Government Policies for Business (Part - 1) CA Foundation Notes | EduRev

Business and Commercial Knowledge

CA Foundation : Government Policies for Business (Part - 1) CA Foundation Notes | EduRev

The document Government Policies for Business (Part - 1) CA Foundation Notes | EduRev is a part of the CA Foundation Course Business and Commercial Knowledge.
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GOVERNMENT POLICIES FOR BUSINESS GROWTH

LEARNING OUTCOMES

After studying this unit, you will be able to:

  • Highlight the pervasiveness of the influence of government policies on business.
  • Explain restricting, regulating and facilitating government policies.
  • Describe the major shifts in government policies on business since independence.
  • Explain the concept and importance of liberalization.
  • Explain the concept and measures of globalization policy.
  • Describe privatization as a source of new opportunities of business growth.

INTRODUCTION

Raman was a computer science graduate and he developed an app based solution for blind students. Ali, his friend was a CA Rank holder. Ali had 3 offers from two big audit firms and from a consulting company. Raman understands technology. But he does not know finance, law and government policies. On the other hand, Ali has no exposure to technology but he understands Patent Law, IPR (Intellectual Property Law), GST formalities, Financial Reporting and Corporate Governance issues. Ali understands the commercial possibilities of Raman’s innovation. They form a team to pitch for arranging funds from venture capitalists.

Legal processes, tax policies, business restrictions, financial reporting of any nation follows from government policies. Naturally Government Policies are sine qua non for all spheres of the economy. Not only the start ups developed by young entrepreneurs like Raman and Ali, the big companies also face a number of policy issues followed by a state.

In Bangladesh as a state policy, import of second hand foreign cars is allowed. Toyota steers this policy to their favour. Second hand Toyota cars are sold in numbers through Toyota approved dealers in Dhaka.

Refurbished cars collected from buy back scheme are sold in Dhaka market. Toyota manages several service stations in Dhaka, Chittagong and Rajsahi to provide after sales service.

On the contrary, in India, as a government policy, no foreign car manufacturers are allowed to sell imported cars. They need to form an wholly owned Indian subsidiary or to be a part of a joint venture. Toyota manufactures cars in India as a joint venture with Kirlosker Motors.
Every nation defines its mode of governance through a number of policies. These policies are described as public policies. In the national and international parlance, public policies are as old as governments. In the Post-Second World War period, a number of transnational companies evolved which started to work in different parts of the world. They align their operations according to the public policies of those nations where from they operate.

If we go through the Human Resource (HR) challenges of the heavy vehicle manufacturer Volvo, we see that they have approximately 95,000 employees all over the world. The company promise to treat everyone with respect. They want to foster an inclusive culture where everyone can contribute to their full potential and be accepted for who they are, regardless of gender, gender identity, nationality, ethnic origin, religion, age, sexual orientation, any disabilities, etc.

Here lies the challenge of the company. The gender equality policies are not similar in all countries. So, varied are the policies towards ethnic origin cases, religious issues, etc. That is why they make Herculean efforts every day to promote an inclusive workplace for increasing diversity. They framed the “Volvo Way” and the Volvo Group Code of Conduct which outlines the minimum expectation for all employees.

In fact, all large corporate houses align their corporate policies according to the set government policies of the host nations.
Policy Framework in India – A Historical Sketch

In India, a lot of discourses, researches and experiments on public policies used to take place in the ageold universities of Takhshashila, Vaishali and Nalanda. During the time of Emperor Chandragupta Maurya, the great intellectual guru of the emperor, Chanyaka outlined the public policy of the state. He authored the book “Arthashastra”, a conceptual framework of state craft and public policy. In Greek city states and Roman empire, public policy was centre of attraction. Philosophers like Plato and Aristotle had a number of

discourses on public policy. During the time when Ashoka the Great ruled Magadh, he introduced the policy of peace and harmony. On the other hand, Guptas defined various policies on taxes, trade and warfare. In Delhi Sultanate Alauddin Khilji introduced a stringent tax reform, whereas during the time of Akbar the Great, land reforms were introduced under the leadership of Todarmal. In all the forms of governance, be it

oligarchic, monarchy, aristocracy, tyranny or democracy, public policies were formulated and implemented.

