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Transcript

Hello friends, in our previous class we were discussing about the stategic implications of the social and political institutions on entrepreneurship and development. In this class we will be discussing about the strategic implications of legal and economic institutions for entrepreneurship development . When we say that the economic systems, there are three different types of economic systems that we come across. The first one is the capitalist or the market economy. An economic system where the production activities are decentralized to private property right holders. This is the key input, where the private player is dominating over the production process with the objective of earning the profit, with the objective of earning the profit and in the competitive market. In that competition, the person who has got this property right holder, so he is dominant in such a way that, he is not allowing various other competitors to flourish. And that is how the wealth is being accumulated in certain corners. This type of arrangement is known as the capitalist or the market economy. We can see such economies in most of the so called developed nations, as you find on date in the different parts of the earth. On the contrary the other system that is prevalent is the socialistic or the command economy, which emphasizes on the production resources are owned by the State. The production resources are owned by the State. And production decisions are centrally coordinated. It means the socialistic economy says that government has to own all the resources and government has to take all the decisions, and it is the responsibility of the government to provide all sorts of facilities to the society. So this is what is the command economy. So in case of the Asian continent, predominantly this socialistic economy was prevalent. But slowly we are moving towards the combination of the capitalistic and the socialistic economy, which we try to identify it as mixed economy, wherein it falls in between these two extremities of capitalist as well as the socialist.

Having said this so if we go for the capitalistic market, wherein the wealth is being accumulated by very few people. On the contrary when we say that it is the socialistic economy. Wealth, none of the followers are having the wealth. Everything is in the name of the government and then the people become lazy, they are not ready to work, because the every responsibility lies with the government to provide all sorts of facilities whether you work or not, and that is how it is making the people lazy. But another extreme says that it is making more competitive wherein all the human values, the social system is under question mark. So between these two extremities, the best possible way out will be the mixed economy wherein now majority of the countries are moving towards and wherein we have, we can think of the balanced growth. So with this brief background of economic system, what we have at the national level, so now let us look into the list of countries, who have adopted this different types of this economic freedom, or of doing the business, so that you can accumulate the wealth. So this classification is based on the economic policies of that particular country, wherein you can go and invest and you can earn the profit in those countries as a part of their policy. So under such circumstances, the first classification comes as the free economy, so wherein the counries like Singapore, Australia, USA, NewZealand, United Kingdom and Iceland have been listed. All these countries if you look at, so at one point of time they were all the capitalistic economic countries predominantly. But slowly they are also moving towards the mixed economic systems, but now the ease of doing business is comparatively free there, open there and the policy support is always there.

Then the second category wherein the countries which were having the combination of these capitalisitic and socialistic economies, comes into the picture wherein the countries like the Netherlands, the Japan, the Taiwan, Spain, Finland. They are also the advanced countries, but they were having some economic freedom. That is how they are listed as mostly free countries. Then coming to the moderately free countries, which wherein we come across the countries like the Mauritius, Thailand, Switzerland, Tunisia, Lebanon. Some of the economies are comparable to the Indian conditions also, like countries like Thailand and Mauritius. Their situation and the Indian situation there is not much variation. But the ease of doing business in these countries is comparatively better compared to the Indian context, where which is listed under mostly unfree country. Apart from that the socialistic economies as totally socialistic economies like China, Russia, Vietnam, Nigeria, Fiji, all these were predominantly the socialistic economic countries are having the feature of mostly unfree economies. The last classification comes under the repressed economies, wherein there are huge rules and regulations, we have heard about the Cuba, Libya, wherein one man show is their, and the entire country is controlled by few people, who are owning the country rather than ruling the country, that we can say. So these are the repressed economies. So this is how the countries are classified.

So now coming to the share of agriculture in the overall GDP of the country. This we have already discussed in one of the our previous discussions, wherein again I would like to remind you that the contribution of agriculture in the overall GDP of the country is reducing, is reducing and in the years to come their may be still reduction. The reason behind the reduction is, the increase in the marginal farmers, and the decrease in average holding of the farmer. These are the two factors, which are contributing for the reduction in contribution of agriculture into the Indian economy. But as far as the private sector investment or the foreign direct investment is considered, we are coming under the mostly unfree country, and the internal situation is like this so that is how the economies are under pressure. Coming to the post harvest losses, that what we have in case of fruits and vegetables in general in agricultural commodities that we can say. So why we are discussing about the post harvest losses. The loss in case of vegetables is to the extent of 7 to 13 %, in case of fruits it is 6 to 18%, and in case of plantation and spices it is 1to 9%. If we save these losses. It is equivalent to the increase in production. It is equivalent to increase in production, so that is why we need to atleast take care of these losses so that indirectly we can say that we have produced this much amount because all these three commodities what we listed here, so they are having the huge demand in the international market, and that is going to add to the revenue of the country.

