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UNIT – 3

Political and LegalEnvironment

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THE CONSTITUTIONAL ENVIRONMENT

Te Con!tit"tion o# a co"ntr$ i! anim%ortant doc"ment& It de!cri'e! tea!%iration! o# te %eo%le( la$! do)n

teir *gt! and !tate! te %olitical and!ocio+economic o',ective! o#governance& It o"tline! economic and%olitical %o)er! o# te government andit! d"tie! to)ard! te %eo%le&-i!tri'"tion o# %o)er! 'et)een tedi.erent la$er! o# government are al!o

!%eci*ed& In ti! !ection( )e !all #oc"!

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THE CONSTITUTIONAL ENVIRONMENT

Te Con!tit"tion o# India )a! ado%ted '$te Con!tit"ent A!!em'l$ on Novem'er/0( 122 and came into #orce on 4an"ar$

/0( 1256& Te Con!tit"tion )icenvi!age! %arliamentar$ #orm o#government i! 7ederal in caracter )itUnitar$ #eat"re!& It di!tri'"te! legi!lative%o)er 'et)een Parliament and Statelegi!lat"re! and %rovide! #or ve!ting o#re!id"al %o)er! in Parliament& Po)er to

amend te Con!tit"tion al!o ve!t! in

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Te Pream'le

Te Pream'le to te Indian Con!tit"tion !tate! tat 89E( THE PEOPLE O7 IN-IA( aving !olemnl$ re!olved tocon!tit"te India into a SOVEREI:N( SOCIALIST( SECULAR(-EMOCRATIC( REPU;LIC and to !ec"re to all it! citi LI;ERT? o# to"gt( e@%re!!ion( 'elie#( #ait and )or!i%>

EUALIT? o# !tat"! and o# o%%ort"nit$> and to %romoteamong tem all

7RATERNIT? a!!"ring te dignit$ o# te individ"al andte "nit$ and integrit$ o# te nation>

IN OUR CONSTITUENT ASSEM;L? ti! t)ent$+!i@t da$ o#Novem'er 122( do HERE;?( A-OPT( ENACT AN- :IVE

TO OURSELVES THIS CONSTITUTION&8

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7"ndamental Rigt!

Te Con!tit"tion o# India o.er! all citi

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7"ndamental Rigt!

Right to equality incl"ding eB"alit$ 'e#ore la)(%roi'ition o# di!crimination on gro"nd! o#religion( race( ca!te( !e@ or %lace o# 'irt and

eB"alit$ o# o%%ort"nit$ in matter! o#em%lo$ment&

Right to freedom of speech and e@%re!!ion>a!!em'l$> a!!ociation or "nion> movement>

re!idence> and rigt to %ractice an$ %ro#e!!ionor occ"%ation !ome o# te!e rigt! are !"',ectto !ec"rit$ o# te State( #riendl$ relation! )it#oreign co"ntrie!( %"'lic order( decenc$ or

moralit$D&

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7"ndamental Rigt!

Rigt again!t e@%loitation( %roi'iting all #orm!o# #orced la'or( cild la'or and trac in "man'eing!&

Rigt to #reedom o# con!cience and #ree%ro#e!!ion( %ractice and %ro%agation o# religion&

Rigt o# an$ !ection o# citi

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7"ndamental Rigt!

9ile te #"ndamental rigt! en!rined inte Con!tit"tion %rovide a n"m'er o##reedom! to te citi

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Directive Principles of State Policy

Te -irective Princi%le! o# State Polic$ area "niB"e #eat"re o# te Indian Con!tit"tion&

Although not justiciable, ' are

'fundamental in governance of thecountr' and it i! te d"t$ o# te State toa%%l$ te!e %rinci%le! in maFing vs. Nor"ling %art$ can ignore tem and m"!t

devi!e it! %olic$ Fee%ing tem in vie)& Te-irective Princi%le! tat are im%ortant #romte economic %oint o# vie) are a! #ollo)!=

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Te State !all !trive to %romote te )el#are o#%eo%le '$ !ec"ring and %rotecting a! e.ectivel$ a! itma$ a !ocial order in )ic ,"!tice + !ocial( economicand %olitical + !all in#orm all in!tit"tion! o# national

li#e& Te State !all !trive to minimi!e ineB"alitie! in

income( and eliminate ineB"alitie! in !tat"!( #acilitie!and o%%ort"nitie!( not onl$ among individ"al! '"t

al!o among gro"% o# %eo%le& Te State !all direct it! %olic$ in !"c a manner a!

to !ec"re te rigt o# all men and )omen to anadeB"ate mean! o# liveliood and eB"al %a$ #or

eB"al )orF&

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9itin limit! o# it! economic ca%acit$ and develo%ment( teState !all tr$ to maFe e.ective %rovi!ion #or !ec"ring terigt to )orF( ed"cation and to %"'lic a!!i!tance in te evento# "nem%lo$ment( old age( !icFne!! and di!a'lement oroter ca!e! o# "nde!erved )ant&

Te State !all endeavo"r to !ec"re to )orFer! a living )age("man condition! o# )orF( a decent !tandard o# li#e and #"llinvolvement o# )orFer! in management o# ind"!trie!&

Te State i! to direct it! %olic$ in !"c a manner a! to !ec"re

di!tri'"tion o# o)ner!i% and control o# material re!o"rce! o#comm"nit$ to !"'!erve te common good and to en!"re tato%eration o# economic !$!tem doe! not re!"lt inconcentration o# )ealt and mean! o# %rod"ction to commondetriment&

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Some o# te oter im%ortant directive! relate to %rovi!ion o#o%%ort"nitie! and #acilitie! #or cildren to develo% in a r manner( #ree and com%"l!or$ ed"cation #or all cildren "%to te age o# 1> %romotion o# ed"cation and economic sts

o# !ced"led ca!te!( !ced"led tri'e! and oter )eaFer!ection!> organi!ation o# village %anca$at!> !e%aration7,"diciar$ #rom e@ec"tive> %rom"lgation o# a "ni#orm civilcode #or )ole co"ntr$> %rotection o# national mon"ment!>ation o# ,"!tice on a 'a!i! o# eB"al o%%ort"nit$( %rovi!ion o#

