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What is Performance Appraisal?

Rahul Pant
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What is Performance Appraisal?

Employees are considered as biggest assets for an organization, because of their effort organization becomes successful but it becomes very difficult for a manager to answer which employee is showing its best performance. To solve this dilemma organizations starts conducting performance appraisal on a regular basis.

In this article, we give you an overview of what is performance appraisal, its meaning and definition, its Objective, importance, and different methods of p. appraisal.

► What is Performance Appraisal? 

Performance appraisal is defined as a formal and systematic process whose objective is to evaluate the individual performance of employees against a well define benchmarks.

P. appraisal is understood as the assessment of an employee’s performance against such factors as job knowledge, experience, target achievement, behavior toward colleague leadership and supervision quality and versatility, etc.

◉ Meaning of Performance Appraisal

Performance appraisal is a continuous process used to evaluate the contribution of different individuals and groups in the working organization by superiors. It provides necessary feedback to the employee that help them to improve their weaknesses.

◉ Definition of P Appraisal

Performance appraisals assist the manager to help in identifying individuals who are performing well and those who are not, as well as the reasons for their poor performance.

“P appraisal is a systematic evaluation of the individual with respect to his or her performance on the job and his or her potential for development”. – Dale S. Beach

► Need & Importance of Performance Appraisal

  • Identifying individual employee weaknesses and strengths
  • It encourages the performance improvement
  • Help in manpower planning and succession planning
  • It helps in the promotion decision
  • Determine what kind of training employee need
  • Help in career planning and development
  • Help in salary administration

► Objectives of Performance Appraisal

The per. appraisal categories are into four objectives-

  1. Development uses
  2. Administrative uses and decision
  3. Organizational maintenance and objective
  4. Documentation

✔ 1. Development uses

  • Identification of individual strengths and development needs
  • Performance feedback
  • Determining transfers
  • Determining the job assignment

✔ 2. Administrative uses and decision

  • Salary
  • Remuneration decision
  • Promotion
  • Retention
  • Layoffs
  • Award and reward

✔ 3. Organizational maintenance and objective

  • HR planning
  • Training and development
  • Strategic human resource planning
  • Information for goal identification
  • Evaluation of HR system
  • Grievance and discipline programs
  • Provide competitive advantage

✔ 4. Documentation

  • Helping to meet the legal requirements
  • Documentation for HR decision

Also Read : What are Smart Goals?

► Methods of Performance Appraisal

To measure one’s performance, there are some traditional and some modern methods that organizations use.

  • ✔ 1. Traditional Methods of Performance Appraisal

    • Ranking Method
    • Confidential Report
    • Forced distribution method
    • Essay Appraisal
    • Grading
    • Graphic scale method
    • Paired Comparison
    • Checklist Method
    • Critical Incidents Method
    • Field review method

     

  • ✔ 2. Modern Methods of P. Appraisal

    • MBO (Management By Objective)
    • BARS (Behaviorally Anchored Rating Scale)
    • Assessment Centres
    • 360-Degree Appraisal
    • Cost Accounting Method

► Advantages of P. Appraisal

  • Promotion is based on competence and performance.
  • It curbs favoritism because it is based on data and benchmarks.
  • It helps in evaluating the training needs of the employee.
  • It improves the communication between superiors and subordinates.
  • It provides constructive criticism to a poor performer.
  • It helps in salary and remuneration administration.

► Limitations of P. Appraisal

  • P. appraisal is based on rater perception, stereotyping, and favoritism.
  • Many times ambiguity exists in standards.
  • Lack of funds and time affect the quality of PA.
  • Insufficient data affect the authenticity of PA.
  • The rater’s rating is heavily influenced by primary and recency effects.
  • The safe playing attitude of the rater incorrectly rated all employees near average.

What is Span of Control?

Rahul Pant
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What is Span of Control?

The span of control plays a very crucial role in determining organizational structure. One business considers a certain number as a perfect controlling span whereas some organizations find that number is too small or large for determining the controlling span control in their organization. It determines the degree of superior and subordinate relationship and the degree of decentralization that exist in the organization.

From this article, we will get a detailed explanation of what is the span of control, its types, and the factors affecting the controlling in an organization.

► What is the Span of Control in Management?

In management, a span of control is defined as the degree to which a manager or superior successfully monitors subordinates.

For an organization, it becomes very difficult to find the correct span control because every organization engages in different types of businesses and the number of subordinates managed by a manager varies according to the complexity of the task.

◉ Meaning of Span of Control

The span of control refers to the total number of direct subordinates that a manager can monitor or control while ensuring a high level of effectiveness and efficiency in work. It is very important for determining work efficiency which is very significant for accomplishing organizational goals.

◉ Definition of Span of Control

The span of control is defined as the number of subordinates that can be controlled or handled by the superior without compromising the effectiveness of the job.

In other words, a span of control is defined as the number of staff members reporting to a manager is considered as the control span of that manager.

A span control is also known as a span of management sometimes.

✔ Quotes by Various Authors

“Span of controlling is the number and range of direct, habitual communication
contacts between the chief executive of an enterprise and his principal fellow officers.” – Dimock

“Controlling span refers to the number of people that a manager can supervise.” – Lois Allen

“Span of controlling refers to the maximum number of subordinates which may be placed under the jurisdiction of one executive immediately superior to them.” – Peterson and Plowman

“A manager may have up to as many immediate sub-ordinates that he can know personally in the sense that he can assess personal effectiveness.” – Elliott Jaques

Also Read : Features of Controlling

► Types of Span of Control

There are two types of Control Span.

  1. Narrow Span in Controlling
  2. Wide Span in controlling

✔ Narrow Span of Control

In the narrow span of control, a manager or superior oversee and controls a few subordinates at a time, and mainly this type of controlling requires where specialized work to be performed.

Advantages
  • In a narrow span, subordinates are effectively monitored.
  • The level of effective communication is high between managers and subordinates
  • Subordinates get instant feedback.
  • Subordinates have clarity about their role and responsibility

✔ Wide Span of control

In the wide span of control, a manager or superior oversee and control a large number of a subordinate at a time. and a wide type of span is needed where the repetitive task is performed.

