201-Business Environment

‡ Lecture Week-4 (PART-A) Outline
Political Environment:
± Rationale for State Intervention ± Extent of State Intervention

©Arvind Barrer


Learning Objectives ‡ Understand the reasons why government should intervene in business ‡ Describe the various types of state intervention ‡ Describe the extent & consequences of state controls ‡ Bring out the qualities of a good control system ©Arvind Barrer 2 .

g. Right against exploitation & Directive Principles(Articles 38 to 48) ©Arvind Barrer 3 . ± Modern economy must be a planned economy and Government is the only agency that can plan and execute the development plans. E. Right to Equality . The 5-year plans ± Our Constitution binds the government to take and active part in economic activities as per its role defined by Preamble(Justice liberty & Equality for all + Socialist). Fundamental Rights(Right to Freedom.Rationale/Reasons for State Intervention ‡ Government should interfere in business activities : ± To act as the sponsor for the economic development of the country.

‡ By active intervention in business the State must collect taxes and take responsibility for the social and economic well being of its people. ‡ To control the competition and avoid market failures. ‡ The Government must assume responsibility for the development for the core sectors of the economy like power. ©Arvind Barrer 4 .Rationale/Reasons for State Intervention ‡ What the people and the country need can only be properly understood and provided by the government and not private sector. iron & steel. and R&D. fuel. transportation & communication. atomic energy.

) ± Informal ( i.e. Competition Act. FEMA. SPREAD ± Direct (e.Types of Sate Intervention ‡ Government intervention in business can assume several forms and can be categorized in 5 broad categories: 1. Code of Conduct for its employees) 2.e.g.g. MSP for wheat) ± Indirect ( e.e.g. APPROACH ± Coercive ( i. Monetary & Fiscal Policy) ©Arvind Barrer .g. NATURE ± Formal (i. Variation of Corporate Income Tax. through legislation e. self imposed by business firms e.e. if you do this you shall be rewarded) 3.2002 etc. if you don t do this you shall be punished) ± Inducive (i.

2002 www.gov. export promotion) ± Regulatory (e. revival of sick units.g.pdf ± Government Competing with business firms to set the standards for competition ± Direct Government ownership and operation to supplement the competition ©Arvind Barrer 6 .1956.g.g. EFFECT ± Promotional (e. The Competition Act. IDRA.Types of Sate Intervention 4. Companies Act.in/images/media/competition_act/act2002. FEMA etc) 5.cci. EFFECT ON COMPETITION ± Regulations designed to make Competition work for e.

©Arvind Barrer 7 . delicensing and globalization the extent of State intervention in business/economy has considerably narrowed down.Extent of State Intervention ‡ For a very long time the State intervention was all pervasive in Indian economy but since the inception of economic reforms initiated in 1991 focusing on liberalization.

Extent of State Intervention ©Arvind Barrer 8 .

Historical Perspective 9 ©Arvind Barrer .Extent of State Intervention.

Modern Perspective (after liberalization) Procedure for Foreign Collaboration 10 ©Arvind Barrer .Extent of State Intervention.

©Arvind Barrer 11 .Consequences of Government Controls on Business/Economy of India ‡ Ever since achieving independence the consequences of Government controls on business/economy in India have been negative. ± Increased corruption at various levels of Bureaucracy. ± Wastage of time. These controls have led to: ± Wastage of National Resources.

± be powerful to make an unwilling minority obey the will of the majority. ± be motivating to each individual and business that is governed/controlled. ± be efficient and also preserve the efficiency of the governed(regulated businesses) ± economize coercion .Features of a good Control System ‡ It must: ± be democratic. ± be adaptable. ± know what it wants. ©Arvind Barrer 12 .

± be capable of gradually raising the economic status of the society. ± the duties imposed must be simple enough to understand. ©Arvind Barrer 13 . ± guided by experience or by wise experiment.Features of a good Control System ± have a wider vision & canvas to develop.

Himalaya Publications. ©Arvind Barrer 14 . Essentials of Business Environment.References ‡ Chapter-9: Aswathappa. 7th edition.