#ree legal aid> %rotection and im%rovement o# environment!a#eg"arding o# #ore!t! and )ildli#e o# te co"ntr$> and%romotion o# international %eace and !ec"rit$( ,"!t and

,ra'le relation! 'et)een nation!( re!%ect #or internationalla)( treat$ o'ligation! and !ettlement o# international 4te!'$ ar'itration&

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LE:AL ENVIRONMENT O7 ;USINESS

The governments set the legal framewor!within which business "rms o#erate. Te main!o"rce! o# la) in India

are te Con!tit"tion( !tat"te! legi!lationD(c"!tomar$ la) and ca!e la)& Stat"te! are enacted'$ Parliament( State legi!lat"re! and Union

Territor$ legi!lat"re!& ;e!ide!(+ tere i! a va!t 'od$o# la)! Fno)n a! !"'ordinate legi!lation in te

#orm o# r"le!( reg"lation! a! )ell a! '$e+la)! made'$ CentralGState government!( and local a"toritie!liFe m"nici%al cor%oration!( m"nici%alitie!( gram%anca$at! and oter local 'odie!&

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7rom te %oint o# vie) o# '"!ine!!( not all legi!lation! areim%ortant& $egislations de"ning #ro#ert and businessorganisations, laws of contracts and ban!ru#tc,mutual obligations of labour and management, and a

multitude of laws and regulations constraining thewa business activities are carried out, are im#ortantfrom the #oint of view of business. Accordingl, these$egislations constitute the legal environment ofbusiness. Economic la)! or legi!lation!D ave a direct

'earing on te '"!ine!!& ;roadl$( economic legi!lation! can'e cla!!i*ed into t)o categorie!= %i& Legi!lation! )ic avea #acilitator$ role in '"!ine!!( and %ii& Legi!lation! )ic arere!trictive in teir nat"re& Te im%ortant economic la)! inIndia are a! #ollo)!=

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Company Law. Te Com%anie! Act( 1250 in India%re!ent! te )ole 'od$ o# te com%an$ la)& TeAct %rovide! #or te #ormation o# com%an$( and!tate! %o)er! and re!%on!i'ilitie! o# te director!

and manager!& Te Com%anie! Act al!o %rovide!#or rai!ing o# ca%ital( management andadmini!tration o# com%an$( olding com%an$meeting!( maintenance and a"dit o# com%an$

acco"nt!( %o)er! o# in!%ection and inve!tigation o#com%an$ a.air!( and reg"lating and )inding "% o#com%anie! in India& 7or a detailed di!c"!!ion on teCom%anie! Act( 1250( %lea!e re#er to Ca%ter 32&

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Industries (Development and Regulation) Act!"#!. Reg"lation o# ind"!trial develo%ment )a!con!idered nece!!ar$ in India to en!"re tat !"cdevelo%ment taFe! %lace according to te %lan %rioritie!

and in accordance )it te direction! laid do)n in teind"!trial %olic$ re!ol"tion& 7or ti! %"r%o!e( an Act )a!%a!!ed '$ te Parliament in Octo'er 1251& no)n a!te Ind"!trie! -evelo%ment and Reg"lationD Act(1251( ti! Act came into #orce on Ma$ J( 125/& Te

government a!!"med %o)er! "nder te Act to i!!"elicen!e! #or te e!ta'li!ment o# ne) ind"!trie!( #or tee@%an!ion o# old ind"!trie!( %rod"ction o# ne) item! '$e@i!ting ind"!trie!( and #or canging te location o# ane@i!ting "ndertaFing&

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$R%P Act and Competition Act. Te Mono%olie! andRe!trictive Trade Practice! MRTPD Act )a! ado%ted '$ te:overnment o# India and te MRTP Commi!!ion )a! !et "% in12K6& Te Act e@tended to te )ole o# India e@ce%ting 4amm"and a!mir& It !o"gt to acieve te #ollo)ing %rinci%alo',ective!= 1D %revention o# concentration o# economic %o)erto te common detriment and control o# mono%olie!( and /D%roi'ition o# mono%oli!tic and re!trictive and "n#air trade%ractice!& In line )it te ne) li'erali!ed economic !cenario inte %o!t+re#orm %eriod i&e&( te %o!t+1221 %eriodD a need )a!

#elt to con!idera'l$ modi#$ te MRTP Act& Accordingl$( tegovernment ado%ted te Com%etition Act( /66/& 9ile te#oc"! o# MRTP Act( 1202 )a! on controlling te concentrationo# economic %o)er( te #oc"! o# Com%etition Act( /66/ i! onen!"ring #ree and #air com%etition in te marFet!&

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&'RA !" and 7EMA( !""". 7oreignE@cange Reg"lation Act 7ERAD )a!%rom"lgated in 12K3 and it came into #orce on

4an"ar$ 1( 12K& Te Act aimed a reg"lating#oreign e@cange& 7reB"ent com%laint! )ereeard #rom te tage cor%orate !ector and te#oreign inve!tor! tat ti! Act )a! e@ce!!ivel$re!trictive& Accordingl$( 7EMA 7oreign E@cangeManagement ActD( )a! %a!!ed in 1222 to taFe(te %lace o# 7ERA& Te em%a!i! "nder 7EMA i!on e@cange management )erea! "nder 7ERAte em%a!i! )a! on e@cange reg"lation&

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Consumer Protection Act !"*+.Con!"mer Protection Act )a! enacted in12J0& Te o',ective o# te Act i! 8to

%rovide #or te 'etter %rotection o# teintere!t o# con!"mer! and #or tat %"r%o!eto maFe %rovi!ion #or te e!ta'li!ment ofcon!"mer co"ncil! and oter a"toritie!