Advantages
  • Subordinates have more independence.
  • Fewer layers of hierarchy
  • The chances of committing mistakes are very low because work is repetitive.

► Factors Affecting the Controlling span

The controlling span is determined by a large number of factors, let us look at these factors.

  • Type of business
  • Nature of work
  • Geographical distribution
  • Capability of manager
  • Capability of employees
  • Communication level
  • Degree of centralization or decentralization
  • level of automation and autonomation organization have

► Principle of Span of Controlling

The principle of span in control propounded that the number of subordinates can be effectively manageable by the manager. There is a limit exist that determines how many subordinates a manager or superior can supervise.

Also Read : 14 Principles of Managment

► Examples

In the bulb factory assembly line a line manager can monitor the 100 employees because the task of assembling a bulb component is very repetitive in nature and by doing it many times an employee becomes perfect.

A team is working on developing a mobile app, so the project managers have to manage 3 to 8 subordinates because the nature of the task is complex and a high level of communication is needed to accomplish the task.

What are Smart Goals?

Rahul Pant
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What are Smart Goals?

Setting up smart goals is very crucial for an organization’s smooth functioning and survival. Smart goals work as a guiding force for both individual personnel and organization and direct action in a specific direction that ensures the accomplishment of objectives.

Both individual and organizational goal setting create many problems goals may be irrelevant, unrealistic, and unattainable which affects morale, and the wastage of resources and time.

So in this article, we will learn about What is smart goals, and their components explained with detailed examples.

► What are Smart Goals?

A SMART goal is a well-established tool that helps an individual, group, and organization plan and achieves goals. SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound.

In other words, a SMART goal is defined as a framework that guides goal setting and helps in achieving better results within a certain time frame.

◉ Smart Goals Meaning

SMART goals simply mean well-designed goals which are realistic, relevant, and futuristic in nature and have the aim to accomplish expected outcomes in a fixed time, the progress of goals must be trackable and measurable.

Developing smart goals assists personnel and organization to increased efficiency, profitability, and productivity. They are specific, achievable, and timely which help in formulating a clear path to attain success and fulfill determined objectives.

◉ Definition of Smart Goals

Smart Goal can be defined as a goal that is Specific (clear and well-defined), Measurable (can be valued precisely), Attainable (possible to achieve), Relevant (aligned with personal life), and Time-bound (have a deadline).

A S.M.A.R.T goal is a well-planned roadmap set up by the individual and organization to focus on efforts that increase the chance of achieving goals. This method of goal setting help in measuring progress and being accountable for your action.

Full Form of SMART Goals

SMART in Smart goals stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. Let’s understand all the components of smart goals more in detail.

  1. Specific
  2. Measurable
  3. Achievable
  4. Relevant
  5. Time-bound
✔ 1. Specific
  • It means what exactly you want to achieve.
  • In order to make the goal effective it should be specifically, well defined and there is no room for ambiguity.
✔ 2. Measurable
  • It means how will you know you have achieved it?
  • It makes goals quantifiable so that goals can be easier to track and meet the deadline
✔ 3. Achievable
  • It means Are you capable of achieving it?
  • Goals should seem agreed upon and attainable. A goal said to be achievable that is supported by previous opportunities and efforts.
✔ 4. Relevant
  • It means why are you setting the goal that you are setting?
  • The goal must seem worthwhile and it should be aligned to achieve other goals.
✔ 5. Time-bound
  • It means when you want to achieve it.
  • The goal must have a deadline that includes starting date and an ending date.

Also Read : Smart City Mission in India

► Smart Goals Examples

◉ Examples 1

✔ Example of Smart Goals for Business Organization

Motor vehicle companies want to increase its sale of two-wheelers

  • Specific: Increase the sale of electric Scooty/scooter
  • Measurable: The goal is sale 2000 electric Scooty/scooters this year
  • Attainable: Previous year company sold 950 electric Scooty/scooter
  • Relevant: The organization wants to increase its market share so that organization becomes the market leader in the electronic vehicle sector
  • Time Bound: By the end of the current financial year

◉ Example 2

✔ Example of Smart Goals for Student

A Student Wants to improve his English communication skill.

  • Specific: Student is clear about improving his English communication skill
  • Measurable: Student will track his performance through Cambly and Cake apps, and he will daily write a 300-word article and take feedback from his English teacher
  • Attainable: Young students are fast learners and can speak two languages if they put effort into learning them. They have the ability to improve my communication skill.
  • Relevant: This is my final year of graduation if I want a high package salary at a big IT firm, I should have good communication skills.
  • Time Bound: My college placement will start in January so I have 5 months to improve my communication skill.

Types of Contract

Gaurav Mamgain
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Types of Contract

Contracts may be classified into different categories on the basis of enforceability, performance, and formation. Here in this article, we have shared all the different types of contract with examples.

► What is a Contract?

A contract is an agreement enforceable by law and it is between two or more parties. In order for a contract to be considered valid, there must be; an offer and acceptance, consideration, capacity, consent, and lawful purpose.

► 13 Different Types of Contract in India

There are various Types of Contract that can be classified on the basis of their legality, performance, and formation.

  1. Valid Contract (2h)
  2. Void Contract (2g)
  3. Voidable Contract (2i)
  4. Unenforceable Contract
  5. Illegal Contract
  6. Express Contract
  7. Implied Contract
  8. Quasi Contract
  9. E-Contract
  10. Executed Contract
  11. Executory Contract
  12. Bilateral Contract
  13. Unilateral Contract

According to the Indian Contract Act of 1872, There are different types of contract in India but it is mainly classified on the basis of the following factors-

  • On the basis of Validity
  • On the basis of Creation/Formation
  • On the basis of Execution
  • On the basis of Liability

✔ Types of Contract based on Validity

These types of contract are based on legality and validity.

  • Valid Contract (2h)
  • Void Contract (2g)
  • Voidable Contract (2i)
  • Unenforceable Contract
  • Illegal Contract

◉ Valid Contract (Section 2(h) of ICA, 1872)

A valid Contract is an agreement that fulfills all 7 essential elements of a valid contract. In order to become a valid contract, an agreement must consist of the following essential elements.

