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← So far we have analyzed various types of environment

economic, political etc. that surround and affect the functioning of
business. These factors are independent but are closely interlinked
with each other. Of all the factors, political, economic and social
environments exert more pressure on business enterprise. For
example, a change in government is likely to have its effects on
economic regulatory environment of business. It is also seen that
the various, components of business have cumulative effect on.
Society in general and business in particular. Considering the
relationship between business and its environment, the business
firm should study its environment in totality and not in bits and

← Having studied the business environment in detail, let us now
preview the business environment prevailing in India. Like any
other country India has its own unique environment. It is one of the
largest democratic countries in the world, with vast untapped
natural and human resource. It is the third country in the world
(After U.S.A. and USSR) having scientific and technical man power.
It has well developed infrastructure and Research and development
facilities. India is being view the many foreign countries as a
growing super power of Asia country provides most favorable
atmosphere and resources for business growth and expansion. Let
us take the various components of environment in India separately.

← Political Environment in India :
← India is a democratic country having parliamentary form of
system. Ours' is a written constitution which guarantees
fundamental rights to citizen to move and conduct business in any
part of the country. The constitution protects political, economic,
and social life of every Indian. The three pillar of democracy i.e.
legislature, executive and judiciary are quite independent and
operate satisfactorily. India is a union of states and the central
state relations on the whole have been cordial. The country has
established good relations and reputations at the world level. India
is a founder member and a leader of non-aligned movement at
international level.

← India has multi-party system and since independence (except
1977 & 1989) the congress party has been ruling the country. An
interesting feature of Indian politics is that the country has been
ruled by one family (i.e. Nehru Family) for most of the time. The
one party and one family rule have brought about much needed
political stability and consistency of economic policies for a long
time. From 1984 onwards there has been a significant change in
the political environment. The Bofors scandal, Punjab and Assam
agitations did pollute the political atmosphere of the country.
Subsequent elections to parliament and assembly had witnessed
erosion in the support to congress party. The congress party did get
slander majority but not the 3/4 or 2/3 as it used to enjoy in the

← The decade of 1990 has witnessed emergence of coalition
governments at the centre. Elections to Loksabha were held in
1991, 1996 and 1998, 1999 and non of the leading political parties
could get absolute majority in the parliament. Resulting into
formation of political groups. From long-term point of view the
present trend in Indian political system has its effects like:
← a) Emergence of regional parties on national scene,
which according to some experts may lead to rise of
← b) Dependence of major political parties on smaller groups
is likely to have its adverse effect on political stability.
← c) Polarisation of political parties is not conducive for
country like India.

← Despite all odds, the political system in India is able to provide
much needed political stability. The political system is able to
provide consistency to economic policies. Politically the parties may,
differ but on economic front there is unanimity among them as
regards foreign investment, economic priorities etc. This is
evidence from export earnings, foreign investments in India,
improved credit rating at international level. Thus, barring few
exception, the country is politically stable and mature

← 2. Economic Environment in India:
← The 'Government of India has taken a number of steps to
attain the social, economic& and political objectives laid down in the
constitution. Prior to independence then British rulers, did not pay
much attention to the economic industrial development of the
country. India was treated as a source of raw materials and a ready
market by the British indusial However, after independence, the
situation changed considerable real Indian Government took over
the reins of power and responsibility of economic development.
← The economic policies of the Government are based on the
provision of the constitution and Directive Principles. The important
economic objectives are as under:
← i) To promote social, economic, and political welfare and
en justice to every citizen.
← ii) To provide equal employment opportunities and
adequate means of livelihood.
← iii) To prevent or minimize concentration of wealth and
mean of production in the hands of few people.
← iv) To prevent exploitation of women, Workers and child
← To speed up economic development and improve the general
standard of living.

← In order to accomplish the economic objectives and balanced
economic growth, the Government of India had passed Industrial
Policy Resolution of 1948 and the second in 1956. These two policy
resolutions outlined the steps the government would take to meet
its economic objectives. Further, it provided a foundation planning,
promoting and regulating the industrial development of country.
The Industrial Policy Resolutions of 1948 and 1956 provided a basic
framework for industrial development and have been amended in
subsequent years to meet the changing socioeconomic needs the
country. This is evident from the subsequent Industrial statements
of 1977, 1980, 1990, and 1991