#or te !ettlement o# con!"mer! di!%"te!and #or matter! connected tereto&8

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%,e Securities Contracts (Regulation) Act !"#+.9it a vie) to reg"lating te #"nction! o# te !tocFe@cange! le co"ntr$( te government %a!!ed teSec"ritie! Contract! Reg"lationD Act in 1250& Te main

o',ective! o# te Act = 1D to em%o)er te Centralgovernment to reg"late dealing! and control te#"nctioning o# te !tocF e@cange! in te antr$( /D to%romote ealt$ and orderl$ develo%ment o# !tocFe@cange! in te co"ntr$( 3D to en!"re rea!ona'le

armit$ regarding r"le! and '$e+la)! o# di.erent !tocFe@cange! in te co"ntr$( D to %revent "nealt$!%ec"lation oter "nde!ira'le %ractice! in te !tocFe@cange!( and 5D to %rotect te intere!t! o# teinve!tor!&

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SICA !"*# and Companies (Amendment)Act --. SicF Ind"!trial Com%anie! S%ecialProvi!ion!D Act( 12J5( de*ned a !icF ind"!trial

com%an$ in clear term! #or te *r!t time&Com%anie! AmendmentD Act( /66/cangedte de*nition !ome)at& Com%anie!AmendmentD Act( /66/ al!o %rovide! #or te

Con!tit"tion o# a National Com%an$ La) Tri'"nal NCLTD to !olve di!%"te!( %rovide #orrevival and rea'ilitation o# !icF com%anie!(and recommend )inding "% of com%anie! in

certain ca!e!&

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S'/I. Prior to te !etting "% o# SE;I Sec"ritie! andE@cange ;oard o# IndiaD( ca%ital i!!"e! in India)ere lated '$ te Ca%ital I!!"e! ControlD Act(12K& Te main o',ective! o# ti! Act )ere to

%romote %rivate cor%orate on !o"nd line!( en!"retat inve!tment in te %rivate cor%orate !ectordoe! not violate %rioritie! and o',ective! laid i inte 7ive+?ear Plan! or o) into "n%rod"ctive line!(

and to di!tri'"te ca%ital i!!"e! time+)i!e in !"c amanner tere i! no overcro)ding in a %artic"lar%eriod& Te Act )a! re%ealed in 122/& Te SE;I Actno) em%o)er! SE;I ilate te !ec"ritie! marFet&

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La0our Laws. A large n"m'er o# la'o"r la)! governte relation!i% 'et)een '"!ine!! and la'o"r& A *r!t!te% rd! te %revention and %eace#"l !ettlement o#ind"!trial di!%"te! )a! taFen in 12K it!el# )it te

%a!!ing o# te !trial -i!%"te! Act( 12K& Te Act%rovide! #or te !ettlement o# ind"!trial di!%"te!tro"g conciliation( ar'itration ad,"dication& Oter la)!relating to ind"!trial la'o"r incl"de Minim"m 9age Act(12J> Ind"!trial Em%lo$ment iding Order!D Act( 12J>

EB"al Rem"neration Act( 12K0> 9orFmen!Com%en!ation Act( 12/3> Em%lo$ee! State ance Act(12J> Em%lo$ee! Provident 7"nd Act and Mi!cellaneo"!Provi!ion! Act( 125/> Maternit$ ;ene*t Act( == TePa$ment o# :rat"it$ Act( 12K/> etc&

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'nvironment Protection Act !"*+. Ti! Act grant!%o)er to te Central government to taFe mea!"re! to%rotect im%rove te environment& Ca%ter III o# te Actrelate! to Prevention( Control and A'atement o#Environmental ion& It !a$! tat %er!on! carr$ing onind"!tr$( o%eration etc& !all not allo) emi!!ion ordi!carge o# environmental ants in e@ce!! o# %re!cri'ed!tandard! and %er!on! andling a

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Patents (Amendment) /ill -#. Patent%olicie! in all co"ntrie! involve *nding a'alance 'et)een %rotecting te rigt! o#

innovator! and en!"ring acce!! to re!o"rce! atrea!ona'le %rice!& In India( te %atent %olic$ a!#orm"lated in te Patent! Act o# 12K6(em%a!i

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%1' %1R'' I2S%I%3%I42S 4& %1'546'R2$'2%

:overnment i! normall$ regarded a!con!i!ting o# tree di!tinct !et! o# %o)er!(eac )it it! a!!igned role& One i! te

legislature, )o!e role i! to maFe te la)& Te !econd i! te executive )ic i!re!%on!i'le #or im%lementing te la)& Tetird i! te judiciar )ic i! re!%on!i'le

#or inter%reting and a%%l$ing te la)&

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Cont7Legislature (Parliament)

Legi!lat"re o# te Union i! calledParliament& In India it con!i!t! o# Pre!identand t)o Ho"!e!( Fno)n a! Co"ncil o# State!

Ra,$a Sa'aD and Ho"!e o# te Peo%le LoFSa'aD& A! in oter %arliamentar$democracie!( te Parliament in India a!te cardinal #"nction! o# legi!lation(

over!eeing o# admini!tration( %a!!ing o# te;"dget( ventilation o# %"'lic grievance! anddi!c"!!ing vario"! !"',ect! liFe

develo%ment %lan!( national %olicie! and

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Parliamentary Committes. Te #"nction! o#Parliament are 'ot varied in nat"re andcon!idera'le in vol"me )ile te time at it! di!%o!ali! limited& Tere#ore( a good deal o# Parliamentar$

'"!ine!! i! tran!acted in te committee!& ;roadl$(Parliamentar$ Committee! are o# t)o Find! +Standing Committee! and ad hoc Committee!& Te#ormer are elected or a%%ointed ever$ $ear or

