Political Environment

Of Business
Political systems
Totalitarian System
Democratic System

( Based on Ideology)

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 Political Environment
Of Business
Totalitarian System—page 1
 The state is the only authority and the people do not have any
say in governance.
 The state controls all aspects of private and public life.
 The origin of totalitarianism is in Italian Fascism.
 Almost all political systems under totalitarianism originated
with a view to give benefit to the people and develop the
country under powerful and charismatic leadership of the
period.
 Totalitarianism is different from authoritarianism or
dictatorships.
 The state is controlled by one political party or group.
 No other political party is tolerated.

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 Political Environment
Of Business
Totalitarian System—page 2
 The freedom of people is compromised.
 The government controls all media and means of
communication and censures peoples` views and comments
 All uprisings will be ruthlessly crushed using the state
machinery.
 Science and technology leap into the direction of the
government wants.
 The state interferes in innovation.
 Business belongs to the state.
 Access to the resources is regulated.
 Jobs are given by the state as they are available or as the state
wants.

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 Political Environment
Of Business
Democratic System—
 Democratic system is totally opposite to the totalitarianism
 All eligible citizens have equal say in the governance of their
lives.
 Coalition politics is the newly evolved system
 NDA 1, UPA1, UPA2, NDA2
 Alliance Holy –unholy—Bihar Mahaghatabandhan—
Ghatabandhan
 The democratic system is more flexible.Offers many possible
choices.
 Emergency in India 1975-77

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 Political Environment
Of Business
Types of Democratic Political systems
Direct Democracy
Presidential Democracy
Parliamentary Democracy

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 Political Environment
Of Business
Direct Democracy—page 1
People vote directly on policy initiatives
Any member of the Government in turn can be head of
state
Government comprises members with equal rights,
elected by the parliament representing all major parties
Parliament is elected for a fixed period. There is no
dissolution
Coalitions will change against the center. Government
members need not be members of parliament

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 Political Environment
Of Business
Direct Democracy—page 2
Strong position of the people.
Law making in four stages
 Draft by the administration
 Consultations by all like federal states, political parties,
entrepreneurs, unions and other stake holders of interest;
Parliamentary debate before passing final version;
referendum(public vote) if considered necessary
 Influence of politically powerful pressure groups is limited

 Ex: Switzerland, Nauru

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 Political Environment
Of Business
Presidential Democracy-page 1
Representative democracy where people vote for
representatives who then on policy initiatives
Also called presidential system
President is the head of the state and the leader of the
government
Parliament is elected for a fixed legislative period
Government members need not be members of the
parliament

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 Political Environment
Of Business
Presidential Democracy-page 2
Strong position of the president
Laws are debated and passed by the parliament
President may block a law by veto as the president is
elected as a personality by the people and not by the
parliament
Most effective when the president is strong and prudent
leader
Ex: USA,France, Srilanka

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 Political Environment
Of Business
Parliamentary Democracy—page 1
Representative democracy as in presidential democracy
Head of state is separate from the head of the
government. The head of the state may be an elected
person or a monarch
Parliament is elected for a legislative period
Parliament can be dissolved and an early election is
possible if a clear majority can not be established

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 Political Environment
Of Business
Parliamentary Democracy—page 2
Government members must be the elected members of
the parliament
Strong position of the political parties
Laws are proposed by the government and debated and
passed by the parliament
Small parties can upset the system and undermine the
stability of the government
Most effective in a dominant two party system
Ex: UK, Germany, Spain, Italy, India

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 Political Environment
Of Business
Political ideologies—page 1
There are very many types of ideologies
 Anarchism
 Communism ( Marxism, Leninism, Maoism etc.)

 Conservatism with its variations.

 Environmentalism

 Liberalism

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 Political Environment
Of Business
Political ideologies—page 2
Feminism of various types
Nationalism of various types
Religious ideologies
Socialism ( libertarian socialism, reformist socialism,
revolutionary socialism,)
Personal ideologies ( Castroism, Gandhism, Stalinism)
Philosophical ideologies ( Confucianism, Platonism,
etc.)

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 Political Environment
Of Business

• Any business can survive any where provided it is

steered through its business environment relative to the
situation.

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 Political Environment
Of Business
Two main Political ideologies we shall discuss.

 Capitalistic Ideology
 Socialistic Ideology

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 Political Environment
Of Business
 Capitalistic Ideology

 It is more inclined towards economy, growth through lesser

interference, leaving to the free market forces.
 The capitalist ideology strongly believes that the business in a society
must run by the law of supply and demand operating through the free
market.
 Under capitalist system, production and distribution are owned
privately by corporates .
 The development is proportionate to the generation, accumulation and
re-investment of profits generated in a free market.
 Governments often sway between capitalism and socialism depending
on the urgencies. Ex: in 2008 Financial melt down in US, government
allocated many billions of dollars to bail out the corporations like
General motors.


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 Political Environment
Of Business
 Socialistic Ideology
In socialist ideology, business is owned and controlled
by the government
Government ownership of the factors of production and
distribution of products.
Strictly, under socialism, private individuals or groups
do not own any property
Property belongs to the state.
The market will be regulated by the government

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 Political Environment
Of Business
 Political Factor –Indian Business Environment
 As per Constitution, India is a “ sovereign, secular, democratic
republic”.
 The political factor of the business environment for the past
seventy years had been vibrant .
 From a single party domination, India moved on to
emergence of regional parties and coalition governments.
 Competition among states is resulting in “welfare and free
bees being given top priority over development”
 Provision for and development of infra structure has taken
priority as well.
 Criminalization of politics is the “in thing “ today.

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 Political Environment
Of Business
 Influence of political environment on Business-page 1

 Business has to survive and grow , given the kind of political

environment.
 Any political government does two or three things
 Collection of revenues by way of taxes—Direct, Indirect
 Governmental borrowings from financial institutions like
IMF, World bank, and any such
 Spend the revenues on welfare , development and defence
 Business also is a major contributor of revenues for the
government-More the business, more the revenue

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 Political Environment
Of Business
 Influence of political environment on Business-page 2

 Employment is one of the prime objectives of the

government, and business offers such opportunity more than
the government jobs—Therefore, government tries to offers
various assistance in terms of subsidies, tax exemptions, SEZs,
and many such incentives, to encourage business
 There is a competition among states to attract more
industries in their respective states.
 Investment meets and declaring incentives, land etc.
 The dependence of business and government is mutual.

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 Political Environment
Of Business
Business: page 1
Location
Investment—loans from banks and public—
Government role
Interest rates—Government role through RBI, Banks—
Public sector and private
Registrar of firms, Registrar of companies, GST, Income
tax, other local taxes,
Provision of infra structure like power, roads, drainage,
water, air ports, ports, and –Government role

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 Political Environment
Of Business
Business: page 2
Regulating agencies like—SEBI, other regulating
agencies, Pollution control boards,
Wages, labor department, shops and establishment acts,
factories acts,
Subsidies on fertilizers, fuel, gas,
Political funding
All the business aspects and departments are influenced
and or affected by the governmental agencies and
policies.

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 Political Environment
Of Business
Business Adaptability with Political Factor

• Most of the State Governments are conducting

investment summits and signing MOUs for lakhs of
crores of rupees.
• For the business to get established, survive and grow,
adaptability to the contemporary and contextual
political factor is a must.
• Tata Motors Singur—moving to Gujarat
• Gujarat Govt. provided land in just three days
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