BUSINESS ENVIRONMENT

UNIT - I
Section – A
1. What is meant by Business environment?
Business environment may be defined as the total surroundings, which have a direct or indirect bearing
on the functioning of business. It may also be defined as the set of external factors, such as economic factors,
social factors, political and legal factors, demographic factors, and technical factors etc., which are
uncontrollable in nature and affects the business decisions of a firm.

2. What is Business ethics?

Ethics from business point of view or business ethics are the moral principles, which guide the behaviour
of businessmen or business activities in relation to the society. It provides certain code of conduct to carry on the
business in a morally justified manner. Running the business without adopting unfair practices, being honest and
truthful about quality of goods, charging fair prices, abiding to laws, paying taxes, duties and fees to the
government honestly are some of the ethical behaviour of business.

3. What is meant by Social Environment?

The social environment of business includes social factors like customs, traditions, values, beliefs,
poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a
considerable influence on the functioning of business firms. For example, during festive seasons there is an
increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers
are becoming more conscious of the quality of the products.

4. What is political environment?

This includes the political system, the government policies and attitude towards the business community
and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability
of the government also influences business and related activities to a great extent. It sends a signal of strength,
confidence to various interest groups and investors. Further, ideology of the political party also influences the
business organisation and its operations.

5. What do you meant by Legal Environment?

This refers to set of laws, regulations, which influence the business organisations and their operations.
Every business organisation has to obey, and work within the framework of the law.

6. What is Natural Environment?

The natural environment includes geographical and ecological factors that influence the business
operations. These factors include the availability of natural resources, weather and climatic condition, location
aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment

7. What is Macro Environment?

The macro environment in which a company or sector operates influences its performance, and the
amount of the influence depends on how much of the company's business is dependent on the health of the
overall economy. Cyclical industries, for example, are heavily influenced by the macro environment, while
consumer staples are less influenced. The macro environment can also greatly affect consumers directly,
affecting their ability and willingness to spend. Consumers’ reactions to the broad macro environment are closely
monitored by businesses and economists as a gauge for an economy’s health.

8. What is Micro Environment?

Micro environment factors, are factors close to a business that have a direct impact on its business
operations and success. Before deciding corporate strategy businesses should carry out a full analysis of their
micro environment
9. What is global Environment?
Global environment of a company is called global environmental analysis. This analysis is part of a
company's analysis-system, which also comprises various other analyses, like the industry analysis, the market
analysis and the analyses of companies, clients and competitors.

10. What is cultural Environment?

A cultural environment is a set of beliefs, practices, customs and behaviours that are found to be common
to everyone that is living within a certain population. Cultural environments shape the way that every person
develops, influencing ideologies and personalities.

Section – B
1. Explain the importance of Business environment?
a) Determining Opportunities and Threats: The interaction between the business and its environment would
identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges
successfully.
(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of
growth for the business firms. It enables the business to identify the areas for growth and expansion of their
activities.
(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business
challenges. The managers are motivated to continuously update their knowledge, understanding and skills to
meet the predicted changes in realm of business.
(d) Image Building: Environmental understanding helps the business organisations in improving their image by
showing their sensitivity to the environment within which they are working. For example, in view of the shortage
of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own
requirement of power.
(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own
strategies accordingly.
(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths
and weaknesses in view of the technological and global developments.

2. What are features of Business environment?

1. All the external forces: Business Environment includes all the forces, institutions and factors which directly
or indirectly affect the Business Organizations.
2. Specific and general forces: Business environment includes specific forces such as investors, customers,
competitors and suppliers. Non-human or general forces are Social, Legal, Technological, Political, etc. which
affect the Business indirectly.
3. Inter-relation: All the forces and factors of Business Environment are inter-related to each other. For example
with inclination of youth towards western culture, the demand for fast food is increasing.
4. Uncertainty: It is very difficult to predict the changes of Business Environment. As environment is changing
very fast for example in IT, fashion industry frequent and fast changes are taking place.
5. Dynamic: Business environment is highly flexible and keep changing. It is not static or rigid that is why it is
essential to monitor and scan the business environment continuously.
6. Complex: It is very difficult to understand the impact of Business environment on the companies. Although it
is easy to scan the environment but it is very difficult to know how these changes will influence Business
decisions. Some-time change may be minor but it might have large impact. For example, a change in government
policy to increase the tax rate by 5% may affect the income of company by large amount.
7. Relativity: The impact of Business environment may differ from company to company or country to country.
For example, when consumer organisation CES published the report of finding pesticides in cold drinks, resulted
in decrease in sale of cold drinks, on the other hand it increased the sale of juice and other drinks.

Section – C
1. Explain the types of Business Environment?
I) Economic Environment
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great
influence on business organisations and their operations. These include gross domestic product, per capita
income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade,
strength of capital market etc. All these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the economic policies
framed by the government from time to time. Some of the important economic policies are:
(i) Industrial policy
(ii) Fiscal policy
(iii) Monetary policy
(iv) Foreign investment policy
(v) Export –Import policy (Exim policy)
Ii) Non-Economic Environment
The various elements of non-economic environment are as follow:
(a) Social Environment
The social environment of business includes social factors like customs, traditions, values, beliefs, poverty,
literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable
influence on the functioning of business firms. For example, during festive seasons there is an increase in the
demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming
more conscious of the quality of the products. Due to change in family composition, more nuclear families with
single child concepts have come up. This increases the demand for the different
types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people
belonging to different social structures and culture vary significantly.
(b) Political Environment
This includes the political system, the government policies and attitude towards the business community and the
unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the
government also influences business and related activities to a great extent. It sends a signal of strength,
confidence to various interest groups and investors. Further, ideology of the political party also influences the
business organisation and its operations. You may be aware that Coca-Cola, a cold drink widely used even now,
had to wind up operations in India in late seventies. Again the trade union activities also influence the operation
of business enterprises. Most of the labour unions in India are affiliated to various political parties. Strikes,
lockouts and labour disputes etc. also adversely affect the business operations. However, with the competitive
business environment, trade unions are now showing great maturity and started contributing positively to the
success of the business organisation and its operations through workers participation
in management.

(c) Legal Environment

This refers to set of laws, regulations, which influence the business organisations and their operations. Every
business organisation has to obey, and work within the framework of the law. The important legislations that
concern the business enterprises include:
(i) Companies Act, 1956
(ii) Foreign Exchange Management Act, 1999
(iii) The Factories Act, 1948
(iv) Industrial Disputes Act, 1972
(v) Payment of Gratuity Act, 1972
(vi) Industries (Development and Regulation) Act, 1951
(vii) Prevention of Food Adulteration Act, 1954
(viii) Essential Commodities Act, 2002
(ix) The Standards of Weights and Measures Act, 1956
(x) Monopolies and Restrictive Trade Practices Act, 1969
(xi) Trade Marks Act, 1999
(xii) Bureau of Indian Standards Act, 1986
(xiii) Consumer Protection Act, 1986
(xiv) Environment Protection Act
(xv) Competition Act, 2002
(i) Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly
directive principles, rights and duties of citizens, legislative powers of the central and state government also
influence the operation of business enterprises.
(ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the
interest of the public and act within the boundaries of the constitution. The various judgments given by the court
in different matters relating to trade and industry also influence the business activities.
(d) Technological Environment
Technological environment include the methods, techniques and approaches adopted for production of goods and
services and its distribution. The varying technological environments of different countries affect the designing
of products. For example, in USA and many other countries electrical appliances are designed for 110 volts. But
when these are made for India, they have to be of 220 volts. In the modern competitive age, the pace of
technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the
technological changes from time to time. It may be noted that scientific research for improvement and innovation
in products and services is a regular activity in most of the big industrial organisations. Now a days infact, no
firm can afford to persist with the outdated technologies.
(e) Demographic Environment
This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing
on the demand for various goods and services. For example a country where population rate is high and children
constitute a large section of population, then there is more demand for baby products. Similarly the demand of
the people of cities and towns are different than the people of rural areas. The high rise of population indicates
the easy availability of labour. These encourage the business enterprises to use labour
Intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to
set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK,
are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes
on the demographic front and reads them accurately will find opportunities knocking at its doorsteps.
(f) Natural Environment
The natural environment includes geographical and ecological factors that influence the business operations.
These factors include the availability of natural resources, weather and climatic condition, location aspect,
topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example,
sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to
Establish manufacturing unit near the sources of input. Further, government’s policies to maintain ecological
balance, conservation of natural resources etc. put additional responsibility on the business sector.

2. Explain the Components of business environment?

A. Internal environment
Internal environment includes all those factors which influence business and which are present within the
business itself. These factors are usually under the control of business. The study of internal factors is really
important for the study of internal environment. These factors are:
(i) Objectives of Business, (ii) Policies of Business, (iii) Production Capacity, (iv) Production Methods, (v)
Management Information System, (vi) Participation in Management, (vii) Composition of Board of Directors,
(viii) Managerial Attitude, (ix) Organisational Structure, (x) Features of Human Resource, etc.
B. External Environment
External environment includes all those factors which influence business and exist outside the business. Business
has no control over these factors. The information about these factors is important for the study of the external
environment.
Some of these factors are those with which a particular company has very close relationship. However, there are
some other factors which influence the entire business community.
Micro environment means that environment which includes those factors with which business is closely related.
These factors influence every industrial unit differently. These factors are as under:
(i) Customers (ii) Suppliers (iii) Competitors (iv) Public (v) Marketing Intermediaries.
(i) Customers:
Customers of an industrial unit can be of different types. They include household, government, industry,
commercial enterprises, etc. The number of different types of customers highly influences a firm.
For example, suppose a firm supplies goods only to the government. It means that firm has only one customer. If
because of some reason their relations get soured, the supply of goods will stop and in that case the closure of
that firm is certain.
This clearly indicates that the customers do influence business. Therefore, a firm should make efforts to have
different kinds of customers,
(ii) Suppliers:
Like the customers, the suppliers also influence business. If a business has only one supplier and he gets annoyed
because of some reason, the supply of goods can be stopped and the very existence of the business can be
threatened or endangered. Hence, efforts should be made to have various suppliers.
(iii) Competitors:
The competing firms can influence business in a number of ways. They can do so by bringing new and cheap
products in the market, by launching some sale promotion scheme or other similar methods.
(iv) Public:
Public has different constituents like the local public, press or media, etc. The attitude or behaviour of these
constituents can affect business units. For example, the local population can oppose some established firm whose
business is excessively noisy.
Similarly, if the media gives some favourable report about a particular company the price of its share can register
an increase on this count.
(v) Marketing Intermediaries:
The marketing intermediaries play a significant role in developing any business unit. They are those persons who
reduce the distance between the producers and agents.
For example, a company sells its goods with the help of agents and if because of some reason all the agents get
annoyed with the company and refuse to sell its goods, there can be a crisis for the company.

UNIT - 2
SECTION - A
1. What is Political Environment?
Political decisions inevitably affect the economic environment. Political decisions also influence the social and
cultural environment of a country. Politicians can influence the pace at which new technologies appear and are
adopted. The political environment is one of the less predictable elements in an organisation's business
environment. The fact that democratic governments have to seek re-election every few years has contributed
towards a cyclical political environment.