%eriodicall$ and teir )orF goe! on( more or le!!( ona contin"o"! 'a!i!& Te latter are a%%ointed on an

ad hoc 'a!i! a! need ari!e! and te$ cea!e to e@i!ta! !oon a! te$ com%lete te ta!F a!!igned to

tem&

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Standing Committees8 Among te Standing Committee!( te tree7inancial Committee! + Committee! on E!timate!( P"'lic Acco"nt! andP"'lic UndertaFing! + con!tit"te a di!tinct gro"% a! te$ Fee% an"nremitting vigil over government e@%endit"re and %er#ormance& Testimates Committee re%ort! on )at economie!( im%rovement in

organi!ation( ecienc$ or admini!trative re#orm! con!i!tent )it %olic$"nderl$ing te e!timate!ma$ 'e e.ected& It al!o e@amine! )eter te mone$ i! )ell laid o"t)itin limit! o# te %olic$ im%lied in te e!timate! and !"gge!t! te #ormin )ic e!timate! !all 'e %re!ented to Parliament& Te (ublic Accounts Committee !cr"tini!e! a%%ro%riation and *nance acco"nt! o#

government and re%ort! o# te Com%troller and A"ditor :eneral& Iten!"re! tat %"'lic mone$ i! !%ent in accordance )it Parliament!deci!ion and call! attention to ca!e! o# )a!te( e@travagance( lo!! orn"gator$ e@%endit"re& Te Committee on (ublic )nderta!ingse@amine! re%ort! o# te Com%troller and A"ditor :eneral( i# an$& It al!oe@amine! )eter %"'lic "ndertaFing! are 'eing r"n ecientl$ and

managed in accordance )it !o"nd '"!ine!! %rinci%le! and %r"dentcommercial %ractice!&

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Ad,oc Committees8 S"c Committee! ma$ 'e'roadl$ cla!!i*ed "nder t)o ead!=

1D Committee! )ic are con!tit"ted #rom time totime eiter '$ te t)o Ho"!e! on a motion ado%ted intat 'eal# or '$ S%eaFer Cairman to enB"ire into andre%ort on !%eci*c !"',ect!( and

(ii) Select or 4oint Committee! )ic are a%%ointed tocon!ider and re%ort on a %artic"lar ;ill&

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Cont7%,e '9ecutive or 5overnment

Te Union E@ec"tive in India con!i!t! o# tePre!ident( te Vice+Pre!ident and te Co"ncil o#Mini!ter! )it te Prime Mini!ter a! te ead to aidand advi!e te Pre!ident& Te Co"ncil o# Mini!ter!

com%ri!e! Mini!ter! )o are mem'er! o# Ca'inet(Mini!ter! o# State Inde%endent cargeD( Mini!ter! o#State and -e%"t$ Mini!ter!&

In ca%ter on Economic Role! o# State and

:overnment( )e ave alread$ di!c"!!ed in detailte role o# te government in reg"lating( %romotingand g"iding '"!ine!! activitie!& Here )e %rovide anill"!trative li!t o# government! role=

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Implementation of laws. Te la)! %a!!ed '$Parliament are im%lemented '$ te government&

Te!e %rovide te overall #rame)orF in )ic te'"!ine!! i! carried o"t in a co"ntr$&

$aintaining law and order. No '"!ine!! activit$can %ro!%er i# te %olitical environment i! not%eace#"l and orderl$ condition! %revail in teeconom$& It i! te re!%on!i'ilit$ o# te government to

en!"re a %eace#"l and orderl$ %olitical environment'$ maintaining la) and order&

Development of infrastructure. Te %rivate!ector i! g"ided '$ te %ro*t motive& Tere#ore( it

tend! to inve!t in B"icF %ro*t+$ielding enter%ri!e!

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Strengt,ening t,e industrial 0ase. Inve!tment in'a!ic ca%ital good! ind"!trie! i! o# te !ame nat"rea! te inve!tment in in#ra!tr"ct"re& 7or in!tance( te!etting "% o# iron and !teel ind"!tr$( eav$

engineering ind"!tr$( eav$ cemical! ind"!tr$(macine tool! ind"!tr$( #ertili

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5uiding industrial development according to Planpriorities. In India( te ind"!trial %olic$ a! #oc"!ed on g"idingind"!trial develo%ment according to Plan %rioritie!& 9it ti!end in vie)( a n"m'er o# initiative! ave 'een taFen& Some o#te!e initiative! are a! #ollo)!=

(i) Ind"!trial licen!ing to g"ide te !etting "% o# ca%acitie! inind"!trie! )ic are more im%ortant #rom te %oint o# vie) o#economic develo%ment and den$ing licen!e! #or te %rod"ctiono# ine!!ential good!&

(ii) Im%lementation o# la)! liFe MRTP Mono%olie! andRe!trictive Trade Practice!D Act to control large cor%orate! and7ERA 7oreign E@cange Reg"lation ActD to control #oreign *rm!+ te o',ective 'eing to re!trict concentration o# economic%o)er in a #e) and!&

(iii) Reorienting ind"!trial location %olic$ to %romote tedevelo%ment o# 'acF)ard area! #reB"entl$ tro"g %roviding

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Strengt,ening t,e capital mar:et. Large !cale '"!ine!!activitie! can onl$ 'e "ndertaFen i# am%le and ea!$ *nancialre!o"rce! are availa'le& Tere#ore( a vi'rant and !trong ca%italmarFet i! a sine qua non o# ind"!trial activit$& Te :overnmento# India a! "ndertaFen a n"m'er o# !te%! to !trengten te

ca%ital marFet + !etting "% o# SE;I Sec"ritie! and E@cange;oard o# IndiaD and NSE National StocF E@cangeD 'eing temo!t im%ortant one!&

Setting up of industrial ;nancing institutions.Commercial 'anF! are generall$ rel"ctant to %rovide long+term

#"nd! #or ind"!trial develo%ment& Ho)ever( "nle!! !"c #"nd!are availa'le( ind"!trial activit$ cannot %icF "%& ee%ing ti!con!ideration in vie)( te :overnment o# India !et "% a n"m'ero# ind"!trial *nancing in!tit"tion! in te %o!t+Inde%endence%eriod te!e in!tit"tion! are Fno)n a! develo%ment 'anF!D&

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Assistance to small

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5overnment=s role as planner. Te government !ometime!%la$! an im%ortant role a! a %lanner( e!%eciall$ in te develo%ingco"ntrie!& -"ring te %o!t 9orld 9ar II %eriod( man$ develo%ingco"ntrie! incl"ding IndiaD ado%ted economic %lanning #oracieving iger gro)t rate and 'etter !tandard o# living&