← The government has taken a number of steps to provide
favorable atmosphere for industrial growth. A summary important
step, being taken by the government is given below:-
← i) The reservation of industries to small'- scale, defense,
public sector and cooperative sector.
← ii) To build up and provide necessary developmental
infrastructure such as power, transport, finance, facilities for
technical development, manpower development and other
promotional facilities.
← iii) Provision for monetary and other incentives like tax
rebate, concessions in sales, excise tax etc, to Indian and foreign
← iv) To invest in capital-intensive projects like 'Steel, fertilizers,
chemicals etc.
← v) To set national priorities and make best use of available
scarce resources to its optimum level.
← vi) To promote exports and reduce imports, Government has
taken following measures:
← a) Introduction of convertibility of Rupee.
← b) Liberalized imports of raw materials and capital goods.
← c) Abolition of industrial licensing for most industries.
← Dilution of the provisions of the MRTP and FERA Act.
← Reduction in the items reserved for public sectors.
← f) Automatic approval for directs foreign investment upto
51% foreign equity holding in priority industries.
← g) Reduction and rationalization of import duties on
imported raw materials and capital goods.
← h) Special pre and post-shipment financial assistance to Indian

← The, Indian economic environment has witnessed many ups
and down. However, from 1990 onwards there has been a positive
change in the Indian economy.

← The Government of India has introduced a number of changes
in its industrial, foreign investment, Trade, Taxation and Finance,
NRI investment and other business related policies.

← Brief Summary:
← A brief summary of the changes indicated by the Government
is given below:

← A) Industrial Policy:
← i) No investment limit for large Indian and Foreign

← ii) Opening of Telecommunication and power sector for private

← iii) Private investment allowed to build-operate-transfer roads
and bridges in selected and specified areas.

← iv) An open sky policy for Air-Cargo Services.

← v) The items reserved for public sector restricted to only 6
sensitive areas.

← vi) Total de-licensing except f6r 15 selected industries -etc.

← B) Trade Policy
← Exemption of export profit from tax burden.
← Liberalization of imports of capital goods.
← Full convertibility of rupee on current account.
← Post-Shipment credit facilities at confessional rate of interest
← C) Foreign Investment Policy
← i) Foreign investment above 51% equity allowed on
approval basics
← ii) Foreign equity participation in small-scale sector
← iii) Higher royalty of 8% in case of export-oriented
production is permitted
← iv) No restrictions on hiring foreign technicians or on
← of dividends and profits.
← D) Taxation Policy
← i) Rationalization and simplification of tax structure
← ii) Reduction in the rates of income-tax, excise and customs
← iii) Major reforms in financial and banking sector.

← The introduction of liberalization of policies, minimum
government, control, globalization of the economy has brought
about a and conceptual change in the government policy and
approach before, the Indian business environment was as free and
favorable as it is now. The corporate, monetary, import-export
policies and other, industrial policies have been made simple, liberal
and practical. The introduction of economic reforms has a salutary
effect on the environment of business. This is evident from increase
in competition, quality consciousness, increased foreign investment,
an all time high export reserved (Around $ 15 billion), and an
improved credit rating national level. In short, today, the economic
environment is much more favourable for domestic and foreign
← 3. Social Environment in India:
← The various groups like share consumers, employees, local
community etc., and their expectation collectively constitute the
social environment. It also includes religion; rate of illiteracy, level
of income and many more the sociocultural environment in India
has undergone significant changes over the years. The important
features of such changes are as under:-
← There has been a general rise in the income and literacy-,'
level of people.
← Consumer is well aware about his rights. Consumer
movement is getting good support from the society. The passing of
the consumer Protection Act of 1986 has added more five powers to
consumer movement.
← The society is well aware about the problems of pollution and
ecological imbalance.
← The working class and consumers from urban areas are well
organized, united and try to put pressure on management to accept
their demands.
← Some companies have already taken note of the social
changes and have started consumer redressed cell, suggestion box
etc. to come further closer to consumers.

← Technological Environment in India:
← The government has realized the importance of technology in
the development plan and has accorded high priority. The following
measures have been taken by the government to develop
indigenous technology and import technology from outside.
← The government gives incentives and provides financial and
other assistance to upgrade obsolete machines or technology.
← Foreign collaborations for import of technology are given more
← The import of computers and modem technology is allowed at
reduced rates of import duties.
← The government wants bridge the technology gap and thereby
improve the quality of output. In the long run it will help Indian
companies to compete successfully in the domestic and
international market.

