arguments given against social responsibilities are given below

(i) Motive of earning profit
(ii) Lack of social skill
(iii) Social responsibility involves cost
(iv) Dilution of basic goal of business
(v) Business are not moral agents
(vi) Reduction in competitiveness

4. Reality of Social Responsibility

After learning the case for and against social responsibilities, we can conclude that business is no longer a mere economic institution but it is also a social institution and businessmen are the trustees of different social groups.

The main reasons and factors which have forced businessmen to consider their responsibilities towards society

(i) Threat of public regulation
(ii) Pressure of labour movements
(iii) Impact of consumer consciousness
(iv) Development of social standard for business
(v) Relationship between social interest and business interest
(vi) Development of professional managerial Class

5. Kinds of Social Responsibilities

(i) Economic Responsibility

In an economic responsibility, business is expected to produce goods and services that are beneficial for society and society which wants and sell them at a profit.

(ii) Legal Responsibility

Every business enterprise is expected to operate within the legal frame work of our society. A law abiding enterprise gets no interference of government and is considered as a socially responsible enterprise.

(iii) Ethical Responsibilities

Ethics is much more than law, while behaving ethically businessmen should not be involved in adulteration, black marketing, etc.

(iv) Discretionary Responsibilities

This responsibility is purely voluntary. This includes contribution in charity. Participation in social service projects, setting up educational and training institutions etc helping people affected by flood, earthquake etc.

6. Social Responsibility towards Different Interest Groups

(i) Responsibilities towards Consumers

(a) Production of safe items by maintaining quality standards
(b) Being truthful in advertising
(c) To follow fair trade practices.

(ii) Responsibilities towards Employee

(a) Providing fair compensation and benefits
(b) Providing good and safe working conditions
(c) To give them opportunities to participate in decision making

(iii) Responsibilities towards the Owners / Shareholders / Investors

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(a) To ensure safety of investment
(b) To ensure fair and regular return on investment
(c) To ensure appreciation of investment by proper utilisation of resources

(iv) Responsibilities towards the Government

(a) To abide by rules, regulations and laws
(b) To pay taxes and duties on time
(c) To help in solving social problem

(v) Responsibilities towards the Community

(a) To protect the environment from all types of pollution
(b) To provide more employment opportunities
(c) To help the weaker section of the society

(vi) Responsibilities towards Suppliers

(a) To ensure regular payment to the supplier
(b) To adopt fair dealing with the suppliers
(c) To protect and assist small scale suppliers by placing order with them

7. Business and Environment Protection

(i) Causes of Environmental Pollution

Environment pollution arises due to the following causes

(a) Air pollution
(b) Water pollution
(c) Land pollution

(ii) Need for Pollution Control

The main reasons to control the pollution are as follows

(a) To ensure safety
(b) Economic losses
(c) To maintain the natural beauty
(d) To ensure healthy life
(e) To lead a comfortable life

8. Role of Business in Environmental Protection

The businessmen should take following steps to control and check environmental pollution

(i) Making use of eco-friendly techniques of production
(ii) Recycling industrial waste
(iii) Treating the waste through technologies before discharging them into water or dumping in the land
(iv) Make use of eco-marks by producing eco-friendly products

9. Business Ethics It refers to the set of moral values or standards or norms which govern the activities of a businessman. Ethics defines what i, right and what IS wrong.

10. Elements of Business Ethics

Some of the basic elements of business ethics while running a business enterprises are

(i) Top management commitment
(ii) Publication of a ‘code’
(iii) Establishment of compliance mechanism
(iv) Involving employees at all levels
(v) Measuring result

Notes Class 11 Business Studies Emerging Modes of Business

1. e-business

e-business refers to “Carrying on business activities through internet.”

2. Scope of e-business

(i) B2B Commerce

Transaction taking place between business units are known as B2B transaction.

These transactions may involve

(a) Creation of utility
(b) Collaborations
(c) Commercial negotiations
(d) Inviting tenders

(ii) B2C Commerce

The transaction taking place between business units and customers are known as B2C transaction.

B2C transaction may involve

(a) Selling and distribution
(b) After sale service
(c) Promotion and other marketing activities

(iii) C2C Commerce

The transaction taking place between customer and customers are known as C2C transaction

C2C transactions may involve

(a) Selling used books, clothes etc
(b) Selling antique items
(c) Information about the quality and durability of products etc

(iv) Intra b-commerce

This refers to transactions between the parties or persons who are the part of one firm only.

Intra b-commerce transactions may involve

(a) Interaction between any two departments of one firm
(b) Placing orders and giving instructions of suppliers
(c) Recruitment selection and training of employees.

3. Merits

(i) Easy to form and lower investment is required
(ii) Convenience
(iii) Speed
(iv) Global reach
(v) Cost saving
(vi) Movement towards a paperless society

4. Limitations

(1) Low personal touch
(ii) Delay in delivery
(iii) Requirement of hardware
(iv) Risk
(v) Low ethics

Most of the limitations discussed can be over come with due care and diligence. Some of the way to over come problems are taken up

(i) Websites are becoming more and more interactive
(ii) The speed and the quality of communication is improving
(iii) India has undertaken 150 such projects to diffuse e-commerce in all nooks and corners

5. On Line Transactions

e-business refers to shopping through internet or on-line.

On-line opens up the whole world as one shop.

There are three phases of doing business in e-business or on-line.

(i) Registration Before on-line shopping one has to register with the on-line vendor by filling up a registration form.
(ii) Placing an Order In on-line transactions the order can be placed by picking and dropping the items in the shopping cart.
(iii) Payment Mechanism In an on-line purchase payment is made through

(a) Cash on delivery
(b) Through cheque
(c) Net banking transfer
(d) Credit or debit card
(e) Digital cash

6. Security security Problems Related to e-commerce

The main security problem of e-commerce are

(i) Transactional risk
(ii) Data storage risk
(iii) Risk of thread to intellectual property and privacy

7. Resources Required for Successful e-business Implementation of e-business

(i) Computer hardware
(ii) Technically qualified staff
(iii) Computerised system of receiving payment
(iv) Well designed website
(iv) Telecommunication facilities

8. Outsourcing Concept BOP refers to getting a business task accomplished through an outside agency.

(i) Advantages

(a) Concentration on core competence
(b) Reduction in cost
(c) Help to avoid labour problem
(d) Benefits of latest development

(ii) Limitations

(a) Confidentiality
(b) Sweat shopping
(c) Protest in home country
(d) Ethical concerns

(iii) Types of Outsourced Services

(a) Financial Services Big companies often need services of specialists for managing finance. e.g., estimating the finance required, how and when to issue shares, debentures.

(b) Advertising Services For a long time the firms are depending upon outsourcing services. The business firms hand over the task of designing and carrying on advertisement campaign to outsourcing firm.

(c) Courier Services Courier services refers to postal services provided by the private firms for carrying mails, parcels etc. The common problem of government postal services was delay. The private outsources offer speedy movement of parcels and samples so business firm relay on them.

(d) Customer Support Services All durable goods require after sale or customer support service to register and attend the complaints of the customers. So firms prefer to outsource these services to outside agencies which are specialised in these tasks.