Promoting agricultural development. A! )e !all di!c"!! indetail in Ca%ter /0 on Agric"lt"re and ;"!ine!!( tere i! a clo!erelation!i% 'et)een agric"lt"re and ind"!trial develo%ment&Agric"lt"re %rovide! ra) material! to vario"! ind"!trie! and atte !ame time( it %rovide! a marFet #or ind"!trial %rod"ct!& Tegovernment! o# te develo%ing co"ntrie! ave "ndertaFen alarge n"m'er o# mea!"re! to %romote agric"lt"ral develo%ment& Te!e mea!"re! can 'e divided into t)o categorie!= i)tecnological and (ii) in!tit"tional& Te #ormer incl"de mea!"re!)ic aim at canging te traditional tecniB"e! o# %rod"ctionliFe ado%tion o# ne) ig+$ielding varietie! o# !eed!( increa!ed

"!e o# #ertili

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Providing employment opportunities. Tegovernment! o# te develo%ing co"ntrie! aveintrod"ced mea!"re! #or general em%lo$ment andmea!"re! #or !%eci*c em%lo$ment #or trained and!Filled %er!onnel& A! #ar a! te #ormer i! concerned(generall$ tree t$%e! o# mea!"re! are introd"ced= (i)mea!"re! to increa!e )age em%lo$ment& (ii) mea!"re!to %romote !el# + em%lo$ment( and (iii) mea!"re! toincrea!e em%lo$ment in te r"ral !ector tro"g te

%rovi!ion o# credit( marFeting #acilitie! and agric"lt"ralin%"t! to te #armer!& Te government! al!o"ndertaFe !%ecial %"'lic )orF! %rogramme! to %rovidedirect em%lo$ment to %eo%le& More em%lo$ment

mean! more income and a larger %otential marFet #or'"!ine!!&

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Cont7%,e 4"diciar$

Te tird %olitical in!tit"tion i! te ,"diciar$& A! !tatedearlier( ,"diciar$ i! re!%on!i'le #or inter%reting anda%%l$ing te la)& In India( at te a%e@ o# te entire

,"dicial !$!tem e@i!t! S"%reme Co"rt o# India& Tere i!a Hig Co"rt #or eac State or a gro"% o# State!&Under Hig Co"rt!( tere i! a ierarc$ o# !"'ordinateco"rt!& Panca$at co"rt! al!o #"nction in !ome State!"nder vario"! name! liFe Nyaya Panchayat, Panchayat

Adalat, Gram Kachihri, etc& to decide civil and criminal

di!%"te! o# %ett$ and local nat"re& -i.erent State la)!%rovide #or ,"ri!diction o# te!e co"rt!&

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C'2%R'

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Introduction

Te Con!tit"tion o# India( "nliFe man$ oterCon!tit"tion! i! 'ot a %olitical and a *nancialdoc"ment& Con!tit"tion deal! in detail in i!!"e! liFete *nance! o# te Union and State& Te Con!tit"tion

al!o %rovide! an ela'orate #rame)orF tro"g )iclegi!lation i! %o!!i'le #or la)! to reg"late vario"!t$%e! o# '"!ine!!& Te %"'lic la) in India clearl$contem%late! and in man$ ca!e! !et! o"t in ela'orateterm! te legal !trateg$ in relation to vario"! a!%ect!

o# *nance( trade( commerce and '"!ine!!& It i!im%ortant to !t"d$ te divi!ion o# %o)er! 'et)een teCentre and State to "nder!tand te tr"e nat"re o#'"!ine!! la)!&

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%,us te Indian con!tit"tional #rame)orF give! %recedenceto te la)! %a!!ed '$ Parliament over to!e o# te states.%,is i! clearl$ even more t,e ca!e )it !"',ect! tat are inte Central li!t( liFe #oreign a.air!( admi!!ion into ande@%"l!ion #rom India( among oter!&

On aro"nd 166 occa!ion! !ince Inde%endence( and mo!tl$till te late 12J6!( te Central :overnment di!mi!!edinc"m'ent State :overnment! and tooF over teir %o)er!"nder Article 350 o# te Con!tit"tion& Te Centre e@erci!edgreat %o)er over te !tate!( al!o made %o!!i'le 'eca"!e

te Congre!! r"led at te Centre and in mo!t State!& Statecie# mini!ter!( o)ever %o)er#"l( )ere !"'!ervient to tePrime Mini!ter )o )a! al!o te mo!t %o)er#"l %er!on inte %art$&

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Relations 0etween t,e 3nion andStates

Legislative Relations8 Te Con!tit"tion divide!legi!lative a"torit$ 'et)een te Union and te State!in t,ree li!t! + te Union Li!t( te State Li!t and teConc"rrent Li!t& Te Union li!t con!i!t! o# 22item!& Te Union Parliament a! e@cl"!ive a"torit$ to

#rame la)! on !"',ect! en"merated in te li!t&%,ese incl"de #oreign a.air!( de#ence( armed #orce!(comm"nication!( %o!t! and telegra%( #oreigntrade( etc& Te State li!t con!i!t! i# 01 !"',ect! on )icordinaril$ te State! alone can maFe la)!&%,ese incl"de %"'lic order( %olice( admini!tration o#

,"!tice( %ri!on( local government!( agric"lt"re(etc& %,e Conc"rrent li!t com%ri!e! o# 5/ item! incl"dingcriminal and civil %roced"re( marriage anddivorce( economic and !%ecial %lanning trade "nion!(electricit$( ne)!%a%er!( 'ooF!( ed"cation(%o%"lation control and #amil$ %lanning( etc&

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Administrative Relations

Te Indian Con!tit"tion i! 'a!ed on te%rinci%le tat te e@ec"tive %o)er i! co+e@ten!ive )it legi!lative %o)er( )icmean! tat te Union e@ec"tiveGte Statee@ec"tive can deal )itall matter! on )ic ParliamentGStatelegi!lat"re can legi!late& Te e@ec"tive %o)erover !"',ect! in teConc"rrent li!t i! al!o e@erci!ed '$ te !tate!"nle!! te Union :overnment decide! to do!o&