2. What are the political systems?

1. An open system of government is democratically elected by the population of a country.
2. Totalitarian systems of government occur where power derives from a select group (e.g., communism) or based
on the interests of sectional groups (often military-based).
3. What are the Political Ideologies?
Political ideologies in the UK have changed through a series of cycles during the post 2nd world war period.
For business organisations, understanding shifts in dominant ideologies can be crucial to understanding the future
nature of their business environment. Two important and recurring ideological issues which affect business
organisations are the distribution of wealth between different groups in society and the role of the state versus the
private sector in delivering goods and services.
4. List out the Political Parties.
a) Most members of parliament belong to a political party.
b) Political parties represent an ideological point of view, although it has been noted that in recent years the
ideological gap between the main UK parties has been reducing.
c) Because political parties represent a diverse range of ideological issues, it is not surprising that party leaders often
find it difficult to gain the unanimous support of all members on all issues.
5. What is meant by Social Exclusion?
Social exclusion is a shorthand term for what can happen when people or areas suffer from a combination
of linked problems such as unemployment, poor skills, low incomes, poor housing, high crime environments, bad
health and family breakdown.In response to these problems, the UK government created the Social Exclusion
Unit in December 1997. Its remit has been to help improve Government action to reduce social exclusion by
producing ‘joined-up solutions to joined-up problems.’
6. What is Redistribution of Wealth ?
Governments with socialist leanings have recognised that there is nothing inherently just in the pattern of
market rewards that reflects the accidents of heredity and the labour skills that happen to be in demand at the
time. A distinguishing feature of the left in politics is often its belief in a positive role for government.
Minimum wage legislation, introduced in the UK in 1999 may provide guaranteed levels of income for the
poorest members of society, but higher earning individuals invariably seek to maintain differentials, leaving
minimum wage employees in a position of relative poverty.
7. What is meant by doctrine of laissez faire?
Laissez-faire was a political as well as an economic doctrine. The pervading theory of the 19th century
was that the individual, pursuing his own desired ends, would thereby achieve the best results for the society of
which he was a part. The function of the state was to maintain order and security and to avoid interference with
the initiative of the individual in pursuit of his own desired goals. But laissez-faire advocates nonetheless argued
that government had an essential role in enforcing contracts as well as ensuring civil order.
8. What are the fundamental rights?
 Right to equality,
 Right to freedom,
 Right against exploitation,
 Right to freedom of religion,
 Cultural and educational rights, and
 Right to constitutional remedies.
 While these fundamental rights are universal, the constitution provides for some exceptions and
restriction

9. What is meant by directive principles?

 The Directive Principles of State Policy contained in Part IV, Articles 36-51 of the Indian constitution
constitute the most interesting and enchanting part of the constitution.The Directive Principles may be said to
contain the philosophy of the constitution. The idea of directives being included in the constitution was borrowed
from the constitution of Ireland. As the very term “Directives” indicate, the Directive principles are broad
directives given to the state in accordance with which the legislative and executive powers of the state are to be
exercised.

10. What is legislature?

A legislature is a deliberative assembly with the authority to make laws for a political entity such as
a country or city. Legislatures form important parts of most governments; in the separation of powers model,
they are often contrasted with the executive and judicial branches of government. Laws enacted by legislatures
are known as legislation. Legislatures observe and steer governing actions and usually have exclusive authority
to amend the budget or budgets involved in the process. The members of a legislature are called legislators. In
a democracy, legislators are most commonly popularly elected, although indirect election and appointment by the
executive are also used, particularly for bicameral legislatures featuring an upper chamber.

SECTION-B
1. What are the importance of monitoring the political environment?
It is important for organisations to monitor their political environment, because change in this environment can
impact on business strategy and operations in a number of ways:

 The stability of the political system affects the attractiveness of a particular national market.
 Governments pass legislation that directly affects the relationship between the firm and its customers, its
suppliers and other firms.
 Governments see business organisations as an important vehicle for social reform.
 The government is additionally responsible for protecting the public interest at large.
 The economic environment is influenced by the actions of government.
 Government is itself a major consumer of goods and services.
 Government policies can influence the dominant social and cultural values of a country.

2. What are the responsibilities of government towards business?

1. Enacting and Enforcing Laws: Enacting and enforcing laws is the prime responsibility of the Government of
each country. This is because laws and regulations only enable the businesses to function smoothly. Further,
Government provides a system of court for adjudicating differences between firms, individual or Government
agencies.
2. Maintaining Law and Order: Maintaining law and order and protecting persons and property is another
responsibility of the Government of the country. It would be impossible to carry on business in the absence of a
peaceful atmosphere.
3. Providing Monetary System: The Government has to provide monetary system so that business transactions
can be effected. Further, it is also the responsibility of the Government to regulate money and credit, and protect
the money value of the currency in terms of other currencies.
4. Balanced Regional Development and Growth: It is the responsibility of the Government to make sure that
there are balanced regional developments and growth.

5. Provision of Basic Infrastructure: Government should provide basic infrastructural facilities such as
transportation, power, finance, trained personnel and civic amenities, which are indispensable for the effective
functioning of business concerns.
6. Supply of Information: It is the responsibility of the Governments to provide information, which is useful to
businessmen in carrying out their business activities. Government agencies publish and provide a large volume
of information, which is used extensively by business firms. This information normally relates to economic and
business activity, specific lines of business, scientific and technological developments, and many other things of
interest to business houses or business leaders.

7. Assistance to Small-scale Industries: It the responsibility of the Government to provide the required facilities
and encourage the development

8. Transfer of Technology: It is the responsibility of the Government to transfer to private industries whatever
discoveries are made by the Government – owned Research Institutions so that they can be used for commercial
production.
9. Conducting Inspections: It is the responsibility of the Government to inspect the private business concerns in
order to make sure that they produce quality products, and also to prevent the production and sale of sub-standard
goods.
10. Incentives to Home Industries: It is the responsibility of the Government to encourage the development of
home industries by providing them various incentives and subsidies.
3. List out the reasons for governments intervention into private business?

1. Provision of Non-market Products and Indivisible Services

Certain products and services are necessary for the very existence of the society. They include nation’s defense
and related services, price protection, flood control, protection of public monuments, buildings etc. These
services are called non-excludable public services or goods. The market mechanism cannot and shall not provide
such services. Hence, they cannot be left to the market mechanism.

Some of the services or activities can be carried on by voluntary agencies and service organizations like Red
Cross etc. But it is difficult to promote and administer such organizations. Again the difficulties involved in
collecting the fees from the beneficiaries are not also very easy. Only a competent Government can organize
such activities and provide finance to carry on them.

2. Provision of Basic Infrastructure

The provision of basic infrastructure like power, communication, port facilities, banking and other institutional
facilities is sin qua non for the growth of the national economy. It involves a huge capital outlay.

At the same time, the return is very poor when compared to the capital investment involved in them. Moreover, it
is not also advisable to leave them in the hands of private individuals or market participants to bear the burden.
Moreover, they may also exploit the society if they have a free hand in them.

In such a situation, the Government and its organisations alone should be called upon to finance such activities
particularly in underdeveloped countries and even in the developing economies.

3. Improvement in Market Functioning

Perfect market in its original sense, does not exist anywhere in the world. Even developed economies are no
exception to this. The Government cannot correct the imperfections in the market absolutely. However, as
pointed out by Gerald Sirkin, these imperfections are capable of at least partial correction by the Government
action. He further declared that the state might help to correct some of the imbalances.
 SECTION-C
1. State the directive principles that have economic significance.

1. Directive Principles are backed by Public Opinion:

It is true that Directive Principles are non-justiciable. These are not backed by legal sanctions. However, these
are backed by public opinion, which is in reality the real sanction behind every law.

2. Provide for a Welfare State:

The Directive Principles clearly lay down the philosophical foundations of a welfare polity. These make it a
responsibility of the State to secure it through welfare legislation. These also provide that a welfare state stands
for securing of Justice—social, economic and political for all the people.

3. Importance as Moral Ideals:

Directive Principles are indeed of the nature of moral ideals. They constitute a moral code for the State. This
does not reduce their value. Through these the founding fathers placed before the nation the goals and ideals
which are to be achieved through future legislation.

State is a human social institution. Government is always made and managed by the people. Just as people have a
moral code which guides their behavior in society, likewise there is every justification for the existence of a
moral code for the men who form and run the government of the state.

4. Directives Constitute a Guide for the State:

Directive Principles act as a guide to the government for making policies and laws for the purpose of securing
justice and welfare

5. Source of continuity in Policies:

The Directive Principles are a source of continuity in the policies of the government. In a democratic system, the
governments change after regular intervals and each new government has to make policies and laws. The
presence of Directive Principles ensures that every government, whether it is formed by a rightist or a leftist
party, will exercise its power for implementing Directive Principles.

6. Directive Principles are Supplementary to the Fundamental Rights:

Directive Principles are the positive directions to the State for securing and strengthening the socio-economic
dimension of Indian democracy. These aim at the establishment of socio-economic democracy. These are
supplementary to Fundamental Rights which provide for civil and political rights and freedoms.

7. Yardstick for measuring the Worth of the Government:

Directive Principles of State Policy constitute a yardstick with which the people can measure the worth of a
government. A government which ignores the task of implementing the Directive Principles can be rejected by
the people in favour of a government by another political party which can be expected to give due importance to
the task of securing the Directive Principles.

8. Helpful in the interpretation of the Constitution:

The Directive Principles constitute a manifesto of the aims and goals of the nation. These reflect the wisdom and
views of the founding fathers of the constitution. These reflect the philosophy of the Constitution and hence
provide useful help to the courts in their task of interpreting the Constitution.
9. Ambiguity of Directive Principles is Useful:
The Directive Principles have been couched in words which are not very rigid in their meanings. This ambiguity
has been helpful in so far as it helps the State to interpret and apply these principles in accordance with the socio-
economic environment which prevails at a given time.

5. State the role of government as entrepreneur?

Government plays a very important role in developing entrepreneurship. Government develop industries in rural
and backward areas by giving various facilities with the objective of balances regional development. The
government set programs to help entrepreneurs in the field of technique, finance, market and entrepreneurial
development so that they help to accelerate and adopt the changes in industrial development. Various institutions
were set up by the central and state governments in order to fulfill this objective.

1. Small industries development organization (SIDO)

SIDO was established in October 1973 now under Ministry of Trade, Industry and Marketing. SIDO is an apex
body at Central level for formulating policy for the development of Small Scale Industries in the country, headed
by the Additional Secretary & Development Commissioner (Small Scale Industries)under Ministry of Small
Scale Industries Govt. of India. SIDO is playing a very constructive role for strengthening this vital sector, which
has proved to be one of the strong pillars of the economy of the country. SIDO also provides extended support
through Comprehensive plan for promotion of rural entrepreneurship.

2. Management development Institute (MDI)

MDI is located at Gurgaon (Haryana).It was established in 1973 and is sponsored by Industrial Finance
Corporation Of India, with objectives of improving managerial effectiveness in the industry. It conducts
management development programs in various fields. In also includes the programs for the officers of
IAS,IES,BHEL,ONGC and many other leading PSU’s.