  • Offer and Acceptance
  • Lawful Consideration
  • The capacity of the parties
  • Free Consent or Consensus ad idem
  • The legality of the object
  • Legal Formality
  • Certainty and Possibility of the performance

Also Read : 7 Essential Element of Valid Contract (in detail)

◉ Void Contract (Section 2(g) of ICA, 1872)

A void Contract is a contract that does not have 7 essential elements of a valid contract. Void Contracts are known as unlawful agreement, unlawful consideration, lack of capacity, and mutual mistakes.

Section 2 (g) of the Indian Contract Act, defines an agreement not enforceable by law is said to be a void contract. Void Contracts often become void due to the impossibility of performance.

Thus the parties to the contract do not get any legal redress in the case of void agreements.

For Example 1, A, and B contract to marry each other. Before the time is fixed for the marriage, A goes mad. The contract becomes void. A contract also becomes void by reason of subsequent illegality.

Example 2, A in England agrees to supply goods to B in Germany, After the formation of the contract war breaks out between England and Germany. And the supply of goods to Germany I prohibited by legislation. The contract becomes void. A contingent contract to do or not to do anything if an uncertain future event happens becomes void if the event becomes impossible.

◉ Voidable Contract (Section 2(i) of ICA, 1872)

An agreement that is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract

A voidable contract is a formal agreement between two or more parties that may be rendered unenforceable for a change in law or circumstances, when a contract is made by mistake, misrepresent undue influence, and fraud then parties of the contract will declare that contract as an invalid contract.

For Example,  If Rahul offers Sohan to sell land. All documents related to the land were taken fraudulently by Rahul. If later on, Sohan realized that Rahul was not the true owner as Mohan claimed that Mohan is the real owner, Sohan can terminate the contract or seek damages.

◉ Unenforceable Contract

An unenforceable contract is one that cannot be enforced in a court of law because of some technical defect such as the absence of writing or where the remedy has been barred by lapse of time.

An enforceable contract is one that cannot be enforced in a court of law on account of some technical defects like want of a written form of a stamp. Some unenforceable contracts can be enforced in a court of law if the technical defect is removed.

For Example, If a document embodying a contract is under-stamped, the contract is unenforceable. But the requisite stamp is affixed (if allowed) the contract becomes enforceable.

◉ Illegal Contract

An illegal agreement is one that transgresses some rule of basic public policy which is criminal in nature or which is immoral. Such an agreement is a nullity and has a much wider import than a void contract. All illegal agreements are voice but all void agreements or contracts are not necessarily illegal.

A contract is illegal if it involves doing something that is a criminal act or civil wrong or against the public good. It is void and avoids connected contracts also. Money paid under illegal contracts can’t be recovered.

A contract that is otherwise legal might also become illegal if it’s the subject matter is to be used for an unlawful purpose.

For Example, Selling a firearm to one who doesn’t have a license to hold one knowing that he will use it to kill someone, the contract will become illegal.

✔ Types of Contracts based on Creation/Formation

These types of contract are based on how contracts are formed.

  • Express Contract
  • Implied Contract
  • Quasi Contract
  • E-Contract

◉ Express Contract

If the terms of a contract are expressly agreed upon (whether by words spoken or written) at the time of formation of the contract, the contract is said to be an express contract.

An express Contract is a contract in which the proposal and acceptance, that results in an agreement, enforceable by law, are stated verbally, either orally or in writing.

There is some expression or conversation between two or more parties. The contract is created by words either in written form or orally.

For Example, Business contracts are express contracts such as Lease agreements.

Example 2:  A contract with B to purchase a house, hence they sign the contract and various formalities were fulfilled i.e. registration, stamp duty, etc.

◉ Implied Contract

An implied contract is one that is inferred from the acts or conduct of the parties or the course of dealings between them.

It is not the result of any express promise or promises by the parties but their particular acts. An implied promise results in an implied contract.

Implied Contracts are formed by an agreement that is not stated in words formally because it is inferred from the situations, facts, and conduct of the parties. Verbal contracts are also satisfactory and Intentions are not clear but assumed.

Example 1: visits to a hospital, and visit salon for haircuts are implied contracts.

Example 2: If a coolie in uniform picks up the luggage of A to be carried out of the railway station without being asked by A and A allows him to do so. It is an implied contract and A must pay for the services of the coolie detailed by him.

◉ Quasi Contract

Strictly speaking, a quasi-contract is not a contract at all. A contract is intentionally entered into by the parties. A quasi-contract, on the other hand, is created by law.

It resembles a contract in that, a legal obligation is imposed on a party who is required to perform it. It rests on the ground of equity that, a person shall not be allowed to enrich himself unjustly at the expense of another.

A quasi-contract is “a legal substitute for a contract.” A quasi-contract is used when a court wishes to create an obligation upon a noncontracting party to avoid injustice.

Quasi-contracts are the lawful and purely voluntary acts of a man, from which there results in any obligation whatever to a third person, and sometimes a reciprocal obligation between the parties.

For Example. A leaves his wristwatch at B’s house by mistake. Here B has a quasi-contractual obligation to return it to A.

Note: Generally, in a contract, obligations are created on the parties out of an agreement but in this type of contract (quasi-contract) obligations are created on the parties without any agreement.

◉ E-Contract

An E-commerce contract is one that is centered between two parties via the internet. On the internet, different individuals or companies create networks that are linked to numerous other networks. This expands the area of operation in commercial transactions for any person.

An agreement between two or more parties is legally valid if it satisfies the requirements of the law regarding its formation. i.e. that the parties intended to create a contract primarily. The same is true in the case of E-contracts.

Example: Digitally signed agreements, An Electronic Contract is a contract that is entered into in cyberspace and is evidenced only by electronic impulses (such as those that make up a computer’s memory), rather than for example a typewritten form.

✔ Types of Contracts based on Execution

These types of contract are based on the performance of the parties that are involved in a contract.

  • Executed Contract
  • Executory Contract

◉ Executed Contract

Executed means that which is done. An executed contract is one in which both parties have performed their respective obligations.