← Regulatory environment in India:
← It means the legal environment of business. In India,
industrial policies, industrial licensing policy, law relating to
companies to consumers, labour-employee relations, and other
relevant laws, rules and regulations, govern the working of
business. In the earlier days the regulatory environment was not
conducive for industrial growth. There were many restrictions and
controls like, reservation of items for priority sectors; control over
capital issues etc. These controls were necessary to ensure planned
and priority wise industrial development. However, in reality, it
created many problems and resulted into concentration of economic
power, regional imbalances in industrial growth. In recent years the
government has initiated far reaching changes in important
commercial and labour laws. The laws are being made more simple
and practical to allow growth of Indian industries and invite foreign


← Interface is a point of contact between business and its
environment. It is a link between business on one side and
environment on other. Business and environment are like the two
sides of the same coin i.e., one cannot survive without the other.
Business and environment are independent but interdependent on
each other for survival and growth. Business depends on its
environment for supply of resources for production and to sell the
finished product. Similarly, environment depends on business to
exploit natural resources, and to produce want satisfying goods and
services. Further, business is a part of a broader system called
environment, therefore, its survival and success depends up on the
capacity of business to adjust and coordinate with its economic,
social and political environment. In other words, a close like
between business and the environment is necessary to all ensure
survival growth of business. Let us see how business and its
environment are interconnected with each other.
← Business and Natural Environment:
← Natural environment supplies the basic raw materials, and
other resources like coal, land, water etc., much needed to conduct
business activities. A business enterprise depends on natural
resources for attainment of personal and social goals. The ever
increasing use of natural resources by businessmen has resulted
into depletion of natural resources, deforestation etc. Further, it has
also created problems of pollutions, disposal of wastes and scrap,
change in earth temperature etc. considering the importance of
natural environment, a business firm should use minimum natural
resources, minimise waste and take steps to prevent pollution of all
types. Business enterprises should conserve than to consume
natural resources carelessly. This is how business can have an
interface with its natural.
← Business and Economic Environment :
← Economic environment is the immediate surrounding of a
business enterprise. The working of business is influenced by the
economic policies relating to licensing, money supply, import-export
etc. A change in economic policy has both positive and negative
effect of industry positive change in the policy provides
opportunities for growth and expansion. For example, the change
made in MRTP and FGRA Act, are likely to have wide spread effect
on the present and future of, some companies may find
opportunities to expand whereas, others will be exposed to stiff
competition from domestic and foreign companies.
← Business has limited scope to influence the economic
environment. However, through joint efforts or trade association or
representations to the government it can bring some changes in
those policies affecting the business activities. A business firm can
interact with its economic environment either by making best use of
opportunities or through adjustment of resources and policies to
face adverse situation.
← Business and Social Environment –
← A business enterprise should conduct its' activities on moral,
ethical and cultural values. It should try to promote and protect the
interest of various social groups like consumers, employees,
investors and society at large. Better reward and welfare facilities
to employees, supply of quality goods at reasonable price to
consumers, higher dividend to investors etc. will certainly enhance
the status of business. Further changes in social environment like
increase in literacy rate, change in consumer behaviour, social
values etc., can be used to produce newer and a variety of goods.
An interface with social environment is useful to expand market,
adopt new technology, to compete effectively, to perform social
responsibilities and to increase profitability.
← Business and Political Environment:
← Political and economic stability is essential for the smooth
functioning of business activities. A strong and stable government
brings stability in its economic policies and implement forcefully.
Political stability brings consistency and firmness in government
policy. This in turn instills a sense of security and confidence against
investors. Finally, a stable political environment extends
constructive support to business enterprises to operate free of


← 1. The Industrial policy Resolution of 1948: The
Resolution of 1948 envisaged greater role to the state in the
development of industries. The policy emphasized rapid
industrialization and growth in national and per capital income. The
salient features of the resolution are as under
← I. It advocated the concept of mixed economy i.e. Both
private and public sector to play an important role in the
industrialization of the country.
← II. Defence, strategic and atomic industries should be
under exclusive control of the central government.
← iii. Basic and key industries like coal, iron, transport etc.
will continue to work under government control.
← IV. Consumer oriented industries were left to private sector,
their working should be regulated and controlled by
← v. The rest of the industries were left open to the
individual cooperative societies and private sector.
← vi. The government reserved the right to participate in any
of these industries and to take over any industry in the national

← 2. Industrial Policy Resolution of 1956: On 30th April,
1956 the Government of India announced the Industrial Policy 1956.
This policy has provided the basic framework for industrial activities
of the country. The important features of the policy are as under:
← i. The policy reflected the goal of socialism and expanded
the scope of the public sector.
← II. The state to play dominate role in setting industrial
undertakings and develop infrastructural facilities.
← iii. The private sector was assigned and expected to play
constructive role in the nation's economy.
← iv. All industries of basic and strategic importance or in the
nature of public utility services should be in the public utility
services should be in the public sector.
← V. The Resolution classified industries into 3 categories:
← a) The first category included 17 industries like railway,
arms and ammunition, atomic energy etc. which where to be
exclusively developed by central Government.
← b) The second category included those 12 industries listed
in schedule B attached to the resolution. These industries were to
be jointly developed by state and private sector.
← c) The third category contained all remaining industries. It
was expected that state should take all steps to encourage and
develop these industries in private sector.
← v. The Government to provide all sorts of incentive for the
promotion and development of small scale, cottage and village
← vi. The resolution spelt out the importance of removal of
regional disparities in development.

