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Political environment of the country affects different business units significantly. A stable and dynamic political environment is indispensable for business growth. The components of political environment are as follows: political stability in the country relation of govt. with other countries defense and military policy

Welfare activities of govt. centre state relationship Political ideology of government: Political ideology of govt. refers to the political thinking, approach and vision f govt. towards various economic and social activities of the country. it also affects the business units. It decides what type of business activities should the country have what areas should be opened for private sector what areas should be reserved for public sector

in what areas the entry of foreign companies to be allowed what areas to be allowed for small scale sector etc A political system which is stable, honest, efficient, dynamic and which ensures political participation of the people and assures personal security to the citizens, is a primary factor for economic development. In the absence of political stability, long term plans cannot be formulated. In case of frequent changes in govt., economic policies are frequently changed.

Some factors that influence political instability are communal riots, declaration of emergency, civil war etc. Relations of govt. with other countries also affect business. If a country enjoys cordial and friendly relations with other nations, then it has favorable effect on foreign trade. Cordial relations of govt. with neighboring countries help to reduce defense budget, hence more funds can be spend on developmental activities. Cordial Centre State relations also have favorable effect on business. Positive thinking and healthy attitude of opposition parties also have favorable effect n the developmental activities.

FUNCTIONS OF STATE: Classification of functions of state: The basic functions or minimal functions include the pure public goods such as defence, law and order provision of property rights, macroeconomic stability, control of infectious diseases, safe water, roads, relief against disaster (earthquake, tsunami) etc. The intermediate functions include management of externalities (e.g. primary education, pollution control), regulation of monopolies( public utilities), consumer protection and provision of social insurance (pension and unemployment benefits etc.

Activist Functions: States with more capability can take on more activist functions dealing the problem of missing markets by helping coordination.

ECONOMIC ROLES OF GOVERNMENT: Regulatory role: Regulation may cover a wide spectrum extending from entry in to the business through the conduct of the business to final results of the business, and also the exit. Regulation is very important for the proper functioning of the economy. The reservation of industries to small scale, public and cooperative sectors, licensing system etc. The regulatory role of Govt. comprises: a) Determining the conditions under which individuals or associations would be allowed to enter certain lines of business or avail the public facilities and scarce resources e.g., grant of license, restriction n location of industry etc

b) Regulating the conduct of business ventures e.g., regulation of working conditions in factories, ceilings on managerial remuneration etc. c) Controlling the accrual and disposal of business income e.g., ceilings on dividends, tax on income of business enterprises etc d) Regulating the relationship between various segments of the economy to prevent conflict of interests or to protect legal rights or to prevent undue concentration of economic, regulating inter company investments, provision for settlement of labour management disputes etc

Promotional role: This is more important in developing countries than in the developed because speedy development of the industry and commerce and the economy requires the development of the infrastructure, including facilitating organizations, power, transport, finance, marketing , institutions for training and guidance and other promotional activities etc. It consists of a) Development of infrastructure for industrial and commercial activities through provision of power supply, transport facilities, availability of financial resources, training institutions and so on. 9

b) Assistance by way of subsidies, allocation of scarce resources, providing land at concessional price, concessional rates for power and water supply, facilities of concessional rate of interest for the development of backward regions. c) fiscal, monetary and other incentives, insurance of business risks etc for the development of priority sectors and activities.


Entrepreneurial role: in many economies the state also plays the role of an entrepreneur like establishing and operating business enterprises and bearing the risks. The entrepreneurial role consists of governments participation in business through public ownership and management of industrial and commercial undertakings. Several objectives have prompted the Government to become an entrepreneur e g, balanced regional development of the country, promotion of capital intensive industries ,lack of competition in certain industries etc.

Planning role: Especially in the developing countries, the state plays a very important role as a planner. The national necessity for proper utilisation of scarce resources and prioritization of development objectives and ideological reasons has made this an important role of governments in the developing and socialist countries. The Govt.of India set up the planning Commission in 1950. The basic goals of five year planning have been balanced regional development, rapid industrialization ,employment generation, development of agriculture and small scale industries etc. 12

CONSTITUTIONAL ENVIRONMENT: The constitutional environment consists of preamble to the constitution, Fundamental rights and duties and directive principles of state policy Structure of the Constitution: The Constitution, in its current form, consists of a preamble, twenty-two parts containing three hundred and ninety five articles, twelve schedules, ninety-four amendments, and five appendices. Preamble: Preamble is stem, root and source of constitution The Preamble states that We, the people of India, have solemnly resolved to constitute India into a sovereign, socialist, secular, democratic, republic and to secure to all its citizens: 13

Sovereign: The word sovereign means supreme or independent. India is internally and externally sovereign externally free from the control of any foreign power and internally, it has a free government which is directly elected by the people and makes laws that govern the people. Socialist: It implies social equality. Social equality in this context means the absence of discrimination on the grounds only of caste, colour, creed, sex, religion, or language. Under social equality all are equal before law and has equal status and opportunities. Secular: It implies equality of all religions and religious tolerance. India, therefore does not have an official state religion. Every person has the right to preach, practice and propagate any religion they choose. The government must treat all religions with equal respect. All citizens, irrespective of their religious beliefs are equal in the eyes of law. 14

Democratic: India is a democracy. The people of India elect their governments at all levels (Union, State and local) popularly known as 'One man one vote'. Every citizen of India, who is 18 years of age and above and not otherwise debarred by law, is entitled to vote. Every citizen enjoys this right without any discrimination on the basis of caste, creed, colour, sex, religion or education. Republic: a democratic republic is an entity in which the head of state is elected, directly or indirectly, for a fixed tenure. The President of India is elected by an electoral college for a term of five years. The Post of the President of India is not hereditary. Every citizen of India is eligible to become the President of the country.