A contract is said to be executed when both parties have completely performed their obligations. It means that nothing remains to be done by either party under the contract.

For Example, A buys a book from B. A delivers the book and B pays the price. It is an executed contract.

◉ Executory Contract

Executory means that which remains to be carried into effect. An executory contract is one in which both parties have yet to perform their obligation. Partially Executed or Partially Executory

In an Executory contract, something remains to be done. In other words, conduct is said to be executory and has yet to perform its obligations.

For Example, If A agrees to take the tuition of B, from the next month and B in consideration promises to pay A Rs 1000 per month, the contract is executory because it is yet to be carried out.

✔ Types of Contract basis on Liability

  • Bilateral Contract
  • Unilateral Contract

◉ Bilateral Contract

A bilateral contract is one in which the obligations on the part of both parties to the contract are outstanding at the time of the formation of the contract. (Executory consideration)

A Bilateral contract is where both parties have something to offer as consideration.

Example of Bilateral Contract:

Example 1: The Sale of Property between two parties.

Example 2: Mrs. Sharma agrees to watch her neighbor’s kids, on Monday and Tuesday and Mrs. Singh agrees to watch Mrs. Sharma’s kids on Wednesday and Thursday. In this case, a bilateral contract has been entered into by the two moms when both parties have made counter-promises to each other. The reward is getting quiet afternoons 2 days a week.

◉ Unilateral Contract

A unilateral or one-sided contract is one in which only one party has to fulfill his obligation at the time of the formation of the contract. (Executed consideration)

Whereas a Unilateral Contract binds only the party promising something of value.

Example of Unilateral Contract: If Mrs. Sharma pays Rs. 500 per day to Mrs. Singh for watching her kids on Monday and Tuesday, then, in this case, the contract becomes Unilateral where only Mrs. Singh receives consideration for the action of taking care of Mrs. Sharma’s kids. Further, Mrs. Sharma is only obligated to pay the money if Mrs. Singh watches her kids.

What is Market Structure?

Rahul Pant
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What is Market Structure?

In economics understanding the nature and characteristics of the market is very essential for both sellers and buyers. Markets are very big in size and complex in nature so to understand the nature of market structure we classify them into many types based on different and unique characteristics.

So in this article, we will discuss what is market structure, and the type of market structures like perfect competition, monopoly, oligopoly, and monopolistic competition market characteristics with examples.

► What is Market Structure?

Market structure is defined as how a firm is differentiated based on the type of goods they sell, their functions and operation, nature, and the internal and external factor affect impact their operation.

Market Structure shows the relationship between different stakeholders present in the market. This relationship exists between sellers and other sellers, buyers, and sellers, sellers, and the government or more.

Market structure is differentiated on the basis of these traits.

  • Number of buyers
  • Number of sellers
  • Availability of substitute product
  • Degree of differentiation in goods and services a
  • Capture Market share
  • Degree of Entry and exit barriers

► Type of Market Structure

  1. Perfect Competition
  2. Monopolistic Competition
  3. Oligopoly
  4. Monopoly

✔ 1. Perfect Competition

A perfectly competitive market is defined as a market where there is a large number of sellers and buyers present in the market and they are buying and selling homogeneous goods. Where Buyer and seller both have true knowledge about the market.

◉ Characteristics of Perfect Competition

  1. A large number of buyers and sellers
  2. Homogenous goods available in market
  3. Free entry and exit of firms in the market
  4. Both seller and buyer have perfect knowledge of the market
  5. Perfect mobility factors are available
  6. Absence or lack of selling cost
  7. Perfect demand elasticity exists
  8. In the short run, the firm may get Super Natural Profit, Normal Profit, Losses, and Shut down points.
  9. In the long run, firms are only satisfied with Normal Profit.

◉ Example of Perfect Competition–  Agriculture commodities

✔ 2. Monopolistic Market Competition

Monopolistic competition is a kind of imperfect competition where a larger number of sellers and buyers exist but they sell differentiated goods. This concept is given by Chamberlin in 1933.

The term monopolistic competition refers to the market structure where sellers have a kind of monopoly on their product but face constant pressure from substitute products.

◉ Characteristics of Monopolistic Competition

  1. Large numbers of buyers and sellers
  2. Heterogeneous or differentiated goods
  3. Freedom of entry and exit of firms
  4. Both buyers and sellers have imperfect knowledge
  5. Nonprice competition
  6. Limited mobility
  7. In short term, a firm gets Supernatural, Normal profit, Minimum losses
  8. In long term, a firm gets Normal Profit.
◉ Examples of Monopolistic Competition – Toothpaste, soaps, Restaurants, and Clothing
which all are similar but have slightly different in taste, Flavour, smell, etc

Also Read : 4P’s of Marketing

✔ 3. Oligopoly Market

An oligopoly is a market situation in which a market or industry is dominated by a small group of sellers.

In other words, an oligopoly is defined as a market situation in which the number of firms in an industry is small and they have mutual interdependence with each other but do not have control over the price.

◉ Characteristics of Oligopoly

  1. Few sellers exist in the market
  2. Firms sell a homogenous and distinctive product
  3. Restriction on the entry and exit of the firm
  4. Imperfect knowledge
  5. High cross elasticity
  6. Price rigidity exists and a kinked demand curve
  7. Firms have mutual  interdependence
  8. High expenditure on advertisement
  9. The existence of product differentiation creates brand loyalty.

◉ Examples of Oligopoly Market –

  • The Indian telecom sector is dominated by Airtel, Jio, Vodafone, and idea (VI).
  • Petroleum and gas sector- Indian Oil Corporation ltd, Bharat Petroleum Ltd, Hindustan Ltd.
  • Aircraft maker Airbus and Boeing.

✔ 4. Monopoly Market

A monopoly is a market situation in which only a single seller and a large number of buyers exist and there is no substitute product available in the market, along with this there are high entry barrier exists.

The Source of a monopoly can be patents, technical barriers, government policies, control over the input resource, and Large capital requirement.

◉ Characteristics of Monopoly Market

  1. One seller and a large number of buyers.
  2. Product or service has no close substitute
  3. Firms is a price maker
  4. Price discrimination exists, different prices for different buyer
  5. No competitor exists
  6. No freedom for firms to enter the market
  7. In short term, a firm gets Super natural profit, Normal Profit, Losses
  8. In long term, firms get only super profit.