3. Entrepreneurship development institute of India (EDI)

Entrepreneurship Development Institute of India (EDI), an autonomous and not-for-profit institute, set up in
1983, is sponsored by apex financial institutions – the IDBI Bank Ltd., IFCI Ltd., ICICI Bank Ltd. and the State
Bank of India (SBI). EDI has helped set up twelve state-level exclusive entrepreneurship development centers
and institutes. One of the satisfying achievements, however, was taking entrepreneurship to a large number of
schools, colleges, science and technology institutions and management schools in several states by including
entrepreneurship inputs in their curricula. In the international arena, efforts to develop entrepreneurship by way
of sharing resources and organizing training programs, have helped EDI earn accolades and support from the
World Bank, Commonwealth Secretariat, UNIDO, ILO, British Council, Ford Foundation, European Union,
ASEAN Secretariat and several other renowned agencies. EDI has also set up Entrepreneurship Development
Centre at Cambodia, Lao PDR, Myanmar and Vietnam and is in the process of setting up such centers at
Uzbekistan and five African countries.
4. All India Small Scale Industries Board (AISSIB)
The Small Scale Industries Board (SSI Board) is the apex advisory body constituted to render advise to the
Government on all issues pertaining to the small scale sector .It determines the policies and programme for the
development of small industries with a Central Government Minister as its president and the representatives of
various organization i.e. Central Government, State Government, National Small Industries Corporations, State
Financial Corporation, Reserve Bank of India, State Bank of India ,Indian Small Industries Board, Non
government members such as Public Service Commission, Trade and Industries Members.

5. National Institution of Entrepreneurship and Small Business Development(NIESBUD),New Delhi

It was established in 1983 by the Government of India.It is an apex body to supervise the activities of various
agencies in the entrepreneurial development programmes.It is a society under Government of India Society Act
of 1860.The major activities of institute are:
i) To make effective strategies and methods
ii) To standardize model syllabus for training
iii) To develop training aids,tools and manuals
iv) To conduct workshops,seminars and conferences.
v) To evaluate the benefits of EDPs and promote the process of Entrepreneurial Development.
vi) To help support government and other agencies in executing entrepreneur development programmes.
vii) To undertake research and development in the field of EDPs.
6. National Institute of Small Industries Extension Training
It was established in 1960 with its headquarters at Hyderabad.The main objectives of national Institute of Small
Industries Extension Training are:
i) Directing and Coordinating syllabi for training of small entrepreneurs.
ii) Advising managerial and technical aspects.
iii) Organizing seminars for small entrepreneurs and managers.
iv) Providing services regarding research and documentation.

7. National Small Industries Corporation Ltd. (NSIC)

The NSIC was established in 1995 by the Central Government with the objective of assisting the small industries
in the Government purchase programmes. The corporation provides a vast-market for the products of small
industries through its marketing network. It also assists the small units in exporting their products in foreign
countries.

3. Explain the factors affecting political environment?

Political factors affecting business are closely tied to legal factors affecting business. Stable political
environment creates confidence of citizens and companies investing or planning to invest in particular country.
So they have very strong influence on economy and development of business. Political decisions have also strong
influence on social and cultural environment in a country. Decisions of politicians may also affect pace (promote
or disturb) of new technology adoption within economy.

Political factors involving central government organization level of bureaucracy (procedures, permits, etc.), level
of corruption (tradition of bribing government officials) government stability and probability of changes of
political systems, form of government: totalitarianism/autocracy/democracy or other type of political system.
cyclical nature of democratic countries (elections can change politics from time to time) power structure,
regional government powers, private or government owned companies dominate on the market, presence of state
monopolies, government interfere (or not) with business, existence of pressure groups influencing government
(farmers, miners, etc.), activities of lobbyists,
safety and security, public protection, military, level of government spending, Political factors involving freedom
of citizens freedom of the press, radio and television, free elections, Internet censorship, freedom of association,
freedom to protest, freedom of public assembly accountability of government and transparency, access to
information about government actions, social unrest (rioting, looting), index of political and economic freedom
within country, influence of media and public opinion on policy and decision making, Political factors included
in various legal regulations role of a constitution or similar national legal document, education regulation,
regulation vs deregulation preferences, social and environmental policy, reforms and pressures to change, more
at: legal factors affecting business Political factors connected to international relations trade control (tariffs
policy, regulation) involvement in international trade unions and agreements (trade blocks, EU, WTO, NAFTA,
etc), import/export restrictions on quality and quantity of product diplomatic activities promoting investment
possibilities (good business climate) abroad, tax-free zones for newly created international businesses
involvement in military conflicts thorough the world and regional, exchange rate manipulations through political
decisions, possibility of expropriation (government taking over assets of foreign business due to no constitutional
protection of ownership law).

2. List out the fundamental rights enumerated in part 3 of our constitution.

As we have seen, rights are claims that are essential for the existence and development of individuals. In that
sense there will a long list of rights. Whereas all these are recognized by the society, some of the most important
rights are recognized by the State and enshrined in the Constitution. Such rights are called fundamental rights.
These rights are fundamental because of two reasons. First, these are mentioned in the Constitution which
guarantees them and the second, these are justiciable, i.e. enforceable through courts. Being justiciable means
that in case of their violation, the individual can approach courts for their protection. If a government enacts a
law that restricts any of these rights, it will be declared invalid by courts. Such rights are provided in Part III of
the Indian Constitution.
1. Right to Equality: Right to equality is very important in a society like ours. The purpose of this right is to
establish the rule of law where all the citizens should be treated equal before the law. It has five provisions
(Articles 14-18) to provide for equality before law or for the protection of law to all the persons in India and also
to prohibit discrimination on the grounds of religion, race, caste, sex or place of birth.
i) Equality before Law: The Constitution guarantees that all citizens will be equal before law. It means that
everyone will be equally protected by the laws of the country. No person is above law. It means that if two
persons commit the same crime, both of them will get the same punishment without any discrimination.
ii) No Discrimination on the basis of Religion, Race, Caste, Sex or Place of Birth: The State cannot discriminate
against a citizen on the basis of religion, race, caste, sex or place of birth. This is necessary to bring about social
equality. Every citizen of India has equal access to shops, restaurants, places of public entertainment or in the use
of wells, tanks or roads without any discrimination. However, the State can make special provisions or
concessions for women and children.
(iii) Equality of Opportunity to all Citizens in matter of Public Employment: The State cannot discriminate
against anyone in the matter of public employment. All citizens can apply and become employees of the State.
Merits and qualifications will be the basis of employment. However, there are some exceptions to this right.
There is a special provision for the reservation of posts for citizens belonging to Scheduled Castes, Scheduled
Tribes and Other Backward Classes (OBCs)
iv) Abolition of Untouchability: Practising untouchability in any form has been made a punishable offence under
the law. This provision is an effort to uplift the social status of millions of Indians who had been looked down
upon and kept at a distance because of either their caste or the nature of their profession. But, it is really very
unfortunate that despite constitutional provisions, this social evil continues even today. Can you find any
difference when you see a nurse cleaning a patient, a mother cleaning her child and a lady cleaning a toilet in the
illustration? Why do people consider the cleaning of a toilet in a derogatory manner?
2. Right to Freedom Human beings definitely want and need freedom. You also want to have freedom. The
Constitution of India provides Right to Freedom to all its citizens. This Right is stipulated under Articles 19-22.
The following are the four categories of Rights to Freedom: I. Six Freedoms: Article 19 of the Constitution
provides for the following six freedoms: (a) Freedom of speech and expression (b) Freedom to assemble
peacefully and without arms (c) Freedom to form Associations and Unions (d) Freedom to move freely
throughout the territory of India (e) Freedom to reside and settle in any part of India (f) Freedom to practise any
profession or to carry on any occupation, trade or business The purpose of providing these freedoms is to build
and maintain an environment for proper functioning of democracy. However, the Constitution has authorized the
State to impose certain reasonable restrictions on each of them:
1. Restrictions may be put on the Right to Freedom of speech and expression in the interests of the sovereignty,
integrity and security of India, friendly relations with foreign States, public order, decency or morality, or in
relation to contempt of court, defamation or incitement to an offence.
2. Right to assemble peacefully and without arms may be restricted in the interests of the sovereignty and
integrity of India or public order.
3. Right to form associations or unions may have restrictions in the interests of the sovereignty and integrity of
India, public order or morality.
4. Right to move freely throughout the territory of India and to reside and settle in any part of India may also be
restricted in the interest of the general public or for the protection of the interests of any Scheduled Tribe.
5. Right to practise any profession or to carry on any occupation, trade or business may have restrictions in the
interests of the general public. The State is also permitted to lay down the professional or technical qualifications
necessary for practising any profession or carrying on any occupation, trade or business. II. Protection in respect
of conviction for offences: Article 20 of the Constitution provides for the protection in respect of conviction for
offences. No one can be convicted for an act that was not an offence at the time of its commission, and no one
can be given punishment greater than what was provided in the law prevalent at the time of its commission. Also,
no one can be prosecuted and III. Protection of life and personal liberty: As provided in Article 21, no one can be
deprived of his or her life or personal liberty except according to the procedure established by law.
Protection against arrest and detention in certain cases: It is provided in Article 22 that whenever a person is
arrested, he or she should be informed, as soon as it is possible, of the grounds for arrest and should be allowed
to consult and to be defended by a legal practitioner of his or her choice. punished for the same offence more
than once and can be forced to give witness against his or her own self.
As you know, one of the objectives declared in the Preamble is “to secure to all its citizens liberty of belief, faith
and worship”. Since India is a multi-religion country, where Hindus, Muslims, Sikhs, Christians and many other
communities live together, the Constitution declares India as a ‘secular state’. It means that Indian State has no
religion of its own. But it allows full freedom to all the citizens to have faith in any religion and to worship, the
way they like. But this should not interfere with the religious beliefs and ways of worship of other fellow beings.
This freedom is available to the foreigners as well.
3. Cultural and Educational Rights India is the largest democracy in the world having diversity of culture,
scripts, languages and religions. As we know the democracy is a rule of the majority. But the minorities are also
equally important for its successful working. Therefore, protection of language, culture and religion of the
minorities becomes essential so that the minorities may no
4. Right to Constitutional Remedies Since Fundamental Rights are justiciable, they are just like guarantees.
They are enforceable, as every individual has the right to seek the help from courts, if they are violated. But in
reality it is not so. Encroachment or violation of Fundamental Right in our day to day life is a matter of great
concern. Which is why, our Constitution does not permit the legislature and the executive to curb these rights. It
provides legal remedies for the protection of our Fundamental Rights. This is called the Right to Constitutional
Remedies stipulated in Article 32. When any of our rights are violated, we can seek justice through courts. We
can directly approach the Supreme Court that can issue directions, orders or writs for the enforcement of
Fundamental Rights.
5.Right to Education (RTE) The Right to Education is added by introducing a new Article 21A in the Chapter
on Fundamental Rights in 2002 by the 86th Constitutional Amendment. It was a long standing demand so that all
children in the age group of 6-14 years (and their parents) can claim compulsory and free education as a
Fundamental Right. It is a major step forward in making the country free of illiteracy. But this addition remained
meaningless, as it could not be enforced until 2009 when the Parliament passed the 7.Right to Education Act,
2009.
UNIT 3
SECTION-A
1. What is social Environment?
Social environment, social context, sociocultural context or milieu refers to the immediate physical
and social setting in which people live or in which something happens or develops. It includes the culture that the
individual was educated or lives in, and the people and institutions with whom they interact.