In addition to that we were talking of the lack of processing facilities in Indian context and value addition to the Indian agricultural produce. When we compare the Indian context with the various other developed nations, the countries like U.S.A., France, Brazil, Malaysia, Philippines and Thailand. So they are contributing processing their agricultural produce to the extent of 30 to 83%. You leave about the most advanced nations like the USA, France and the Brazil. The Asian countries like the Malaysia, Philippines and the Thailand, which are having similar situations to India, so their processing level is very very very higher compared to the Indian context. Why we are emphasizing on the processing is, because the moment you start processing your product, the value that the processor is going to receive is very very higher than selling it as a raw material. Atleast we can visualize about 10 to 15 times increase in the price that what the producer can realize just by giving some value addition. Value addition need not always be totally mechanized. The simple interventions like the cleaning of the vegetables, before taking it to the market. Grading of the vegetables based on the fruit size, based on the corn size. So these are the simple value additions. So looking at the product immediately if it is clean, second one if it is graded, and the third one simple packing may be using polythene, weighed and it is ready to sell. So these are the simple value additions, which can fetch you at least 50% higher prices compared to what we are getting on the roads, which is not at all processed. So this is what is the simple intervention that I am talking about. So if you are going for the higher levels of value addition, as we can visualize in the various other countries, obviously the price difference is very very high, so that is how it is contributing to the economy of the farmer.

The significant implications of these interventions for the Indian economy includes, the farm population per hectare of operated area will increase and per capita farm income will decline. So this is as a resultant of the increasing the farm sizes and increasing the fragmentation of the land. So as an implication of that, so there is increase in pressure over the Indian economy. Then the second reason is delivering agricultral credit to an increasing number of small and marginal farmers is a challenge, and implementation of crop insurance is also becoming very very difficult. If a piece of land, one hectare of land, if it is owned by three people, it means we are giving insurance to three different families, crop insurance to three different families. Instead of that if you are providing it to one person, so then the processing cost and various other things are cutting down, and that is how the fragmentation of the land has lots of implications in Indian context, and the number of loanees are very very high, the amount distributed is very very low. We can say that I have distributed loan to thousands of people, but what is the amount, it is very very meagre. So these are the important implications. Then farm mechanization, it is not only difficult it becomes almost impossible, because the machine to move into the field, it takes its own area, it needs some free space to move, to move around, to take a turn, various other operations to be carried out, so hence farm mechanization becomes very very difficult with small pieces of land. The marketable surplus of agricultural produce will decline because the number of dependants on the same produce are higher than the produce that we are getting from the field, so that is how the marketable surplus is declining. At the same time marketable surplus will become more fragmented, making the grading or standardization is also difficult as I was telling the simple interventions like the cleaning and grading and packing will also become difficult, because we don’t have that much of product with us to enter into these interventions.

With this brief background on the various economic systems, now let us move on to the legal systems. Legal system is the unique system of regulations, laws and rules that affect the choices made by individuals in any society, and that govern the ways these individuals are responsible for their decisions and actions. It is the legal framework of a country, which forces a individual to behave in a particular direction, and it also depends on how these legal systems are implemented in a particular society. So when we look at the legal systems, there are three predominant legal systems that we come across. The first one is the common law. Common law means it is based on the concept of precedent, wherein the law is applicable only after the examination of the past cases. We need to have the precedences, so then only we are going to frame the rules and regulations, and that will be implemented. So this is one type of legal system adopted by certain countries. We will be going to the list of that countries which are adopting the common laws. Then the second type of legal system we come across is, the civil law. This civil law is based on very detailed set of rules and regulations that form the part of a country’s legal code. Everything is defined in case of civil law. So whatever the things that we want to implement, before its implementation, it has to be discussed at length and it is implemented in the later part. So the third type of legal system what we observe in some of the countries is the Islamic law. It is based on the sharia, the law taken from the Koran, that is Islam’s sacred text. So these are the three predominant legal systems that are prevalent. So now world understanding of these three legal systems is important for an entrepreneur, because entrepreneur is a person who is basically an economic man, who is taking good number of decisions, and once he take the decision related to his own business, he has to be aware of the legal systems which are prevalent in that particular area where he is operating. Now coming to the list of countries which are adopting the common law includes like the countries like Australia, the most important countries just I am listing here, the HongKong, India, Japan, Mexico, UK, USA are adopting the common laws. And the civil laws are being adopted by the countries like the Belgium, the Denmark, France, Portugal, Russia, Taiwan etc etc. So this is the list of countries and it is as per their convenience, and as per the acceptance of the majority of the population of that particular country, which forms these two things.

Then coming to the third one that is Sharia or the Islamic law, so the entire Middle-East, and some countries of the South-East Asian countries like the Pakistan, the Bangladesh, then the entire MiddleEast as I have said. So they have accepted the Islamic law or the Sharia as a part of their living systems. So understanding of these, whether it is a particular country is having the common law or whether is a country having a civil law, or whether a country is having the Sharia law. So accordingly the entrepreneur is going to establish his business, and he is developing his own strategy based on the legal systems, that are prevalent in that country. So now so we have discussed about the economic systems as well as the legal systems prevalent in different countries and how they can influence the concept of an entrepreneur, and how they can help and how they can influence entrepreneurs. So this is what we have discussed about. So with this we have discussed at length about the legal, the social, the economic, the political institutions and their importance on entrepreneurship development. In the next class we will be discussing about the globalization and the emerging issues related to entrepreneural development.

Thank You.