◉ Example of a Monopoly Market – Indian Railway, Local water, and electricity supply.

Instruments of Monetary Policy

Rahul Pant
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Instruments of Monetary Policy

A well-sound economy is always backed by well-sound monetary policy. Instruments of Monetary policy are considered the backbone or engine of the economy. Monetary policy is controlled by the central bank which reflects or impacts the both micro and macro parameters of the economy.

In this article, we will discuss What is monetary policy, who formulates it, and what are monetary policy tools like repo rate, reverse repo rate, bank rate, CRR, SLR, MSF, etc.

► What is Monetary Policy?

Monetary policy is the macroeconomic policy of a nation that is laid down by the central bank of that nation. It contains the set of tools and activities that involve the management of the money supply, inflation, interest rate, and growth rate of an economy.

Monetary policy very is a crucial role in economic prosperity and welfare, employment generation, demand expenditure, and most importantly stability of the currency.

All the monetary policy tools are wisely used by the central bank because any change in interest rate will significantly impact the short-term supply of money in the economy and help in controlling the inflation rate.

◉ Monetary Policy in India

Monetary policy in India is formulated by Monetary Policy Committee (MPC). MPC was constituted in 2016 as a statutory body under the RBI Act 1934.

Currently, the monetary policy of India is undertaken in accordance with Monetary Policy Committee Framework Agreement (MFPA) Act 2015.

The monetary Policy Committee consists of 6 Members

RBI governor as chairman, RBI Deputy Governor, RBI member, and 3 other members appointed by the central government. MPC meets four times a year or every three months.

Objectives of Monetary Policy Price Stability Boost Economic Growth Equal income Distribution Stable Exchange Rate Inflation Control Better Standard of Living Balance of Payment (BOP) Promote Export and substitute imports

Also Read : Objectives of Monetary Policy

► Instrument of Monetary Policy

Monetary policy instruments are divided into two categories that are as follows;

  • Quantitative Instruments
  • Qualitative Instruments

1. Quantitative Instrument

  • Repo Rate
  • Reserve Rate
  • Standing Liquidity Ratio
  • Marginal Standing Facility
  • Bank Rate
  • Open Market Operation

2. Qualitative Instrument

  • Credit Rationing
  • Margin Requirement
  • Moral Suasion
  • Direct Action

► 1. Quantitative Instruments of Monetary Policy

The quantitative instruments are general tools that are related to the interest rates set by the RBI (Reserve Bank of India).

Quantitative instruments are related to the quantity and volume of money. It is designed to control the total volume/money of the bank credit in the economy of the nation.

✔ Repo Rate

Repo rate refers to the interest rate at which RBI provide loan to banks and banks submit their government securities to RBI as collateral.

Repo Rates are of many types

  • Overnight Repo Auction
  • Variable auction Repo
  • Terms Repo – 7 days, 14 days, 21 days, 28days, 56 days

✔ Reserve Repo Rate

The reverse repo rate is the rate at which the RBI borrows money from commercial banks against collateral of eligible government securities

An increase in the repo rate means RBI wants to decrease the money supply or control inflation.

A decrease in the repo rate means RBI wants to increase the money supply.

✔ Standing Liquidity Ratio

SLR refers to the percentage of total deposits of a bank to keep with itself in the form of liquid assets such as cash, gold, government securities such as T-Bills, Dated Securities, etc.

If RBI increases the SLR then a higher proportion of funds is to be kept aside by banks hence it decreases the lending power of the bank rate which results in a high-interest rate, therefore, the money supply will decrease.

✔ Marginal Standing Facility

It is a tool through which banks can borrow from the RBI but banks can pledge securities held for SLR purposes and for using the MSL facility RBI charge a higher rate of interest to the bank than the repo rate.

✔ Bank Rate

The bank rate is a rate at which RBI provides long-term borrowings to not only banks but also state governments, financial institutions, cooperative banks, etc.

Any increase in bank rate by RBI will make borrowing from RBI expensive hence money supply will  decrease

✔ Open Market Operation

OMO is a monetary tool that is frequently used by RBI in this RBI sale and purchase of government securities from the open market with the aim of influencing liquidity in the economy in the medium term.

► 2. Qualitative Instruments of Monetary Policy

Qualitative instruments are selective instruments of the RBI’s monetary policy. These instruments are used for differentiating between various uses of credit.

For example, many instruments in monetary policy can be used for favoring export over import or essential over non-essential credit supply. Such instruments are as follows;

✔ Credit Rationing

Rationing of credit is a method by which the RBI seeks to limit the maximum amount of loans and advances and, also in certain cases, fix a ceiling for specific categories of loans and advances that will be dispersed by RBI.

✔ Consumer Credit Regulation

RBI can issue rules to set the minimum/maximum level of down payments and periods of payments for the purchase of certain goods.

✔ Margin Requirement

Margin refers to the difference between the Loan and Collateral value. The RBI may lay down different margin requirements for different categories of loans (Vehicle, Home, Business, etc) to control credit to different sectors.

✔ Moral Suasion

Is a milder form of credit control in which the RBI can persuade commercial banks to cooperate with the general monetary policy.

Since it involves no administrative compulsion or threats of punitive action it is a psychological and informal means of selective credit control.

✔ Direct Action

This step is taken by the RBI against banks that don’t fulfill conditions and requirements.

What is Monetary Policy of India?

Rahul Pant
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0
What is Monetary Policy of India?

The economic growth of any country depends on how effective and efficient its monetary policy or fiscal policy is. Both monetary and fiscal operations have repercussions on the whole economy.

So in the article, we will discuss what is monetary policy, its meaning, objectives, and tools used by the central banks to influence the economic trends of a nation.

► What is Monetary Policy?

Monetary policy refers to the use of instruments or tools within the control of the Central Bank. The effective use of policy instruments influences the level of aggregate demand for goods and services or influences the level of aggregate demand for goods and services.