2. What is meant by Cultural heritage?

Cultural heritage is the legacy of physical science artefact’s and intangible attributes of a group or society
that are inherited from past generations, maintained in the present and bestowed for the benefit of future
generations.

3. What is Joint family system?

Joint family system is a very old concept. Under this system, all members of the family would live
together and enjoy the income of the family. Here the father, mother, sons, daughters, sons-in-law, daughters-in-
law, grand children, uncles, Aunts and other close relatives live as one big family. The land and properties are
commonly owned and they work together to fulfil their wants. Generally, there is a kind of social security for the
weak and poor. It provides an insurance against unemployment.

4. What is caste system?

A caste system is a class structure that is determined by birth. Loosely, it means that in some societies, if
your parents are poor, you're going to be poor, too. Same goes for being rich, if you're a glass-half-full person.

5. What is child marriage?

Child marriage, defined as a formal marriage or informal union before age 18, is a reality for both boys
and girls, although girls are disproportionately the most affected. Child marriage is widespread and can lead to a
lifetime of disadvantage and deprivation

6. What is social attitude?

A social attitude was defined as "a behaviour pattern, anticipatory set or tendency, predisposition to
specific adjustment or more simply, a conditioned response to social stimuli"

7. What do you mean by community?

A community is a small or large social unit (a group of living things) who have something in common,
such as norms, religion, values, or identity. Communities often share a sense of place that is situated in a given
geographical area (e.g. a country, village, town, or neighbourhood) or in virtual space through communication
platforms. Durable relations that extend beyond immediate genealogical ties also define a sense of community.
People tend to define those social ties as important to their identity, practice, and roles in social institutions like
family, home, work, government, society, or humanity, at large.

8. What is social custom?

A social custom is any form of expression or identification that masquerades as personal, but is anything
but personal. Amazingly, many people copy a pattern, behaviour or act thinking (to themselves) that it is "me
being me" while it is really a social custom that has been adopted..

9. What is Social responsibility?

Social responsibility is the idea that businesses should balance profit-making activities with activities that
benefit society; it involves developing businesses with a positive relationship to the society in which they
operate.

10. What is Religious?

Religious beliefs, customs, rituals and practices have been known to impact consumer buying behavior.
These include practices, such as, not purchasing certain types of assets during certain periods of the year to
heightened buying sprees during others. Hindus generally do not buy assets during the ‘shraadh’ period whereas
hectic buying is seen during Diwali, due to the practice of gifting. Same is the case among Christians, across the
world.

Section – B

1. What are Characteristics of Joint Family System?

1. The head of the family is given maximum power and authority.
2. The land and property belong to the family as a whole. The head of the family considered as trustee of the
property.
3. Income sources are pooled together.
4. All members earn as per their capacity but spend as per the needs of the family.
5. Same gods and goddesses are worshiped.
6. Joint family has common sufferings and rejoicing.
7. Family as a whole owns the entire means, production and consumption.
8. There is security against unemployment, sickness, old age etc.

2. What are the Features of Social Environment?

(1) Modern complex society presents problems for the individual that he reacts to the conditions with attitudes
of ‘conflict’, to some extent, and of ‘accommodation’. As a result, he is able only partially to adjust himself to
the surroundings. Every individual selects for himself only that part of his culture which suits his aptitudes and
carefully rejects the rest. Thus, he has the right to choose his own occupation and, to adopt educational,
recreational and living conditions that associate themselves with such occupation.
(2) Society is never static; it is always changing from one set condition to another. This factor alone requires man
to be ‘dynamic’ in his attitude of ‘adjustment ‘. In the span of one single life, man may have to change from
certain conditions to others; and in any developing country, the impact of industrialization is so intense that the
individual undergoing the experience has to adjust himself with utmost rapidity.
(3) The efforts required by an individual accustomed to a given environment to adjust himself to a new and
unknown environment would raise the question of ‘readjustment’. There may be conditions of political upheaval
in a state which would throw out the old establishment and introduce new ideas.
 Section – C
1. Explain the factors in the socio-cultural environment?

Religion:

Religious beliefs, customs, rituals and practices have been known to impact consumer buying behavior. These
include practices, such as, not purchasing certain types of assets during certain periods of the year to heightened
buying sprees during others. Hindus generally do not buy assets during the ‘shraadh’ period whereas hectic
buying is seen during Diwali, due to the practice of gifting. Same is the case among Christians, across the world.
Christmas season witnesses huge upsurge in sales. The same trend is seen among Muslims during Eid.

Religious beliefs can be seen to drive decisions around launch of new products or services. Business can lose
substantial sales if they are not cognizant of these factors and run promotions during such periods of boom or do
not stock well during periods of abstinence.

Similarly, religious beliefs and practices dictate that certain foods, like, beef or pork are not consumed either
entirely or during certain periods of the year. Businesses, especially restaurants, run the risk of offending sections
of societies if they promote such products.

Weekly offs are also often based on religious practices. While Sunday is observed as a weekly off in many
countries, it is Friday in the Islamic world. The practice of offering „Namaaz’ several times during the day means
that many businesses must tune their work hours in these countries to allow their employees time to do so.
Naturally, this impacts the hours during which business can be conducted. Not tuning business practices
accordingly will create negative perceptions about the organization among the local population and adversely
impact their business potential.

Historically, certain religious beliefs have also determined work ethics. The Protestant (in USA), Confucian (in
certain Asian countries), and Shinto (in Japan) believe in working hard and often long hours. Businesses must
respect such beliefs and tune work practices that are in harmony with such beliefs.

Language:

Language presents a big challenge for businesses in reaching out to its target audience. There are financial
implications in addressing a large population that speaks and understands different languages. There are
sensitivities that result from different meanings attributed to the same word or phrase in different cultures and
geographies.

Businesses are limited by the reach of each language. They must therefore translate their messages into multiple
languages and use multiple channels of communication to reach larger audiences. There are 18 officially
recognized languages in India, 40 languages are spoken in South America, and over 700 different languages
across the African continent. The numbers are far more if one were to consider the variety of dialects within
languages.

While translating a message into different languages may seem an obvious solution to improving the reach, the
problem isn‟t as simple. A harmless word or phrase in one language may mean something very objectionable in
another. Sometimes a particular sentiment cannot be expressed in another language. Many times the same word
in one language has a very different and sometimes derogatory meaning or connotation in another language. This
has significant implications when choosing brand names which businesses would prefer to maintain irrespective
of geographies in which they operate.

Business must be very cautious when using advertisements meant for English speaking audiences in Arabic
countries especially while conveying „before‟ and „after‟ scenarios. While English is read from left to right,
Arabic is read from right to left. Hence images that depict before and after scenarios must be suitably juxtaposed
to convey the intended message.
Challenges for business are not just limited to verbal communication. Non-verbal symbols, like, „thumbs up‟ or
the „OK‟ sign formed by the thumb and index fingers forming a circle and the other three fingers have different
connotations in different cultures. Similarly, a pat on the back is considered a gesture of recognition and
encouragement in most countries but offensive in Thailand. Shaking head from left to right means yes in most
countries but no in countries like Malaysia, Saudi Arabia and Bulgaria.

Consumer Preferences:

Businesses must develop relevant and appropriate strategies to address diverse markets based on consumer
preferences and beliefs. India is a vast multi-cultural country. Businesses cannot address this market with one
strategy that fits all. This may be true of other countries as well. Companies that fail to understand the cultural
environment – religious beliefs, customs, traditions, tastes, preferences, buying habits etc. – will fail to develop
appropriate business strategies.

While people in USA prefer large sized cars, US auto manufacturers have realized that the same strategy will not
work in India, as the dominant market in India is for small and midsized cars. The Japanese have led the Indian
market with multiple options for small cars.

Bajaj led the scooter market for many years. Consumer tastes gradually changed and people started to prefer
bikes over scooters. Bajaj was a little late in waking up to this shift in consumer preference and lost market share
for some time till it finally responded to the changing environment.

Fairness creams are another example of how consumer tastes change. The Indian woman‟s penchant for fairness
has spawned a whole new segment of products that was at one time scoffed at by the established players. Unable
to face up to the challenge from „Fair and Lovely‟, these businesses have been forced to introduce their own
fairness creams.

Markets vary by taste and this is evident from the fact Indians in the northern region prefer tea and those in the
Southern region prefer coffee. Breakfast habits also vary from region to region and thus dictate business
strategies.

Varying packaging size is a great example of how organizations have expanded markets. For a long time,
shampoo was sold only in bottles. Certain organizations introduced shampoos in sachets so that low-income
groups could also afford them. However, shampoos in sachets also appealed to other consumers looking for
convenience of use. Hotels too prefer using smaller packs to place in rooms for their customers.

Increasing consumer consciousness towards health has seen lifestyle changes and the demise of many products.
Businesses that did not see the change coming saw their market share erode. Dalda, once a dominant cooking
medium brand, is hardly to be seen anywhere and has been replaced with other healthier options. Lifestyle
changes have brought about the biggest change in consumer buying patterns – both good and bad. We now have
healthier options such as fruit juices available in tetra-packs eating into the market for aerated drinks. We also
have a lot of junk food such as chips doing well. People are shifting from ammonia based hair dyes to ammonia
free colors. Businesses must respond to these shifts in consumer preferences.

Environment conscious countries, like, the Netherlands prefer to use clean energy and nonpolluting means of
transport. Bicycles are the preferred mode of commuting. Energy and auto companies can ignore these facts only
to their peril when framing business strategies for this country.

Etiquettes:

Etiquettes vary vastly across cultures. Businessmen not sensitive to etiquettes will end up embarrassing
themselves or others or jeopardizing their business prospects.

Greetings are common way of welcoming or saying goodbye. These are often quite different in different cultures.
While shaking hands is common in most cultures it is not so in some others. One also needs to be sensitive to
shaking hands with the opposite sex and finer nuance of how much pressure is exerted while shaking hands. In
some cultures, kissing is acceptable while in others, like, in Japan, you greet by bowing. In Bengal, it is
customary for a host to ask the guest to visit again rather than saying goodbye.

Social Trends:

Many trends are driven by the geography‟s demographics and have implications for businesses. Companies must
monitor these trends to suitably frame strategies.

India comprises a vastly young population as compared to many developed nations. Businesses must factor this
in their product and marketing strategy. Women are increasingly taking up jobs and the family profile has been
steadily undergoing change from joint families to nuclear families. This impacts buying behavior and we see a
lot more offtake of household goods like washing machines, microwave ovens, etc. There is also heightened
demand for housing as more youngsters decide to stay away from parents. In large cities in India, we have seen a
mushrooming of crèches and play schools, as young working mothers do not have their parents around to look
after their children.

