BUSINESS ENVIRONMENT IN INDIA:

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 pieces.

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 past.

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
regionalism.

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
labour.

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 company

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

exporters.

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

compani

ii) Opening of Telecommunication and power sector for private

enterprises.

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

etc.

C)
Foreign Investment Policy

i)
Foreign investment above 51% equity allowed on approval
basics

ii)
Foreign equity participation in small-scale sector allowed.

iii)
Higher royalty of 8% in case of export-oriented production
is permitted

iv)
No restrictions on hiring foreign technicians or on
repatriation

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

duties

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 business

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

importance.

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 investment.

INTERFACE BETWEEN BUSINESS AND ENVIRONMENT

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 tension.

BRIEF NOTES ON INDUSTRLAL POLICIES:

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 government.

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 interest.

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
industries.

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

capacity;

iiMaximization of output and improvement in productivity,

Correction of regional imbalances through a preferential

development of industrially backward areas;

Promotion and development of agriculture and agro-based

industries;

Promotion export oriented and import substituting industries;

vi.
Protection of consumers against high prices and poor
quality;

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- areas,

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 exceptions.

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
areas.

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
practices.

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
technicians.

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
procedure.


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 of

small and tiny industries.

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