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&inancial Relations

;ot te Union :overnment and te State! ave 'een%rovided )it inde%endent !o"rce! o# reven"e '$ teCon!tit"tion& Parliament can lev$ ta@e! on te !"',ect!incl"ded in te Union li!t& Te !tate! can lev$ ta@e! on te!"',ect! in te State li!t& Ordinaril$( tere are no ta@e! on

te !"',ect! in te Conc"rrent li!t& In te *nancial !%ereal!o te State! are greatl$ de%endent on te Centre #or*nance!& Te Centre can e@erci!e control over !tate*nance! tro"g te Com%troller and A"ditor :eneral o#India and grant!& ;"t d"ring *nancial emergenc$ te

Pre!ident a! te %o)er to !"!%end te %rovi!ion regardingdivi!ion o# ta@e! 'et)een te Centre and te State!&

d f d d

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&reedom of %rade and Commerce

Te economic "nit$ o# India i! not 'roFen "% '$ internal 'arrier!& Indoing !o( te Article im%o!e! a limit on te e@erci!e o# legi!lative%o)er o# te UnionGState& I# #reedom o# trade and commerce i!re!tricted directl$ and immediatel$ '$ ta@e!( it )o"ld ten 'eviolation o# te Con!tit"tion& Te validit$ o# te claim o# !"c ano.ence )ill de%end on te movement o# good!& I# te ta@ )ic i!im%o!ed !olel$ on te 'a!i! tat te good! are tran!%orted orcarried( it )o"ld directl$ a.ect te #reedom o# trade( commerceand interco"r!e& Trade( commerce and interco"r!e m"!t %a$ #or te#acilitie! %rovided '$ te State '$ )a$ o# con!tr"cting( maintainingand reg"lating road!( 'ridge! and oter mean! o# tran!%ortation

nece!!ar$ #or !"c trade( commerce on interco"r!e& A! long a!tere i! correlation 'et)een te ta@ recovered and te co!tinc"rred '$ te State( te ta@ cannot 'e callenged a!e@%ro%riator$ to"g tere ma$ 'e a marginal e@ce!! over teco!t&

P li R i i

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Parliamentary Restrictions

A la) re!tricting #reedom o# trade andcommerce can 'e made onl$ '$Parliament !trictl$ in %"'lic intere!t&

Ho)ever !"c la) made '$ te Union!o"ld not 'e di!criminator$ 'et)eendi.erent !tate! "nle!! te !it"ation)arrant!& Te Parliament or an$ o# te

State Legi!lat"re! doe! not ave te rigtto give %re#erence to one !tate overanoter in re!%ect o# trade and commerce&

& d f St t

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&reedom of State

State Legi!lat"re! ave %o)er!( to im%o!e ta@e! on good! #rom oter !tate!

%rovided !imilar good! %rod"ced )itin te

!tate are al!o !"',ected to te !ame ta@e!& to im%o!e rea!ona'le re!triction! on te

#reedom o# trade( commerce or interco"r!e)it anoter or )itin tat !tate a! ma$ 'e

reB"ired in %"'lic intere!t&

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Role of 5overnment in /usiness

9e ave !een o) te !ligte!t cange in government %olic$can cange te )ole !cenario o# '"!ine!!( government! canin"ene '"!ine!! in te #ollo)ing manner =

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R'53LA%4R? R4L'

:overnment! reg"late te '"!ine!!& Te$ not onl$ decide ter"le! o# te game '"t al!o looF! a#ter te im%lementation o#to!e r"le!&

nactment of laws Te Parliament i! te la) maFinga"torit$ and it i! te co"ncil o# mini!ter! tat %re!ent! te%ro%o!ed la) on te ta'le o# Parliament& It i! te government)ic decide! and im%lement! te legal !tr"ct"re o# teco"ntr$&

Te government a! enacted man$ la)! to reg"late ind"!tr$&

Te MRTP Act a! amended to te Com%etition Act i! in %laceto en!"re #air com%etition among organi

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R'53LA%4R? R4L'

*ndustrial licensing Licen!ing i! an e.ective tool inte and! o# te government to reg"late '"!ine!!&Earlier( #or almo!t ever$ ne) vent"re a licence )a!reB"ired #rom te government( )ic "!ed to Fee% a

tigt control on %rod"ction in te %rivate !ector& ;"tno) onl$ inve!tment in a #e) ind"!trie! reB"ire!licence!& To"g in !ome ca!e! ind"!tr$ ma$ ave toacB"ire licen!e #rom oter a"toritie! liFe %oll"tioncontrol( ISI( Mini!tr$ o# Environment and 7ore!t!( 7ood -r"g Admini!tration( etc&

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R'53LA%4R? R4L'

Reservation = Te government limit! te !%ere! o# inve!tment '$re!erving te ind"!tr$ #or !mall !cale( %"'lic and te co+o%erative!ector& 7or in!tance( 'e#ore li'erali!ation( %etrole"m(telecomm"nication( coal( %o)er( etc& )ere te mono%ol$ o# te %"'lic!ector& ;"t li'erali!ation 'ro"gt ne) inve!tment o%%ort"nitie! #or

te %rivate !ector& No) onl$ tree !ector!( i!e!, rail)a$!( atomicenerg$ and e@traction o# mineral! "!ed in atomic energ$ are re!erved#or te %"'lic !ector&

Some ind!"trie! are !till re!erved #or te !mall !cale !ector& ;eca"!eo# ti! %olic$ )e ave !een a 'oom in man$ ind"!trie! over te la!t

*#teen $ear!& A! o# no)( along )it telecom !ervice!( Reliance a!e!ta'li!ed one o# te large!t gra!!root! re*nerie! o# te )orld&Oter 'ig telecom %la$er! liFe ;arti Telecom and TATA ave al!oinve!ted eavil$ in telecomm"nication&