With increasing number of working couples, we also see an increasing trend of eating out. This has resulted in
opportunities for restaurants and take-away outlets and we see many new businesses spawning in the hospitality
sector. The options for ready to eat food „cookeasy‟ food have exploded. Businesses with a keen eye on spotting
trends have been able to come up with new strategies to address this fast developing market segment.

In many developed countries, like, the USA, there has been an increase in divorce rates. Commitment to
marriage is low and this results in greater stress induced binge buying.

Businesses must carefully monitor evolving social trends and position their products based on several diversity
factors if they have to sustain credible performance.

2. Explain features of caste system?

1. Determination by birth: The membership of caste is determined by birth. A person remains the member of
the caste into which he is born and his membership does not undergo any change even if changes take place in
his status, occupation, education, wealth etc.

2. Rules and regulations concerning food: Each individual caste has its own laws which govern the food habits
of its members. Generally there are no restrictions against fruit, milk, butter etc. but kachcha food (bread etc.)
can be accepted only from a member of one’s own or of a higher caste.

3. Definite occupation: In the Hindu scriptures there is a mention of the occupation of all castes. According to
Manu the functions, of the Brahmin, Kshatriya, Vaishya and Sudras were definite. The functions of
the Brahmin were to study, teach, guide and perform religious rituals and to give and receive alms, that of
the Kshatriya to study, perform religious rituals, give alms, punish the evil and to go to war; that of the Vaishyato
study, perform religious rituals, give alms, work in agriculture, trade and animal husbandry; that of Sudrato do
menial work for all the other castes. Having developed from Varna system the occupations in caste system are
definite. In Hindu society even today in most cases the son of a cobbler pursues the occupation of his father; the
son of a carpenter becomes a carpenter.

4. Endogamous group: The majority of persons marry only within their own caste. Brahmin, Kshatriya, Vaishya
and Sudra all marry within their respective castes; Hindu community does not approve inter-caste marriage even
now.

5. Rules concerning status and touchability: The various castes in the Hindu social organisation are divided
into a hierarchy of ascent and descent one above the other. In this hierarchy the Brahmins have the highest and
the untouchables the lowest position. The sense of superiority among the Brahmin is much exaggerated and
manifests in the South. The stringent observation of the system of untouchability has resulted in some low castes
of the Hindu society being called untouchables who were consequently forbidden to make use of places of
worship, cremation grounds, educational institutions, public roads and hotels etc. and were disallowed from
living in the cities.

6. Authority: The last feature of caste worth considering is the existence within it of an organ wielding a varying
degree of authority which compels obedience from caste members. In the high castes it is public opinion which
exercises this control over its members, though in modern times this may be eluded. In most cases the authority
invested in a board called the panchayat which is supposed to be composed of five members, but in fact there are
many more social groups who meet whenever its decisions are needed.

3. Explain the types of social organisation?

Family:

It is the earliest and the most universal of all social institutions. It is also the most natural, simplest and
permanent form of social organization. In society, individuals are primarily organized into separate families and
households.

Family is generally composed of husband, wife and their children. It may be defined as a group of persons,
united either by the ties of marriage or blood relationship, having a common household, a common tradition or
culture.

The form and features of family may be different from place to place and country to country but family as a
social group exists everywhere. It may rightly be described as the keystone of the social arch. It performs a
variety of functions like biological, emotional, economic, educational and cultural.

Clan:

The members of a clan are supposed to be the descendants of common ancestors. They usually bear common
surname. They are usually found among primitive people and members act through the guidance of a chieftain.

They are associated through common social, religious and cultural ceremonies. Members practice exogamy; they
do not marry a person belonging to the same clan. All members worship a totem or a symbolic object like cow,
bull, bird etc.

Tribe:

A tribe is a wider social organization than clan and has been defined as "a social group of a simple kind, and
members of which speak a common dialect, have a common government and act together for such common
purpose as welfare." Tribe is usually formed after a stronger clan subordinates a weaker one.

Tribe has a government with a tribal chief as its head. It is organized for military purposes and has a common
dialect and language. Though devoid of blood relationship, a tribe maintains solidarity among its members.

Community:

One way of organizing individuals on secular lines is through formation of communities and associations. A
community is defined as "the total organisation of social life within a limited area." A community is a self-
sufficient group based on common life. The area of a community may range from narrow to very broad (even
global) limits.

Association:

MacIver defines, "An association as a group organized for the pursuit of an interest or group of interests in
common." Associations may be of various types including kinship, religious, cultural, recreational, philanthropic,
vocational, political groups. Primarily political associations like the state and its coercive agency, the government
are part of society.
 UNIT – IV
SECTION – A
1. What is economic environment?

Current situation that an economy is in. This can include inflation, unemployment rates, interest
rates, consumer sentiment, and many other measures in order to make up the sphere of the economy that
businesses, government, and consumers find themselves operating in.

2. What is Capitalism?

Capitalism is one of economic systems in which means of production are owned and managed by private
individuals and institutions. They are at liberty to use any technique of production and produce anything they
like. State is to take care of only internal and external security of the country. Normally the activities related to
Defence, Police, administration and Courts of Justice are controlled by the Government.

3. What do you mean by economic system?

An economic system is a system of production, resource allocation, and distribution of goods and
services within a society or a given geographic area. It includes the combination of the various institutions,
agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure
of a given community. As such, an economic system is a type of social system. The mode of production is a
related concept. All economic systems have three basic questions to ask: what to produce, how to produce and in
what quantities, and who receives the output of production.

4. What is Mixed economy?

Mixed economy is a part of economic systems which combines in itself the features of Capitalism and
that of the Socialism. Unlike a pure capitalistic economy, it has an important public sector i.e. a number of
industries are owned and managed by the state. Private enterprise is allowed and even encouraged to operate a
large number of industries and to own in the various means of production. Thus in a mixed economy, the public
and private sectors exists side by side.

5. What is Urbanisation?

Urbanization refers to the population shift from rural to urban areas, "the gradual increase in the
proportion of people living in urban areas", and the ways in which each society adapts to the change It is
predominantly the process by which towns and cities are formed and become larger as more people begin living
and working in central areas.

6. What is meant by Socialism?

Socialism is that part of economic systems which the means of production are owned and managed by the
State. Private ownership of means of production is not allowed. People can have personal property which is
transferable and inheritable. The anti-social activities like smuggling and hoarding find no place in socialism.
Economic activities are planned with the motive of social benefit by a central planning authority.

7. What is fiscal deficit?

The difference between total revenue and total expenditure of the government is termed as fiscal deficit.
It is an indication of the total borrowings needed by the government. While calculating the total revenue,
borrowings are not included.

8. What is meant by Five year plan?

 National governmental program of planned, coordinated, and cumulative economic and social
development over a period of five years
cash transfer of the subsidies in the plan.
9. What is Gross Domestic Product (GDP)?
It is the market value of all goods and services produced in the country. A positive forecast of GDP
growth can lead to positive impact on Equity markets over a period of time. As per the CSO (Central Statistical
Office), India’s GDP growth at constant market prices is projected to increase to 7.6 % in FY 2016 from 7.2% in
FY 2015, making it amongst the fastest growing large economies in the world. As per the World Bank’s report,
India’s GDP growth will remain strong at 7.6 percent in 2016 and 7.7 percent in 2017. But there are various
factors that can affect GDP especially rainfall & Govt’s policies.

10. What is growth rate population?

The "population growth rate" is the rate at which the number of individuals in a population increases in a
given time period, expressed as a fraction of the initial population.

SECTION – B

1. Explain the objective and performance of Ninth five year plan?

Objectives
The main objective of the Ninth Five-Year Plan was to correct historical inequalities and increase the economic
growth in the country. Other aspects which constituted the Ninth Five-Year Plan were:

 Population control
 Generating employment by giving priority to agriculture and rural development
 Reduction of poverty
 Ensuring proper availability of food and water for the poor
 Availability of primary health care facilities and other basic necessities
 Primary education to all children in the country
 Empowering the socially disadvantaged classes like Scheduled castes, Scheduled tribes and other backward
classes
 Developing self-reliance in terms of agriculture
 Acceleration in the growth rate of the economy with the help of stable prices
Performance

 The Ninth Five-Year Plan achieved a GDP growth rate of 5.4% against a target of 6.5%
 The agriculture industry grew at a rate of 2.1% against the target of 4.2%
 The industrial growth in the country was 4.5% which was higher than that of the target of 3%
 The service industry had a growth rate of 7.8%.
 An average annual growth rate of 6.7% was reached.
The Ninth Five-Year Plan looks through the past weaknesses in order to frame the new measures for the overall
socio-economic development of the country. However, for a well-planned economy of any country, there should
be a combined participation of the governmental agencies along with the general population of that nation. A
combined effort of public, private, and all levels of government is essential for ensuring the growth of India's
economy.
The target growth was 7.1% and the actual growth was 6.8%.

2. What are the types of Economic system?

Capitalism
Capitalism is one of economic systems in which means of production are owned and managed by private
individuals and institutions. They are at liberty to use any technique of production and produce anything they
like. State is to take care of only internal and external security of the country. Normally the activities related to
Defence, Police, administration and Courts of Justice are controlled by the Government.
Socialism
Socialism is that part of economic systems which the means of production are owned and managed by the State.
Private ownership of means of production is not allowed. People can have personal property which is
transferable and inheritable. The anti-social activities like smuggling and hoarding find no place in socialism.
Economic activities are planned with the motive of social benefit by a central planning authority.
Communism
Communism is a part of economic systems, where means of production are controlled and managed by a Central
State authority, and there is also a restriction on the ownership of personal property communism. Individuals are
assigned work by the State and they are given a bit remuneration of their services. People get ration from
Government department. People do not have choice of their own.
Mixed economy
Mixed economy is a part of economic systems which combines in itself the features of Capitalism and that of the
Socialism. Unlike a pure capitalistic economy, it has an important public sector i.e. a number of industries are
owned and managed by the state. Private enterprise is allowed and even encouraged to operate a large number of
industries and to own the various means of production. Thus in a mixed economy, the public and private sectors
exists side by side.

3. Explain the factors influencing of macroeconomic parameter?

Economic Growth.
Economic activities refer to the level of buying and selling activities happening in an economy over a
time period. It is a highly complex activity and keeping accurate track of it is beyond comprehension.
Economic activity is not constant and can change rapidly, thereby affecting the business.
Economic activity changes could happen due to the following reasons: Changes in income levels Future
prospects of individuals. Future of the economy The level of economic activity in the world as a whole Political
activities around the world Natural disasters - like hurricanes, earthquakes, or flood etc Changes in prices of raw
materials - oil, metals, fuel, energy and so on Changes in world stock markets The level of economic activity is
usually measured by GDP (Gross Domestic product).
It refers to the total amount of goods and services a country produces.
Businesses are greatly influenced by the economic activities.
When GDP rate falls or slows down, there will be a fall in demand for good or services offered by businesses.
As a result, businesses will witness a fall in revenues and profit margins. To curb this business will have to
reduce their prices to increase the sales. This could further lead to increase in unemployment. On the other hand
when there is an increase in GDP, the demand for products will automatically increase and hence the prices will
go up. To cope with the increase in demand business will need to employ new people resulting in reduction in
Unemployment rates.
Inflation: With the increase in Inflation there will be an increase in the level of prices of products and services
over a specific period of time As a result the firms will have to incur higher costs of operations. This will be also
due to the increase in wages of the employees.
Interest Rates: Interest rates are the charges levied by the banks for lending a loan. Increase in Interest rates will
directly influence the business as businesses borrow money from the banks from time to time. Increase in interest
rates will lead to higher interest expense: Businesses will have to incur higher costs to repay the loan. Interest
rate changes also affect customers who in turn will affect the business. In case of increase in interest rates the
amount that individuals need to pay to borrow the money will increase thereby, reducing the demand for large
products in the market. Further, if the interest rates decrease then the charges on a loan to buy larger items like
cars, electrical equipments are likely to fall. As a result, a large number of people might be willing to buy such
items. There will be a sudden increase in the demand for the products offered by such businesses.