◉ Monetary Policy Meaning

The Monetary Policy simply means a policy as a discretionary act undertaken by the central bank in a country to influence.

  • The money supply
  • Rate of interest
  • Price stability and growth

◉ Definition of Monetary Policy

The Monetary policy can be defined as the policy that operates through the variation in interest rate, availability, and cost of credit. These variations affect the demand or supply of credit in the economy and the level and nature of economic activities.

Monetary Policy is formulated and executed by the Reserve Bank of India to achieve specific objectives like the supply of money, and cost of money or the rate of interest, with a view to achieving particular objectives.

► Monetary Policy in India

According to RBI Governor Dr. D. Subba Rao,

“The objectives of monetary policy in India are price stability and growth. These are pursued through ensuring credit availability with stability in the external value of rupee and overall financial stability.”

✔ If RBI increases the Interest Rate (+)

Borrowing from RBI becomes expensive ➜ banks will borrow less from RBI ➜ less credit will be provided by banks to borrowers ➜ the money supply will decrease ➜ People have less money to expand ➜ Demand for goods and services decrease ➜ Inflation decreases.

✔ If RBI decreases the interest Rate (-)

Borrowing from RBI become cheaper ➜ Banks will borrow more ➜ More credit is available for borrowers ➜ Money supply will increase ➜ Increase in economic activity ➜ Employment generation

► Objectives of Monetary Policy

  1. Price Stability
  2. Boost Economic Growth
  3. Equal income Distribution
  4. Stable Exchange Rate
  5. Inflation Control
  6. Better Standard of Living
  7. Balance of Payment (BOP)
  8. Promote Export and substitute imports

Now let’s discuss all the objectives in a more detailed manner.

✔ 1. Price Stability

In a current globalized world, the price of commodities is very volatile due to internal and external factors therefore price stability is very desirable for both developed and developing nations.

Price stability prevents the economy from the uncertainties caused by inflation.

✔ 2. Boost Economic Growth

Monetary policies are a very important determinant of business prospects and investment decisions.

Policy decisions by RBI affect the demand and supply of money which is very crucial for the industrial and commercial sectors of the country.

✔ 3. Equal Income Distribution

Affordability and accessibility to credit to the poor section of society help in the redistribution of income. The distribution of income results in wealth creation among the weaker section of society.

✔ 4. Stable Exchange Rate

The increase in international trade and dependence on foreign countries for goods and services causes exchange rate volatility which affects the value of a domestic currency with respect to foreign currency mainly the dollar. So stabilizing Extrem solitarily in the exchange rate can be  done with the help of monetary policy

✔ 5. Inflation Control

The most prominent objective of a monetary policy is to control inflation, with the use of instrument tools central bank can increase or decrease the supply of money in the economy,

✔ 6. Better Standard of Living

Control over inflation and availability of cheap credit help the weaker or vulnerable section of society in wealth generation.

Monetary policy influences the rate of investment in the country which intensifies economic activities and generates a large number of employment opportunities.

✔ 7. Balance of Payment (BOP)

As global trade is strengthening the imports and exports of goods and services increase immensely which added pressure on forex reserves.

These results need more forex reserves to fulfill the import need of a nation, so RBI uses open market operation to maintain the required forex reserves.

✔ 8. Promote Export and substitute imports

By providing cheap loans to export-oriented industry, the monetary policy encourages the promotion of export which also help in improving the balance of payment and enhancing the forex reserve.

Also Read : Primary Sector of Economy

Also Read : Secondary  Sector of Economy

Also Read : Tertiary Sector of Economy

► Instrument of Monetary Policy

These nstruments are divided into two categories that are as follows;

  • Quantitative Instruments
  • Qualitative Instruments

✔ 1. Quantitative Instrument

  • Repo Rate
  • Reserve Rate
  • Standing Liquidity Ratio
  • Marginal Standing Facility
  • Bank Rate
  • Open Market Operation

✔ 2. Qualitative Instrument

  • Credit Rationing
  • Margin Requirement
  • Moral Suasion
  • Direct Action

Must Read : Instrument of Monetary Policy (in detail)

What is Fiscal Policy in India?

Rahul Pant
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What is Fiscal Policy in India?

Fiscal policy is a crucial part of modern economies and it is operated by the government through budget and policies. The government uses fiscal and monetary policies to achieve stability and growth by influencing and regulating the behavior of spenders, consumers, and investors.

In this article, we will learn what is fiscal policy, its types, its objectives, how it affects the national economy, what is budget, and what are the tools and instruments of fiscal planning.

► What is Fiscal Policy?

Fiscal policy is a part of government policy that is concerned with raising revenue through taxation and other means and deciding the level of expenditure.

It is a tool that helps the government decide how much money it should spend in different economic sectors to support economic growth, and how much taxes it should levy to earn revenue so it keeps the economy of the country on track.

◉ Fiscal Policy Meaning

Fiscal policy means the use of government expenditure and tax policies to influence economic conditions, especially the macroeconomic condition of the country.

◉ Definition of Fiscal Policy

Fiscal policy is defined as the use of government spending and taxation policy to influence the aggregate demand and supply of goods and services, promote economic growth, and generate employment.

► Types of Fiscal Policy

There are three types of Fiscal policies

  • Expansionary Policy
  • Contractionary Policy
  • Neutral Policy

✔ 1. Expansionary Fiscal Policy

Expansionary policy occurs when government spending is lower than tax revenue and is usually undertaken to pay down government debt.

  • Government expenditure is more than taxes receipts.
  • Reduces unemployment, Increases in Inflation

Action

Effect

Lower Taxes

Increasing tax savings increases available funds for spending, so consumers and businesses purchase more, and AD is increased.

Increase Government Spending

Increasing government spending provides the funds needed for consumers and businesses to purchase goods and services. Ad is increased.

✔ 2. Contradictory Fiscal Policy

The contradictory policy involves government spending exceeding tax revenue and is usually undertaken during recessions.

  • Government expenditure is less than the taxes and revenues received.
  • Reduces inflation, Increase Unemployment

Action

Effect

Raise Taxes

Increasing tax expenditures decreases money available for spending, so consumers and businesses spend less. AD is decreased.