India attained freedom in 1947, with a partition of the nation. Riots and famines broke out in different parts of the nation. The new government of India faced a mammoth developmental challenge. Strong policy making was required as the nation had a diversity of languages, cultures, inequalities. The existence of a multiplicity of princely states, lack of industries, lack of enough food-grains to feed the huge population of the country, a fragile banking system remained the other problems. Thus, India was looking for strong

policy decisions.
Policy in the Contemporary Global Economies

In the contemporary world, the strong economies like US, European nations like Germany, France, Switzerland, Denmark, Sweden and Japan from Asia have clear cut policies on governance, economy, market, taxes and duties and military spending. The emerging economies like Brazil, Russia, India, China and South Africa (Commonly known as BRICS Nations) have distinct policies on governance. The Socialist and Communist states like China, North Korea, the erstwhile Soviet Union used to set highly controlled public

policies. To cope with the varied economic problems and demands of the people, every single government has to outline these policies. This chapter endeavours to explain the meaning and types of policy. It will also highlight the different components of a policy. It will specially focus on India’s economic reforms in the year 1992 and the major changes in policies since then. This chapter especially concentrates on the monumental efforts in changing the post-independence policies. These efforts are commonly referred to as

Liberalization, Privatization and Globalization (LPG).

  • Liberalization of economic policy refers to the gradual decrease in government command and control over the economic policies. Simplification of tax structure, removing quotas, bars and economic restrictions are some examples of liberalization.
  • Privatization, in its purest form means transfer of government ownership to private hands. In real life, it is done in different forms. In some cases, ownership of all shares is transferred from government to a single highest bidder (VSNL was taken by Tata Telecom. In some cases, a large chunk of shares is sold to public, but majority shares are in the hands of the government (ONGC, SAIL, State Bank of India etc.).
  • Globalization refers to taking off restrictions in export and import of goods and services. It also covers the measures of lifting the trade barriers.

MEANING OF POLICIES

Renu visits National Library and frequently orders a plate of vegetarian thali at ₹ 30 a plate. The similar thali in the nearby railway canteen is available at ₹ 45. She gets the similar food at ₹ 210 a the big restaurant at the city centre. India follows a mixed economy and that is why state provides subsidy on food in libraries, instructs railway canteen operator to charge a “reasonable” price fixed by the government. However, the

restaurant at city centre may charge good amount of margin.

In England, you do not have to pay a single penny to enter the British Museum and National Art Gallery. Though UK follows capitalistic economy, it has several socialistic principles ingrained in its state policy.

In any nation, policy making process is related to political actions. Long back, Gabriel Almond outlined political system as a set of interactions having structures, each of which performs its functions in order to keep it like an on going concern, it is a set of processes that routinely converts inputs into outputs. These outputs are the public policies. An autocratic ruler looks for policies which dominate over public freedom.

When India was a British colony, public freedom was conspicuous by its absence. Tax rules were stringent on Indian traders, whereas a democracy frames liberal policies.

In the Indian democracy, we have several political parties. Leaders are free to argue in the parliament. State and the centre have many shared responsibilities. People’s grievances are heard. There are several legal systems to take care of disputes.

Almond classified these inputs of political system into generic functional categories like political socialisation and recruitment, interest aggregation, interest articulation and political communication. Output activities are those which are carried on by a political system in response to demands or stresses placed upon the system in the form of inputs. Outputs generally take the form of governmental policies, programs, decisions etc.

David Easton propounded another model on politics-policy relationship which is known as Feedback or the ‘Black Box Model’. This model identifies that there are many societal demands which are not included in the decisions and policies designed by the state. In course of time the governments try to look for some avenues to look for a feedback process towards public policy. These processes are known as Policy Reforms.

We frequently observe such black box models in India. Government makes several experiments in tax, human resource policies and changes them on public demand. The Indirect tax regime has been changed with the introduction of GST with effect from 1st July 2017. Earlier, age old the Companies Act, 1956 was replaced by a new act in the year 2013.

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