SECTION – C
1. Explain the Five year plan?

First Plan (1951–1956)

The first Indian Prime Minister, Jawaharlal Nehru presented the First Five-Year Plan to the Parliament of
India and needed urgent attention. The First Five-year Plan was launched in 1951 which mainly focused in
development of the primary sector. The First Five-Year Plan was based on the Harrod–Domar model with few
modifications.
The total planned budget of Rs.2069 crore(2378 crore later) was allocated to seven broad
areas: irrigation and energy (27.2%), agriculture and community development
(17.4%), transport and communications (24%), industry (8.4%), social services (16.64%), rehabilitation of
landless farmers (4.1%), and for other sectors and services (2.5%). The most important feature of this phase was
active role of state in all economic sectors. Such a role was justified at that time because immediately
after independence, India was facing basic problems—deficiency of capital and low capacity to save.
The target growth rate was 2.1% annual gross domestic product (GDP) growth; the achieved growth rate was
3.6% the net domestic product went up by 15%. The monsoon was good and there were relatively
high cropyields, boosting exchange reserves and the per capita income, which increased by 8%. National income
increased more than the per capita income due to rapid population growth. Many irrigation projects were initiated
during this period, including the Bhakra, Hirakud, Mettur Dam and Damodar Valley dams. The World Health
Organization (WHO), with the Indian government, addressed children's health and reduced infant mortality,
indirectly contributing to population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as major technical
institutions. The University Grants Commission (UGC) was set up to take care of funding and take measures to
strengthen the higher education in the country. Contracts were signed to start five steel plants, which came into
existence in the middle of the Second Five-Year Plan. The plan was quasi successful for the government.
Second Plan (1956–1961)
The Second Plan was particularly in the development of the public sector and "rapid Industrialisation". The plan
followed the Mahalanobis model, an economic development model developed by the Indian statisticianPrasanta
Chandra Mahalanobis in 1953. The plan attempted to determine the optimal allocation of investment between
productive sectors in order to maximise long-run economic growth. It used the prevalent state of art techniques
of operations research and optimization as well as the novel applications of statistical models developed at
the Indian Statistical Institute. The plan assumed a closed economy in which the main trading activity would be
centred on importing capital goods.
Hydroelectric power projects and five steel plants at Bhilai, Durgapur, and Rourkela were established with the
help of Russia, Britain (the U.K) and West Germany respectively. Coal production was increased.
More railway lines were added in the north east.
The Tata Institute of Fundamental Research and Atomic Energy Commission of India was established as
research institutes. In 1957 a talent search and scholarship program was begun to find talented young students to
train for work in nuclear power.
The total amount allocated under the Second Five-Year Plan in India was Rs.48 billion. This amount was
allocated among various sectors: power and irrigation, social services, communications and transport, and
miscellaneous.
"The target growth rate was 4.5% and the actual growth rate was 4.27%.[6]"
Third Plan (1961–1966)
The Third Five-year Plan, stressed agriculture and improvement in the production of wheat, but the brief Sino-
Indian War of 1962 exposed weaknesses in the economy and shifted the focus towards the defence industry and
the Indian Army. In 1965–1966, India fought a War with Pakistan. There was also a severe drought in 1965. The
war led to inflation and the priority was shifted to price stabilisation. The construction of damscontinued.
Many cement and fertilizer plants were also built. Punjab began producing an abundance of wheat.
Many primary schools were started in rural areas. In an effort to bring democracy to the grass-root
level, Panchayat elections were started and the states were given more development responsibilities.
State electricity boards and state secondary education boards were formed. States were made responsible
for secondary and higher education. State road transportation corporations were formed and local road building
became a state responsibility.
The target growth rate was 5.6%, but the actual growth rate was 2.4%. [6]
Due to miserable failure of the Third Plan the government was forced to declare "plan holidays" (from 1966–67,
1967–68, and 1968–69). Three annual plans were drawn during this intervening period. During 1966–67 there
was again the problem of drought. Equal priority was given to agriculture, its allied activities, and industrial
sector. The government of India declared "Devaluation of Rupee" to increase the exports of the country. The
main reasons for plan holidays were the war, lack of resources, and increase in inflation after that plan holiday
was created.
Fourth Plan (1969–1974)
At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalised 14 major Indian
banks and the Green Revolution in India advanced agriculture. In addition, the situation in East
Pakistan(now Bangladesh) was becoming dire as the Indo-Pakistan War of 1971 and Bangladesh Liberation
War took funds earmarked for industrial development. India also performed the Smiling Buddha underground
nuclear test (Pokhran-1) in Rajasthan on May 18, 1974, partially in response to the United States deployment of
the Seventh Fleet in the Bay of Bengal. The fleet had been deployed to warn India against attacking West
Pakistanand extending the war.
The target growth rate was 5.6%, but the actual growth rate was 3.3%. [6]
Fifth Plan (1974–1978)
The Fifth Five-Year Plan laid stress on employment, poverty alleviation (Garibi Hatao), and justice. The plan
also focused on self-reliance in agricultural production and defence. In 1978 the newly elected Morarji
Desaigovernment rejected the plan. The Electricity Supply Act was amended in 1975, which enabled the central
government to enter into power generation and transmission.[7][citation needed]
The Indian national highway system was introduced and many roads were widened to accommodate the
increasing traffic. Tourism also expanded. The twenty-point programme was launched in 1975. It was followed
from 1974 to 1979.
The Minimum Needs Programme (MNP) was introduced in the first year of the Fifth Five Year Plan (1974–78).
The objective of the programme is to provide certain basic minimum needs and thereby improve the living
standards of the people.
The target growth rate was 4.4% and the actual growth rate was 4.8%
Rolling Plan (1978–1980)
The Janata Party government rejected the Fifth Five-Year Plan and introduced a new Sixth Five-Year Plan
(1978–1980). This plan was again rejected by the Indian National Congress government in 1980 and a new Sixth
Plan was made.The Rolling Plan consists of three kind of plans that were proposed. The First Plan is for the
present year which comprises the annual budget and Second is a plan for a fixed number of years, which may be
3, 4 or 5 years. Plan number two is kept changing as per the requirements of the Indian economy. The Third Plan
is a perspective plan which is for long terms i.e. for 10, 15 or 20 years. Hence there is no fixation of dates in for
the commencement and termination of the plan in the rolling plans. The main advantage of the rolling plans is
that they are flexible and are able to overcome the rigidity of fixed five year plans by mending targets, the object
of the exercise, projections and allocations as per the changing conditions in the country’s economy. The main
disadvantage of this plan is that if the targets are revised each year, it becomes very difficult to achieve them
which are laid down in the five-year period and it turned out to be a complex plan. Frequent revisions resulted in
lack of stability in the economy which is essential for its balanced development and progress.

Sixth Plan (1980–1985)

The Sixth Five-Year Plan marked the beginning of economic liberalisation. Price controls were eliminated and
ration shops were closed. This led to an increase in food prices and an increase in the cost of living. This was the
end of Nehruvian socialism. The National Bank for Agriculture and Rural Development was established for
development of rural areas on 12 July 1982 by recommendation of the Shivaraman Committee. Family
planning was also expanded in order to prevent overpopulation. In contrast to China's strict and binding one-child
policy, Indian policy did not rely on the threat of force. More prosperous areas of India adopted family planning
more rapidly than less prosperous areas, which continued to have a high birth rate.
The Sixth Five-Year Plan was a great success to the Indian economy. The target growth rate was 5.2% and the
actual growth rate was 5.7%. The only Five-Year Plan which was done twice.
Seventh Plan (1985–1990)
The Seventh Five-Year Plan was led by the Congress Party with Rajiv Gandhi as the prime minister. The plan
laid stress on improving the productivity level of industries by upgrading of technology.
The main objectives of the Seventh Five-Year Plan were to establish growth in areas of increasing economic
productivity, production of food grains, and generating employment through "Social Justice".
As an outcome of the Sixth Five-Year Plan, there had been steady growth in agriculture, controls on the rate of
inflation, and favourable balance of payments which had provided a strong base for the Seventh Five-Year Plan
to build on the need for further economic growth. The Seventh Plan had strived towards socialism and energy
production at large. The thrust areas of the Seventh Five-Year Plan were: social justice, removal of oppression of
the weak, using modern technology, agricultural development, anti-poverty programmes, full supply of food,
clothing, and shelter, increasing productivity of small- and large-scale farmers, and making India an independent
economy.
Based on a 15-year period of striving towards steady growth, the Seventh Plan was focused on achieving the
prerequisites of self-sustaining growth by the year 2000. The plan expected the labour force to grow by 39
million people and employment was expected to grow at the rate of 4% per year.
Under the Seventh Five-Year Plan, India strove to bring about a self-sustained economy in the country with
valuable contributions from voluntary agencies and the general populace.
The target growth rate was 5.0% and the actual growth rate was 6.01%. [8] and the growth rate of per capita
income was 3.7%.
Annual Plans (1990–1992)
The Eighth Plan could not take off in 1990 due to the fast changing political situation at the centre and the years
1990–91 and 1991–92 were treated as Annual Plans. The Eighth Plan was finally formulated for the period
1992–1997.
Eighth Plan (1992–1997)
1989–91 was a period of economic instability in India and hence no five-year plan was implemented. Between
1990 and 1992, there were only Annual Plans. In 1991, India faced a crisis in foreign exchange (forex) reserves,
left with reserves of only about US$1 billion. Thus, under pressure, the country took the risk of reforming the
socialist economy. P.V. Narasimha Rao was the tenth Prime Minister of the Republic of India and head
of Congress Party, and led one of the most important administrations in India's modern history, overseeing a
major economic transformation and several incidents affecting national security. At that time Dr. Manmohan
Singh (later Prime Minister of India) launched India's free market reforms that brought the nearly bankrupt
nation back from the edge. It was the beginning of liberalization, privatisation and globalization (LPG) in India.
Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the gradual opening of the
Indian economy was undertaken to correct the burgeoning deficit and foreign debt. Meanwhile, India became a
member of the World Trade Organization on 1 January 1995. The major objectives included, controlling
population growth, poverty reduction, employment generation, strengthening the infrastructure, institutional
building, tourism management, human resource development, involvement of Panchayati rajs, Nagar
Palikas, NGOs, decentralisation and people's participation.
Energy was given priority with 26.6% of the outlay.
The target growth rate was 5.6% and the actual growth rate was 6.8%.
To achieve the target of an average of 5.6% per annum, investment of 23.2% of the gross domestic product was
required. The incremental capital ratio is 4.1. The saving for investment was to come from domestic sources and
foreign sources, with the rate of domestic saving at 21.6% of gross domestic production and of foreign saving at
1.6% of gross domestic production.[9]
Ninth Plan (1997–2002)
The Ninth Five-Year Plan came after 50 years of Indian Independence. Atal Bihari Vajpayee was the Prime
Minister of India during the Ninth Five-Year Plan. The Ninth Five-Year Plan tried primarily to use the latent and
unexplored economic potential of the country to promote economic and social growth. It offered strong support
to the social spheres of the country in an effort to achieve the complete elimination of poverty. The satisfactory
implementation of the Eighth Five-Year Plan also ensured the states' ability to proceed on the path of faster
development. The Ninth Five-Year Plan also saw joint efforts from the public and the private sectors in ensuring
economic development of the country. In addition, the Ninth Five-Year Plan saw contributions towards
development from the general public as well as governmental agencies in both the rural and urban areas of the
country. New implementation measures in the form of Special Action Plans (SAPs) were evolved during the
Ninth Five-Year Plan to fulfill targets within the stipulated time with adequate resources. The SAPs covered the
areas of social infrastructure, agriculture, information technology and Water policy.
Tenth Plan (2002–2007)
The main objectives of the Tenth Five-Year Plan were:

 Attain 8% GDP growth per year

 Reduction of poverty rate by 5% by 2007
 Providing gainful and high-quality employment at least to the addition to the labor force
 Reduction in gender gaps in literacy and wage rates by at least 50% by 2007
 20-point program was introduced
 Target growth: 8.1% – growth achieved: 7.7%
 The tenth plan was expected to follow a regional approach rather than sectoral approach to bring down
regional inequalities
 Expenditure of ₹43,825 crore (US$6.7 billion) for tenth five years
Out of total plan outlay, ₹921,291 crore (US$140 billion) (57.9%) was for central government and ₹691,009
crore (US$110 billion) (42.1%) was for states and union territories.
Eleventh Plan (2007–2012)

 It aimed to increase the enrollment in higher education of 18-23 years of age group by 2011-12.
 It focused on distant education, convergence of formal, non-formal, distant and I.T. education institutions.
 Rapid and inclusive growth. (poverty reduction)
 Emphasis on social sector and delivery of service therein.
 Empowerment through education and skill development.
 Reduction of gender inequality.
 Environmental sustainability.
 To increase the growth rate in agriculture, industry and services to 4%, 10% and 9% respectively.
 Reduce total fertility rate to 2.1.
 Provide clean drinking water for all by 2009.
 Increase agriculture growth to 4%.
Twelfth Plan (2012–2017)
The Twelfth Five-Year Plan of the Government of India has been decided to achieve a growth rate of 8.2% but
the National Development Council (NDC) on 27 December 2012 approved a growth rate of 8% for the Twelfth
Five-Year Plan.[10]
With the deteriorating global situation, the Deputy Chairman of the Planning Commission Montel Singh
Ahluwalia has said that achieving an average growth rate of 9 percent in the next five years is not possible. The
Final growth target has been set at 8% by the endorsement of the plan at the National Development Council
meeting held in New Delhi.
"It is not possible to think of an average of 9% [in the 12th plan]. I think somewhere between 8 and 8.5 percent is
feasible,” Ahluwalia said on the side lines of a conference of State Planning Boards and departments. The
approached paper for the 12th Plan, approved last year, talked about an annual average growth rate of 9%.
“When I say feasible... that will require major effort. If you don’t do that, there is no God given right to grow at 8
percent. I think given that the world economy deteriorated very sharply over the last year...the growth rate in the
first year of the 12th Plan (2012–13) is 6.5 to 7 percent.”
He also indicated that soon he should share his views with other members of the Commission to choose a final
number (economic growth target) to put before the country’s NDC for its approval.
The government intends to reduce poverty by 10% during the 12th Five-Year Plan. Ahluwalia said, “We aim to
reduce poverty estimates by 9% annually on a sustainable basis during the Plan period". Earlier, addressing a
conference of State Planning Boards and Planning departments, he said the rate of decline in poverty doubled
during the 11th Plan. The commission had said, while using the Tendulkar poverty line, the rate of reduction in
the five years between 2004–05 and 2009–10, was about 1.5%points each year, which was twice that when
compared to the period between 1993–95 to 2004–05.[11] The plan aims towards the betterment of the
infrastructural projects of the nation avoiding all types of bottlenecks. The document presented by the planning
commission is aimed to attract private investments of up to US$1 trillion in the infrastructural growth in the 12th
five-year plan, which will also ensure a reduction in the subsidy burden of the government to 1.5 percent from 2
percent of the GDP (gross domestic product). The UID (Unique Identification Number) will act as a platform for
cash transfer of the subsidies in the plan.

2. Describe the Factors Affecting the Economic Environment of Business

The economic environment of business is affected by internal and external factors. An internal factor that affects
the business environment is the cost of labor, materials, processes and procedures. Internal factors can be
improved through company projects. On the other hand, external factors can also affect a company's business
environment and the business has less control over these factors. The primary influences on a business are:
political, economic, social, legal, technological and environmental.

Political factor

The political environment affects the economic environment of businesses. Legislators at the local, state and
federal levels may provide incentives or tax breaks to companies or they can impose regulations that restrict
business transactions. In the latter case, for example, if a political body states that a company must include a
certain chemical in its product, the cost of the product differs. The company passes those costs on to the customer
in the form of higher prices. The customer must determine whether he wants to purchase that product. If he does
not purchase the product, then the company does not receive the revenue. If a large number of customers decide
not to purchase the product, the company may need to lay off employees.

Economic factor
The larger economic environment of a society is a factor that can affect a company's business environment.
During a recession, consumers spend less on optional items such as cars and appliances. As a result, the business
environment suffers. On the other hand, if the economic environment is one of prosperity, consumers are more
likely to spend money, not just on necessities, but larger items as well.

Social factors

Social factors that affect the economic environment of a business are the cultural influences of the time. For
example, a fashion designer that creates bell bottom, striped pants will not succeed in an environment where
straight-leg, solid coloured pants are desired. A social environment that tends to be more conservative will not
support styles that appear to be trendy. The fashion designer's business will suffer if he does not change the
clothing style. The same would apply to the manufacturers that produce and stores that sell these wares.

Legal factor

Often, a business will need to change how it operates for legal reasons. This is often done when a company's
lawyers anticipate a change in legislation, or it may be due to lawsuits, already filed or anticipated. For example,
if a part in a machine is found to be defective, the company may need to issue a recall. If other companies in the
same industry are being sued over something like a data breach of confidential information, a business may need
to change how information is collected and stored.

Technological factor
Innovation and technology affect business environments. As technology advances, a business is forced to keep
pace. For example, when computers were first invented, they were the size of a room. Users were forced to
employ punch cards to perform basic functions. Today, computers that are much more powerful can fit into the
palm of a hand. Businesses that do not keep up with technology risk increased costs of production and higher
prices. If the company's cost to produce a product or service outpaces competitors, the company may soon find
itself out of business.

Environmental factor

The environment can have a direct and indirect affect on how a business operates. Businesses in the food
industry are routinely affected by the environment. Droughts or disease can affect pricing models and even the
ability of food processors, grocery stores and restaurants in obtaining sufficient supplies to meet consumer
demands. Indirect environmental factors can affect any business by creating changes in societal expectations and
government laws and regulations in efforts to protect the environment. For example, in 2016, California citizens
voted for a law to ban the use of single-use plastic bags, affecting the majority of retailers in that state.

UNIT – V
SECTION – A
1. What is forex Environment?

Foreign exchange also refers to the global market where currencies are traded virtually around the clock.
The largest trading centres are London, New York, Singapore and Tokyo. The term foreign exchange is usually
abbreviated as "forex" and occasionally as "FX." Foreign exchange is the exchange of one currency for another
or the conversion of one currency into another currency.

2. What do you mean by financial Environment?

A financial environment is a part of an economy with the major players being firms, investors, and
markets. Essentially, this sector can represent a large part of a well-developed economy as individuals who retain
private property have the ability to grow their capital.

3. What is commercial bank?

A commercial bank is a type of financial institution that accepts deposits, offers checking account
services, makes business, personal and mortgage loans, and offers basic financial products like certificates of
deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most
people do their banking, as opposed to an investment bank.
4. What is meant by financial institution?
A financial institution (FI) is a company engaged in the business of dealing with monetary transactions,
such as deposits, loans, investments and currency exchange. Financial institutions encompass a broad range of
business operations within the financial services sector, including banks, trust companies, insurance companies,
and brokerage firms or investment dealers.

5. Define RBI
The Reserve Bank of India (RBI) is the central bank of India, which was established on April 1, 1935,
under the Reserve Bank of India Act. The Reserve Bank of India uses monetary policy to create financial
stability in India, and it is charged with regulating the country's currency and credit systems

6. What is monetary policy?

Monetary policy is how central banks manage liquidity to create economic growth. Liquidity is how
much there is in the money supply. That includes credit, cash, checks and money market mutual funds. The most
important of these is credit. It includes loans, bonds and mortgages.

7. What do you mean by stock exchange?

A stock exchange is an exchange (or bourse) where stock brokers and traders can buy and
sell shares of stock, bonds, and other securities. Stock exchanges may also provide facilities for issue and
redemption of securities and other financial instruments and capital events including the payment of income
and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit
trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous
auction" markets with buyers and sellers consummating transactions at a central location such as the floor of the
exchange.

8. What is IDBI?

IDBI is the apex institution in the area of long term industrial finance. It was established under the IDBI Act
1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. IDBI is engaged in direct
financing of the industrial activities as well as in re-finance and re-discounting of bills against finance made
available by commercial banks under their various schemes. The objectives of this institution are to create a
principal institution for long term finance, to coordinate the institutions working in this field for planned
development of industrial sector, to provide technical and administrative support to the industries and to conduct
research and development activities for the benefit of industrial sector.

9. What is a 'Non-Banking Financial Company - NBFC'

Non-banking financial companies, or NBFCs, are financial institutions that provide certain types of
banking services, but do not hold a banking license. Generally, these institutions are not allowed to take deposits
from the public, which keeps them outside the scope of traditional oversight required under banking regulations.
NBFCs can offer banking services such as loans and credit facilities, retirement planning, money
markets, underwriting, and merger activities.

10. What is financial system?

A financial system (within the scope of finance) is a system that allows the exchange of funds between
lenders, investors, and borrowers. Financial systems operate at national, global, and firm-specific levels. Money,
credit,and finance are used as medium of exchange in financial systems.