Decrease Government Spending

Decreasing government spending reduces the funds needed for consumers and businesses to purchase goods and services. AD is decreased.

 

✔ 3. Neutral Fiscal Policy

It is usually undertaken when an economy is in equilibrium. Government sending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity.

  • A Neutral stance results in a large tax revenue government.
  • Spending is fully funded by tax revenue and the overall budget has a neutral effect on the level of economic activity.

► Fiscal Policy in India

In India, fiscal policy operates through the budget. The budget is an estimate of government revenue and expenditure for an ensuing financial year.

The budget is presented in parliament by the finance minister. Article 112 of the Indian constitution deals with the budget.

Under Article 112, the Government is required to present an Annual financial statement (AFS) before both houses of the Parliament. The budget contains an Appropriation Bill which deals with the expenditure Side and Finance Bill which deals with the receipts side.

The budget policy has served the following purpose.

  1. Accelerate the pace of economic development by allocating resources to a different sector.
  2. Effective improvement in income distribution
  3. Promote exports and encourage import substitution
  4. Achieve economic stability
  5. Effective improvement in the production of goods and services.

Also Read : What is Budget? (in detail)

► Objectives of Fiscal Policy

  • Increase revenue and promote progressive tax
  • Price stability
  • Economic stability
  • Encourage Investment
  • Promote Employment opportunities
  • To reduce income inequality

✔ Increase Revenue and Promote Progressive Tax

One of the primary objectives of fiscal policy is to generate sufficient revenue to meet government expenditures. To protect from fiscal deficit government use a progressive taxation policy.

✔ Price Stability

Inflation is a very big problem in developing countries, in which the price of commodities rises extremely high, so the government uses its fiscal tools like control over commodities, granting concessions and subsidies with the objective to achieve price stability and economic growth.

✔ Economic stability

The fiscal policy promotes economic activity, it provides protection against internal and external economic shocks. It also strengthens the microeconomic and macroeconomic framework.

The government uses effective tariff policy and EXIM policy as tools to provide long-term economic stability and balanced growth of various sectors of the economy.

✔ Encourage Investment

The aim of the fiscal plan is to accelerate economic growth so it encourages investment in both the private sector and the public sector which are considered vital importance from the social economic viewpoint of society.

✔ Promote Employment opportunities

One of the main goals of fiscal policies is to create full employment in the economy. The government provides special grants, and tax cuts to accelerate economic growth.

✔ To Reduce income inequality

Accumulation of wealth among a few people hand not only creates income equality but also creates social and political inequality which may be caused a threat to economic instability.

Fiscal policy increases the public expenditure on the development of human capital and progressive tax policy help in reducing income disparity.

Also Read : What is Monetary Policy?

► Tools of Fiscal Policy

Government predominantly uses two major tools to influence the economy.

  1. Spending Tools or Expenditure Tools
  • Capital expenditure
  • Revenue expenditure
  • Transfer of payment

2. Revenue Tools or Taxation Tools

  • Direct Taxes
  • Indirect Taxes

◉ 1. Spending Tools or Expenditure Tools

✔ Capital Expenditure

Capital Expenditure (Capex) funds are used by a company to acquire, upgrade and maintain physical assets such as property, plants, buildings, technology, or equipment.

✔ Revenue Expenditure

Revenue Expenditure is a routine expenditure incurred in the normal course of business and includes the cost of sales and maintenance of fixed assets.

✔ Transfer of Payment

Transfer of Payment Transfer payments are payments from tax revenue that are received by certain members of the community.

Payments tend to transfer income from those able to work and pay taxes to those unable to work or in need of assistance.

Examples include; Old age pensions, Housing allowances, Child benefits, Unemployment benefits, and Food Security Schemes.

◉ 2. Revenue Tools or Taxation Tools

✔ Direct Tax

The person on whom the tax is levied is identifiable. The burden of paying the tax falls on the same person or entity and cannot be shifted. Eg: Income tax, Corporate tax, Wealth tax, etc.

✔ Indirect Tax

The person on whom the tax is levied is not identifiable. The burden can be shifted. E.g.: GST, Excise duty, customs duty, Service tax, etc.

Instruments of Fiscal Policy

Rahul Pant
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Instruments of Fiscal Policy

instruments of Fiscal policy are the integral part of a government’s economic framework i.e it becomes a guiding force for a government to manage the macroeconomic variables of a country effectively while ensuring control of inflation, price stabilization, providing full employment, and adequate tax collection.

In this article, we will learn about What is Fiscal policy, Fiscal policy in India, the Instruments of fiscal policy, and how the change in taxes encourages and discourage inflation. investment and consumption.

► What is Fiscal Policy?

Fiscal policy refers to the policy under which the government uses the instruments of taxation, public borrowing, and public expenditure to influence the nation’s economy and try to achieve various determined objectives.

Fiscal policy is responsible for setting the stage for the achievement of economic and social goals.

◉ Fiscal Policy in India

In a developing country like India, fiscal policy plays a key role in determining the economic condition of the nation which is mainly regulated through the budget passed by the government annually.

Fiscal policy in India not only encourage investment in public sector education, health, and social security for the vulnerable section to end the vicious circle of poverty but also focus on providing incentive and subsidies tax exemption to private investment that increases the rate of capital formulation so that economic growth of the country can be accelerated.

In India fiscal policy is an instrument that helps the government to decide how much money it should spend and how much revenue it must earn to ensure the smooth functioning of the economy.

► Instruments of Fiscal Public

The important instruments of fiscal policy used by the government is as follows.

  • Government Receipt or taxation
  • Government Expenditure
  • Public debt
  • Budget

◉ Budget

The budget is not only a statement of receipt and expenditure of government but it reflects the shape and future of the country’s economy.

Budget is a kind of force that can move the country forward on the path of growth, stability, and social justice.

Mainly government budget has two accounts.

  • Revenue Account
  • Capital Account

◉ Government Receipts

The earnings of the government mainly come through taxes levied by the government. Taxes levied by the government determine the disposable income of the individual which directly impacts consumption and investment in the economy.

A healthy taxation policy helps the government to control inflation and deflation which is crucial for the smooth operation of economic activities.