← The Resolution reiterated the importance 'of mixed economy'
and dominant government role in industrial sector.

← Industrial Policy Statement of 1980:
← Objectives of the policy:
← Optimum utilization of available resources and installed
← ii- Maximization of output and improvement in
← Correction of regional imbalances through a preferential
development of industrially backward areas;
← Promotion and development of agriculture and agro-based
← Promotion export oriented and import substituting industries;
← vi. Protection of consumers against high prices and poor

← In order to accomplish the above objectives, the government
has taken number of steps like:

← i. Delicensing of a number of industries,
← ii. Relaxations in the Provisions of MRTP and FERA Act,
← iii. Re-defines of small, Ancillary and large scale industries;

← iv. Greater thrust to the industrialization of backward-
← V. Liberalisation of import policy; and

← vi. Reduced restrictions on foreign collaboration.

← 4. Industrial policy of 1991: this policy was, announced
on July 24, 1991. Through this policy, the government has made
major changes in the industrial sector. The policy envisaged
changes in the industrial licensing, foreign investment, foreign
technology agreements, public sector policy and M.R.T.P. Act.
Those changes have been introduced to attain following objectives.

← i. To integrate Indian economy with world economy.

← ii. To redefine the role of public sector

← iii. To attain international competitiveness.

← iv. To maintain a sustained growth in productivity and
gainful employment.
← v. To preserve the natural environment and ensure the
efficient use of available resources
← vi. To encourage public and private, small and big
industries to grow and improve on their past performance.
← vii. Delicensing of certain industries with certain
← To attain the above mentioned objectives, the government
initiated the following changes.

← A. Industrial Licensing.
← i) Enhancement in the Industrial licence limit Rs.5 crores
to Rs-15 crores for non-MRTP and non-Fera companies in case of
projects in non-backward areas, and to Rs-50 crores in backward
← ii) Abolition of industrial licensing, irrespective of levels
investment, for all industries except 18 specified industries.
← iii) All regulation schemes with various authorities like
DGTD registration have been abolished.
← iv) The benefits and provisions of delicensing should
extended to the large companies and foreign companies.

← B. Public Sector Policy:
← i) The number of industries reserved for public sector has'
been brought down to eight.
← ii) The public sector to play vital role in strategic and
industries important from military considerations.
← The policy has proposed selective privatization and closure of
unviable public enterprises
← iv) Formation of a separate body similar to BIFRC (board for
Industrial and Financial Reconstruction) to deal public sectors only.

← C. M.R.T.P. Act:
← The Monopolies and Restrictive Trade practices Act of 1969
was passed to
← i) prevent concentration of economic power and
← ii) Prohibit monopolistic, restrictive and unfair trade

← The new policy has repealed the provisions relating to
prevention of concentration of economic power. In other words, the
policy has abolished provisions relating to establishment of new
undertakings expansion of existing one, merger, amalgamation or
take over business houses. As per the proposed changes, the Act
will look after the unfair and restrictive trade practices.

← D. Foreign Capital and Technology

← i) Automatic approval for technology agreements related
to high priority industries like metallurgical, elect transport etc.

← ii) Approval for direct foreign investment upto 51% foreign
equity in these 34 high priority industries.

← iii) Foreign equity proposal need not necessarily be
accompanied by foreign technology agreements.

← iv) No permission would be required to hire foreign

← v) Non-resident Indians and overseas corporate bodies
permitted to acquire share upto 24% listed on the stock exchange.

← vi) Non-resident Indians also allowed to invest directly upto
100% of the equity in 34 high priority specified industries.

← E. Small Scale Sector

← i) Deregulation and simplification of laws, regulations and

← ii) Investment limit of tiny sector raised from Rs.2 Lakhs to
RS 5 Lakhs, of small-scale unit to Rs.60 lakhs and ancillary unit to
Rs.75 lakhs.

← iii) The policy proposes to meet 100 percent credit demand
← small and tiny industries.

← iv) Setting up of technology development cell to meet
the technical needs of the small scale sectors.