SECTION – B
1. What are function of IDBI?
i) Direct Financial Assistance:
The IDBI provides direct financial assistance to the industrial concerns in the form of (a) granting loans and
advances; and (b) subscribing to, purchasing or underwriting the issues of stocks, bonds or debentures
.
(ii) Indirect Financial Assistance:
The IDBI provides indirect financial assistance to the small and medium industrial concerns through other
financial institution, such as, State Finance Corporations, State Industrial Development Corporations,
Cooperative banks, regional rural banks, commercial banks. The Assistance to these institutions
include :(a) refinancing of loans given by the institutions; subscribing to their shares and bonds; (c)
rediscounting of bills
.
(iiI) Development Assistance:

The creation of the Development Assistance Fund is the special feature of the IDBI. The Fund is used to provide
assistance to those industries which are not able to obtain funds in the normal course mainly because of heavy
investment involved or low expected rate of returns. The financial resources of the Fund mainly come from
contributions made by the government in the form of loans, gifts, donations, etc; and from other sources.
Assistance from the Fund requires the prior approval by the government.

(iv) Promotional Function:

Besides providing financial assistance, the IDBI also undertakes various promotional activities such as marketing
and investment research, techno- economic surveys. It provides technical and administrative advice for
promotion, expansion and better management of the industrial concerns.

2. Explain the function of RBI?

Acting as Note-issuing Authority

The authority for the issuance of currency (other than one rupee coins/notes and subsidiary coins) in India is
Reserve Bank of India. For the purpose of note issue, at present it has to keep a minimum reserve in foreign
securities and in gold. It can however, dispense entirely with the holding of foreign securities if circumstances so
require.
Acting as a Banker to the Government
The RBI transacts the banking business of both the Central and the State Governments. It is entrusted with the
management of the public debt and the issue of new loans of Governments. It also holds the cash balances of the
government free of interest. Besides, it sells Treasury Bills whenever necessary on behalf of the Government. It
also gives advice to both the Central and the State Governments for raising finance for development Plans. Like
all other Central Banks, the RBI acts as adviser to Government on various banking and financial matters. It also
helps the Government to remit the funds from one place to another.
Acting as a Banker to the Other Banks
Like other central Banks, the RBI acts as a banker to other banks. It keeps a certain percentage of their deposits
as reserve and gives them rediscounting facilities against some specified bills and furnishes advances against
government securities. It also gives them free remittance facilities. Against these facilities the scheduled banks
are required by law to keep a certain percentage of their deposit liabilities as reserve.
Monetary Regulations
The RBI controls the volume of bank advances to implement its monetary and credit policy. It possesses various
methods of credit control such as the Bank Rate Policy, Open Market Operations, Variable Reserve Ratio,
Selective Credit Controls, etc. At present, it has been implementing the policy of controlled expansions of bank
credit.
Supervision and Control of Commercial Banks
The Banking Regulations Act 1949, has empowered the RBI to supervise and control the operations of the
commercial banks regarding their, paid up capital and reserves, licensing, branch expansion, cash balance, liquid
assets, submission of periodical reports to the RBI, suspension of business etc.

Maintenance of Exchange Value of the Rupee

The RBI has also an important role to play in the maintenance of the exchange value of the rupee. For this
purpose, it is entrusted with the custody and management of the country’s international reserves. It acts also as
the agent of the government in respect of India’s membership control in accordance with the Government’s trade
policy.
Development and Promotional Functions
With the progress of the economy, the RBI has been undertaking various development functions relating to
mobilization of savings, extensions of banking facilities in the un-banked centers, finance for agriculture and
industries, protection of depositor’s interest through deposit insurance., etc.
Control of the Activities of Non-banking Companies and Other Institutions
Recently, the RBI has been empowered to lay down the regulations regarding the acceptance of deposits from the
public by non-banking companies and institutions. It can also demand the statement regarding such deposits from
these institutions.
Implementation of the Plans
The RBI also gives its opinion to the Governments on economic and financial matters relating to the
implementation of the Plans. It assists the government in undertaking deficit financing, maintaining price
stability and providing credit for the priority sectors.
Other Functions
The other functions relate to the regular publication of reports on banking and currency, conducting the clearing
houses, developing bill markets, appointing committees and commissions on various economic aspects of the
country, etc.

SECTION – C
1. Explain the factors determining global environment
Businesses are affected by an external environment as much as they are affected by the competitors. Global
factors influencing business are legal, political, social, technological and economic. Understanding of these
factors is important while developing a business strategy.
a. Social factors - These factors are related to changes in social structures. These factors provide insights into
behaviour, tastes, and lifestyles patterns of a population. Buying patterns are greatly influenced by the changes in
the structure of the population, and in consumer lifestyles. Age, gender, etc all determine the buying patterns and
understanding of such changes is critical for developing strategies which are in line with the market situations. In
a global environment it is important that business strategies are designed keeping in mind the social and cultural
differences that vary from country to country. Consumer religion, language, lifestyle patterns are all important
information for successful business management.
b. Legal factors - These factors that influence business strategies are related to changes in government laws and
regulations. For a successful business operation it is important that the businesses consider the legal issues
involved in a particular situation and should have the capability to anticipate ways in which changes in laws will
affect the way they must behave. Laws keep changing over a period of time. From the point of view of business
it is important that they are aware of these changes in the areas of consumer protection legislation, environmental
legislation, health & safety and employment law, etc.
c. Economic factors - These factors involve changes in the global economy. A rise in living standards would
ultimately imply an increase in demand for products thereby, providing greater opportunities for businesses to
make profits. An economy witnesses fluctuations in economic activities. This would imply that in case of a rise
in economic activity the demand of the product will increase and hence the price will increase. In case of
reduction in demand the prices will go down. Business strategies should be developed keeping in mind these
fluctuations. Other economic changes that affect business include changes in the interest rate, wage rates, and the
rate of inflation. Incase of low interest rates and increase in demand Businesses will be encouraged to expand and
take risks. Therefore, business strategies should have room for such fluctuations.
d. Political factors - This refers to the changes in government and government policies. Political factors greatly
influence the operation of business. This has gained significant importance off late. For example: companies
operating in the European Union have to adopt directives and regulations created by the EU. The political arena
has a huge influence upon the regulation of businesses, and the spending power of consumers and other
businesses. Business must consider the stability of the political environment, government’s policy on the
economy etc
e. Technological factors - These factors greatly influence business strategies as they provide opportunities for
businesses to adopt new innovations, and inventions. This helps the business to reduce costs and develop new
products. With the advent of modern communication technologies, technological factors have gained great
impetus in the business arena. . Huge volumes of information can be securely shared by means of databases
thereby enabling vast cost reductions, and improvements in service. Organisations need to consider the latest
relevant technological advancements for their business and to stay competitive. Technology helps business to
gain competitive advantage, and is a major driver of globalization. While designing the business strategies firms
must consider if use of technology will allow the firm to manufacture products and services at a lower cost.
Firms can select new modes of distributions with the help of technology. It has become easier for companies to
communicate with their customer in any part of the world.
2. Explain the function of commercial banks?

1) Primary Function:
1. Accepting Deposits:
It is the most important function of commercial banks. They accept deposits in several forms according to
requirements of different sections of the society.

(i) Current Account Deposits or Demand Deposits:

These deposits refer to those deposits which are repayable by the banks on demand:
1. Such deposits are generally maintained by businessmen with the intention of making transactions with such
deposits.

2. They can be drawn upon by a cheque without any restriction.

3. Banks do not pay any interest on these accounts. Rather, banks impose service charges for running these
accounts.

(ii) Fixed Deposits or Time Deposits:

Fixed deposits refer to those deposits, in which the amount is deposited with the bank for a fixed period of time.

1. Such deposits do not enjoy cheque-able facility.

2. These deposits carry a high rate of interest.
(iii) Saving Deposits:
These deposits combine features of both current account deposits and fixed deposits:
1. The depositors are given cheque facility to withdraw money from their account. But, some restrictions are
imposed on number and amount of withdrawals, in order to discourage frequent use of saving deposits.
2.They carry a rate of interest which is less than interest rate on fixed deposits. It must be noted that Current
Account deposits and saving deposits are chequable deposits, whereas, fixed deposit is a non-chequable deposit.

2. Advancing of Loans:
The deposits received by banks are not allowed to remain idle. So, after keeping certain cash reserves, the
balance is given to needy borrowers and interest is charged from them, which is the main source of income for
these banks.

(i) Cash Credit:

Cash credit refers to a loan given to the borrower against his current assets like shares, stocks, bonds, etc. A
credit limit is sanctioned and the amount is credited in his account. The borrower may withdraw any amount
within his credit limit and interest is charged on the amount actually withdrawn.

(ii) Demand Loans:

Demand loans refer to those loans which can be recalled on demand by the bank at any time. The entire sum of
demand loan is credited to the account and interest is payable on the entire sum.

(iii) Short-term Loans:

They are given as personal loans against some collateral security. The money is credited to the account of
borrower and the borrower can withdraw money from his account and interest is payable on the entire sum of
loan granted.

(2) Secondary Functions:

1. Overdraft Facility:
It refers to a facility in which a customer is allowed to overdraw his current account upto an agreed limit. This
facility is generally given to respectable and reliable customers for a short period. Customers have to pay interest
to the bank on the amount overdrawn by them.

2. Discounting Bills of Exchange:

It refers to a facility in which holder of a bill of exchange can get the bill discounted with bank before the
maturity. After deducting the commission, bank pays the balance to the holder. On maturity, bank gets its
payment from the party which had accepted the bill.

3. Agency Functions:
Commercial banks also perform certain agency functions for their customers. For these services, banks charge
some commission from their clients.

(i) Transfer of Funds:

Banks provide the facility of economical and easy remittance of funds from place-to-place with the help of
instruments like demand drafts, mail transfers, etc.

(ii) Collection and Payment of Various Items:

Commercial banks collect cheques, bills,’ interest, dividends, subscriptions, rents and other periodical receipts on
behalf of their customers and also make payments of taxes, insurance premium, etc. on standing instructions of
their clients.

(iii) Purchase and Sale of Foreign Exchange:

Some commercial banks are authorized by the central bank to deal in foreign exchange. They buy and sell
foreign exchange on behalf of their customers and help in promoting international trade.

(iv) Purchase and Sale of Securities:

Commercial banks buy and sell stocks and shares of private companies as well as government securities on
behalf of their customers.
(v) Income Tax Consultancy:
They also give advice to their customers on matters relating to income tax and even prepare their income tax
returns.

(vi) Trustee and Executor:

Commercial banks preserve the wills of their customers as trustees and execute them after their death as
executors.

(vii) Letters of Reference:

They give information about the economic position of their customers to traders and provide the similar
information about other traders to their customers.

4. General Utility Functions:

(i) Locker Facility:
Commercial banks provide facility of safety vaults or lockers to keep valuable articles of customers in safe
custody.

(ii) Traveller’s Cheques:

Commercial banks issue traveler’s cheques to their customers to avoid risk of taking cash during their journey.

(iii) Letter of Credit:

They also issue letters of credit to their customers to certify their creditworthiness.

(iv) Underwriting Securities:

Commercial banks also undertake the task of underwriting securities. As public has full faith in the
creditworthiness of banks, public do not hesitate in buying the securities underwritten by banks.