During inflation → government increase taxes → lower disposable income→ Lower private demand for goods and services, investment, and consumption

During deflation → government decreases taxes → higher disposable income→ higher private demand of goods and services, investment, and consumption

The categorization of the government receipts is given below:

✔ 1. Revenue Receipt

A. Tax Revenue
  • Direct Tax – Income tax, Corporate tax, Capital gain tax, Property tax, etc.
  • Indirect Tax – GST, VAT, Customs duty, Exercise duty, Sales tax

B. Non-Tax Revenue

  • Interest receipt
  • Dividends from PSU
  • License and Permits
  • Fines and Penalties, etc
  •  External grant assistance

✔ 2. Capital Receipt

  • Loans Recovery
  • Disinvestments
  • Borrowing and other liabilities

Also Read : What is Fiscal Policy in India?

◉ Government Expenditure

Government expenditure or Public expenditure is a vital element of government fiscal policy. Government expenditure is used to facilitate the production of goods, services and capital assets,  income, and employment.

There are two classifications of public expenditure:

✔ 1. Revenue Expenditure

It is a recurring expenditure:

  • Loan interest payments
  • Major subsidies
  • Grants to states for the creation of capital assets
  • Defense Expenses
  • Salaries and pensions for Government employees

✔ 2. Capital Expenditure

It is a non-recurring expenditure

  • Loans repayments
  • Creation of new assets and infrastructure
  • Loans to public enterprises, etc.

◉ Public Debt

To meet its expenditure, government borrow money from the banks, RBI, national and foreign institution, and common people through the sales of bonds and securities.

Borrowing from the public effect the money supply which helps in controlling inflation in the economy.

Sources of public debt are.

✔ 1. Internal debt

  • T bills
  • Ways and means advances
  • Dated securities
  • National small saving fund
  • Cash management bill, etc.

✔ 2. External debt

  • A loan from multinational institutions like IMF, World bank, etc.
  • Bilateral debt

What is Environmental Scanning?

Rahul Pant
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0
What is Environmental Scanning?

The business environment is full of opportunities and threats that make decision-making very difficult for managers. The business environment’s uncertain and unpredicted nature creates a huge challenge for managers to develop such inclusive and futuristic strategies that ensure high growth and survival here business environmental scanning is very crucial for an organization. It helps the business to identify or measure is their strengths, weaknesses, threats, and opportunities.

In this article, we will discuss what is environmental scanning, its process, and different technics of environmental scanning.

► What is Environmental Scanning?

Environment scanning is a process of analyzing the environment for the identification of the factors which impact the business.

In simple words, environment scanning refers to a continuous process of monitoring and examing all the forces that collectively and individually affect the business these forces mainly are political, social, cultural, technological, and economical in nature.

◉ Environmental Scanning Meaning

An organization operates in a dynamic environment where changes are continuous. So, organizations keep monitoring the changes in the environment, and this monitoring is aimed at the identification of risks and opportunities that affect the organization’s course of action.

◉ Definition of Environmental Scanning

Environmental scanning is a continuous process of monitoring, and evaluating all the internal and external factors and gathering information related to all factors that help the management to determine the future direction of the organization.

► Process of Environmental Scanning

  • Examining (Scanning Environment)
  • Observing (Strategic Thinking)
  • Predicting (Strategic Decision Making)
  • Evaluation (Strategic Planning)

Also Read : Importance of Business Environment

► Types of Environmental Scanning

  • Internal Analysis
  • External Analysis
    • Macro Environment (PEST)
    • Micro Environment (Five Forces Analysis)

► Techniques of Environmental Scanning

  • SWOT Analysis
  • PESTEL Analysis
  • ETOP Analysis
  • SAP
  • Issue Priority Matrix
  • Functional Area Profile
  • Opportunity and Threat Matrix
  • The Impact Matrix

✔ SWOT Analysis

SWOT stands for Strengths Weaknesses Opportunities and Threats. SWOT analysis framework helps the company in the identification of the core competency, weakness, threat, and opportunities, and this analysis help the organization determine the course of action to ensure the survival and growth of the organization.

A SWOT analysis is facilitated an organization’s decision-making capabilities by providing realistic, fact-based evaluation which helps in the formulation of business policies and strategies.

✔ PESTEL Analysis

It is a framework to analyze the political, economic, technological, environmental, and legal factors in which a firm operates.

This framework helps the organization to keep track of all the macro environment factors that affect the performance of the organization.

factors to PESTEL analysis are.

◉ 1. Political

  • Government Policy
  • Political Stability
  • Corruption
  • Government political Ideology
  • Regulatory and governing bodies
  • Foreign Trade Policy
  • Labor laws
  • Taxation Policy
  • Income equality

◉ 2. Economical

  • Inflation rate
  • GDP growth rate
  • Exchange rate
  • Interest rate
  • Per capita income
  • Unemployment rate

◉ 3. Social

  • Life style
  • Religious and cultural factors
  • Language
  • Population growth rate
  • Education level
  • Concern about health and safety

◉ 4. Technological

  • Level of innovation
  • Technology incentive
  • Automation
  • Promotion of research and development

◉ 5. Environmental

  • Weather and climate
  • Environmental protection policies
  • Pressures from NGOs

◉ 6. Legal

  • Consumer protection law
  • Environmental law
  • Business law
  • Employment law
  • Copyright and patent law
  • Health and safety law
  • Labour welfare law
  • Bankruptcy law

✔ ETOP analysis

ETOP analysis (environment threat opportunity profile) is the process by which a firm monitor all the factors that affect the firm. It not only helps the firm to identify opportunities and threats but also helps in strategic planning.

In ETOP analysis divide environment into various factors are divided these factors into subsectors and evaluated on the basis of opportunities and threats it poses to business.

✔ SAP (Strategic Advantage Profile)

A strategic Advantage profile is a summary statement that provides an overview of the advantages and disadvantages in key areas likely to affect the future operations of a firm.

It is a total for making a systematic evaluation of strategic advantage factors which are significant for the company in its environment.

It involves functional areas like marketing, production, finance, accounting, personnel, human resource, and R&D. SAP is a summary statement.

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