Ne) %o)er %ro,ect! ave 'een e!ta'li!ed '$ te %rivate !ector&

Aviation i! no more a government mono%l$ a! do

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R'53LA%4R? R4L'

Approval for '9pansion8 Te government can 'ot%rovide '"!ine!!o"!e( te o%%ort"nit$ to e@%and a! )ell a! re!trict teire@%an!ion

activitie!& Earlier( tro"g te MRTP Act te govt&re!tricted te e@%an!ion o# 'ig o"!e!( 'e!ide! )icvario"! re!t tin Ion! )ere im%o!ed on increa!ing%rod"ction ra%acit$ or la"ncing ne) Variant!& Re!trictione@i!ted even on te adverti!ement '"dget o# 'ig '"!ine!!o"!e! or on teir inve!tment! a'road& A#ter li'erali

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R'53LA%4R? R4L'

&oreign Direct Investment = It i! te government tatdecide! )eter MNC! can inve!t in a co"ntr$ or not&;eca"!e o# te!e government %olicie! tere )ere ver$#e) MNC! in India till 1221& Even com%anie! liFe I;M

and Coca Cola ad to leave India in te %a!t 'eca"!e o#government %olicie!& Toda$ MNC! are %re!ent in !ector!liFe in!"rance( %etrole"m( 'anF! and %"'lication!( '"tte$ are !till not %re!ent in te retail !ector a! tegovernment doe! not allo) #oreign %artici%ation in tem"lti'rand retail !ector&

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R'53LA%4R? R4L'

Import and '9port Policy= 9it a !mall declarationte government can o%en and clo!e vario"! aven"e! #ore@%ort and im%ort& A! a matter o# %olic$ tegovernment can "!e vario"! tool! to im%o!e re!triction!

on im%ort !"c a! B"ota( tari.!( c"m'er!ome im%ort%roce!!( im%ort licen!e!( etc& Till 1221 India #ollo)ed a%rotectioni!t %olic$ to Fee% te ind"!tr$ #rom im%ort!tat )ere deemed arm#"l& ;"t no) te %olic$ a! 'eenamended and im%ort! are ea!$ )ic a! increa!ed#oreign com%etition #or dome!tic #orm!& -"e to ti!( teIndian to$ ind"!tr$ )a! ver$ 'adl$ a.ected and man$ad to !"t do)n o%eration!& T"! it i! te government)ic decide! )at can 'e im%orted or e@%orted and

)at cannot&

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R'53LA%4R? R4L'

%a9es and Su0sidies = Tro"g ta@e! too tegovernment reg"late! ind"!tr$& Te government "!"all$im%o!e! a ig rate o# ta@ on te ind"!tr$ )ic it doe!not )ant to enco"rage& 7or in!tance a#ter inde%endence

a ver$ ig e@ci!e )a! im%o!ed on %rod"ct! liFeairconditioner!( a"tomo'ile!( etc& )erea! tere )a!virt"all$ no ta@ on %rod"ction o# %rod"ct! re!erved #orte !mall !cale ind"!tr$& Al!o( to increa!e te "!e o#certain %rod"ct!( te government %rovide! !"'!id$ onitem! !"c a! #ertili

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R'53LA%4R? R4L'

Supply of $oney 8 -emand de%end! "%on te%"rca!ing %o)er o# te con!"mer )ic( in t"rn(de%end! "%on !"%%l$ o# mone$ and te !"%%l$ o#mone$ i! decided '$ te government R;ID& Tere are

man$ )a$! tro"g )ic te government reg"late!te !"%%l$ o# mone$& Te R;I can increa!e te !"%%l$ o#mone$ in te marFet '$ decrea!ing te CRR( SLR etc&)ic red"ce! te intere!t rate in te marFet& In tela!t 15 $ear! intere!t rate! ad #allen dra!ticall$( )ica! lent more %"rca!ing %o)er to te con!"mer& Ti!'oo!ted te con!"mer good! ind"!tr$ and te o"!ingind"!tr$ a! )ell& In recent $ear! o)ever( d"e to ri!ingination( intere!t rate! ave 'een rai!ed '$ R;I )ic

a! dam%ered te demand in te econom$& Te

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R'53LA%4R? R4L'

Supply of &oreign '9c,ange (&4R'@) = Tegovernment not onl$ reg"late! im%ort and e@%orttro"g it! %olic$ deci!ion!( '"t al!o control! it tro"gcontrol o# te !"%%l$ o# #oreign e@cange& ;e#ore

li'erali!ation( it )a! te government )ic "!ed todecide te e@cange rate& To re!trict im%ort it re!trict!te !"%%l$ o# 7ore@ )erea! to 'oo!t e@%ort anddi!co"rage im%ort( it deval"ate! te c"rrenc$& Evena#ter li'erali!ation( )en te R"%ee )a! converti'le(te R;I controlled !"%%l$ and e@cange rate tro"go%en marFet o%eration!& ;e!ide! all te!e( tegovernment reg"late! '"!ine!! tro"g admini!trativeand %$!ical control!& So )e !ee tat te government

reg"late! almo!t ever$ a!%ect o# '"!ine!!& It %rovide!

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R'53LA%4R? R4L'

Incentives = Te government al!o reg"late! teind"!tr$ '$ %roviding incentive! in te Fe$ tr"!t area&7or in!tance( it give! ta@ 'reaF! i# an ind"!trial "nit i!e!ta'li!ed in a 'acF)ard area& It al!o grant! !"'!idie!

"nder vario"! !ceme! to te !mall !cale !ector& To!"%%ort e@%ort( it e!ta'li!e! !%ecial

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PR4$4%I42ALD'6'L4P$'2% R4L'

Infrastructure Development= In develo%ing nation!te gro)t o# in#ra!tr"ct"re i! im%erative and tegovernment %la$! a critical role in ti!& 9ell+e!ta'li!edin#ra!tr"ct"re i! te 'a!ic reB"irement #or te

e!ta'li!ment and gro)t o# ind"!tr$& In a develo%ingnation )ere in#ra!tr"ct"re i! in a %oor !tate( tegovernment a! to taFe !te%! to develo% te !ame( i!e&( con!tr"ction o# road!( develo%ment o# rail)a$!(!"%%l$ o# %o)er( tran!%ort( *nance !ector( training andg"idance( re!earc and develo%ment( etc&

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PR4$4%I42ALD'6'L4P$'2% R4L'

1uman Resource Development= Toda$( it i! not tera) material or geogra%ical %ro@imit$ to te marFet)ic decide! te location o# a "nit( '"t te availa'ilit$ o#"man re!o"rce! )ic no)+a+da$! %la$ a deci!ive role in

!ettling do)n on te location o# an$ e!ta'li!ment& Toda$()en re!earc( ne) %rod"ct develo%ment( economie! o#!cale( lo) %rod"ction co!t are e!!ential #or !"cce!!(trained and !Filled "man re!o"rce ave 'ecome tecritical !"cce!! #actor! #or ever$ ind"!tr$& ;"t indevelo%ing nation! liFe India( te !tate %la$! a critical rolein develo%ing "man re!o"rce! a! at te time o#inde%endence( te %rivate !ector )a! not in a %o!ition toinve!t in iger and tecnical ed"cation& UnliFe

develo%ed nation!( te ma!!e! o# India )ere and !till are

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'2%R'PR'2'3RIAL R4L'

Te State al!o %la$! te role o# an entre%rene"r '$inve!ting in '"!ine!!& Te :ovt& D# India a! 'een one o#te 'igge!t inve!tor! in '"!ine!! and ind"!tr$ !incende%endence& Tro"g it! inve!tment( te government

con!idera'l$ in"ence! te a"!ine!! environment& InIndia a#ter inde%endecne te government re!erved!ome ind"!trie! #or onl$ te P"'lic Sector )ere te%rivate !ector cannot inve!t& ;"t te government a!inve!ted in oter area!( )ic )ere not re!erved #or te

%rivate !ector& In a develo%ing nation( inve!tment '$te government el%! te %rivate !ector a lot&

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'2%R'PR'2'3RIAL R4L'

A#ter inde%endence te Indian government eavil$inve!ted in ca%ital inten!ive ind"!tr$ )ere ge!tation%eriod i! ig and %rivate entre%rene"r! are notintere!ted!"c a! Steel SAILD( Al"min"m IndalD(

Rail)a$!( Po)er NTPCD( Heav$ Macine!( Eart MovingMacine!( Heav$ Electrical Maciner$ ;HELD(Petrole"m( Telecomm"nication etc& All te!einve!tment! %romoted te %rivate ind"!tr$ '$ maFingavaila'le ra) material and macine!&

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PLA22I25 R4L'

:overnment i! an arcitect o# te ind"!trial !cenario ina co"ntr$& It i! tr"er #or a co"ntr$ liFe India )ere te!tate al!o %er#orm! te ta!F! o# a %lanner& India a!#ollo)ed a %olic$ o# *ve $ear %lanning !$!tem& It i! te

%lanning commi!!ion )ic %lan! te direction o#inve!tment #or te #ollo)ing *ve $ear!& Ti!!igni*cantl$ in"ence! te '"!ine!! environment& Te%lanning commi!!ion declare! te Fe$ area! )ere te!tate i! going to inve!t and !"%%ort in te coming *ve

$ear!& All ti! even in"ence! te inve!tment deci!iono# te %rivate !ector( a! te$ get !"%%ort #rom tegovernment )en te$ inve!t in a %riorit$ !ector&

5 4

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PLA22I25 R4L'

So )e !ee tat te !tateGgovernment %la$ a vital role indeciding and in"encing '"!ine!! environment& It in#act maFe! te r"le o# te game and al!o act! a! an"m%ire and re#eree& ;e!ide! al ti!( te %olitical

!ta'ilit$ o# a co"ntr$ al!o %la$! a critical role ingenerating a cond"cive environment #or '"!ine!!& Toda$( India i! attracting #oreign inve!tment onl$'eca"!e mo!t o# te %olitical %artie! ave a con!en!"!o# #oreign inve!tment e@ce%t !ome i!!"e! liFe #oreign

inve!tment in retail or more tan 56 inve!tment in te%rint media&

The volving Role of the +tate conomic

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The volving Role of the +tate conomicRoles of the +tate-overnment

State i! generall$ de*ned as a set of institutionsthat #ossess the means of legitimate coercion,exercised over a de"ned territor and its #o#ulation referred to as societ. The +tate

mono#oli/es rule ma!ing within its territorthrough the medium of an organi/edgovernment.0 :overnment o#ten re#er! to te !$!temo# governing in te !ociet$& T"! it mean! te !tr"ct"reand arrangement o# oce! and al!o te %eo%le )o

old te %o!ition! o# a"torit$ in a State& Ho)ever( indi!c"!!ion and )riting( te term! State and governmentare o#ten "!ed intercangea'l$ and )e ma$ al!o #ollo)ti! common %ractice&

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%1' '64L6I25 R4L' 4& %1' S%A%'

Adam Smit )o )rote An n1uir into the2ature and Causes of 3ealth of 2ations inte late eigteent cent"r$ it )a! generall$agreed tat te mar!et was the mosta##ro#riate instrument for realisingeconomic growth and im#roving humanwelfare. Te State! role )a! t"! to 'e

re!tricted to certain core #"nction! #roviding #ublic goods such as defence andhighwas, maintaining law and order toensure securit of #ersons and #ro#ert,

enforcing contracts and #roviding #rimar

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%1' '64L6I25 R4L' 4& %1' S%A%'

Adam Smit )o )rote An n1uir into the2ature and Causes of 3ealth of 2ations inte late eigteent cent"r$ it )a! generall$agreed tat te mar!et was the mosta##ro#riate instrument for realisingeconomic growth and im#roving humanwelfare. Te State! role )a! t"! to 'e

re!tricted to certain core #"nction! #roviding #ublic goods such as defence andhighwas, maintaining law and order toensure securit of #ersons and #ro#ert,

enforcing contracts and #roviding #rimar

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env (3)