Fundamental Rights in India

The six fundamental rights are: Right to equality Right to freedom Right against exploitation Right to freedom of religion Cultural and educational rights Right to constitutional remedies

Right to equality
Equality before law: Article 14 of the constitution guarantees that all citizens shall be equally protected by the laws of the country. It means that the State cannot discriminate against a citizen on the basis of caste, creed, colour, sex, religion or place of birth. Social equality and equal access to public areas: Article 15 of the constitution states that no person shall be discriminated on the basis of caste, colour, language etc. Every person shall have equal access to public places like public parks, museums, wells, bathing ghats and temples etc. Equality in matters of public employment: Article 16 of the constitution lays down that the State cannot discriminate against anyone in the matters of employment. All citizens can apply for government jobs.

Abolition of untouchability: Article 17 of the constitution abolishes the practice of untouchability. Practice of untouchability is an offense and anyone doing so is punishable by law. Abolition of Titles: Article 18 of the constitution prohibits the State from conferring any titles. Citizens of India cannot accept titles from a foreign State. The British government had created an aristocratic class known as Rai Bahadurs and Khan Bahadurs in India these titles were also abolished. The awards of Bharat Ratna and Padma Vibhushan cannot be used by the recipient as a title.

Right to freedom
Freedom of speech and expression, which enable an individual to participate in public activities. Freedom to form associations or unions . Freedom to move freely throughout the territory of India Freedom to reside and settle in any part of the territory of India. Freedom to practice any profession or to carry on any occupation, trade or business

Right against exploitation

The Right against exploitation, given in Articles 23 and 24 provides for the abolition of human trafficking, and the abolition of employment of children below the age of 14 years in dangerous jobs like factories and mines. Child labour is considered a violation of the spirit and provisions of the constitution. Trafficking in humans for the purpose of slave trade or prostitution is prohibited by law.

Right to freedom of religion

Right to freedom of religion, covered in Articles 25, 26, 27 and 28, provides religious freedom to all citizens of India. According to the Constitution, all religions are equal before the State and no religion shall be given preference over the other. Citizens are free to preach, practice and propagate any religion of their choice. Religious communities can set up charitable institutions of their own. 21

Cultural and educational rights The cultural and educational rightsgiven in Articles 29 and 30are measures to protect the rights of ethnic and religious minorities. No citizen can be discriminated against for admission in State or State-aided institutions. In granting aid to institutions, the State cannot discriminate against any institution on the basis of the fact that it is administered by a minority institution. The right to education at elementary level has been made one of the Fundamental Rights under right to freedom by the 86th constitutional amendment of 2002

Right to constitutional remedies

Right to constitutional remedies empowers the citizens to move a court of law in case of any denial of the fundamental rights. in case of imprisonment, the citizen can ask the court to see if it is according to the provisions of the law of the country. If the court finds that it is not, the person will have to be freed.

Fundamental Duties

To abide by the Constitution and respect its ideals and institutions, the National Flag and the National Anthem To uphold and protect the sovereignty, unity and integrity of India. To defend the country and render national service when called upon to do so. To promote harmony and the spirit of common brotherhood amongst all the people of India. To value and preserve the rich heritage of our composite culture. To protect and improve the natural environment including forests, lakes, rivers and wild life, and to have compassion for living creatures. To safeguard public property and to abjure violence.

Directive Principles of State Policy

The directive principles ensure that the State shall strive to promote the welfare of the people by promoting a social order in which social, economic and political justice is informed in all institutions of life. the State shall work towards reducing economic inequality as well as inequalities in status and opportunities, not only among individuals, but also among groups of people residing in different areas . The State shall aim for securing right to an adequate means of livelihood for all citizens, both men and women as well as equal pay for equal work for both men and women.

The State should work to prevent concentration of wealth and means of production in a few hands. Child abuse and exploitation of workers should be prevented. Children should be allowed to develop in a healthy manner and should be protected against exploitation . The State shall endeavour to provide the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, within the limits of economic capacity.

The state shall provide for just and humane conditions of work and maternity relief. The State should also ensure living wage and proper working conditions for workers, with full enjoyment of leisure and social and cultural activities. the promotion of cottage industries in rural areas is one of the obligations of the State. The State shall take steps to promote their participation in management of industrial undertakings. To provide free and compulsory education to all children till they attain the age of 14 years. This directive regarding education of children was added by the 86th Amendment Act, 2002. 27

It should and work for the economic and educational upliftment of scheduled castes, scheduled tribes and other weaker sections of the society The directive principles commit the State to raise the level of nutrition and the standard of living and to improve public health, particularly by prohibiting intoxicating drinks and drugs injurious to health except for medicinal purposes. It should protect and improve the environment and safeguard the forests and wild life of the country. Protection of monuments, places and objects of historic and artistic interest and national importance

GOVERNMENT AND LEGAL ENVIRONMENT: In most countries, apart from those laws that control investment and related matters, there are a number of laws that regulate the conduct of the business. These laws cover such matters as standards of product, packaging, promotion, ethics, ecological factors etc. Some govts specify certain standards for the products to be marketed. Some prohibit the marketing of certain products. Some countries restrain the use of children in commercial advertisements. In countries like Germany, product comparison advertisements and the use of superlatives like best or excellent in advertisements is not allowed.

Many countries have laws to regulate competition in the public interest. Eliminations of unfair competition and dilution of monopoly power are the important objectives of these regulations. Certain changes in government policies such as industrial policy. Fiscal policy, monetary policy, foreign trade policy, tariff policy etc may have profound impact on business. Some policy developments create opportunities as well as threats. E.g. industrial policy liberalizations in India have opened up new opportunities and threats. They have provided a large number of opportunities inorder to diversify and make their product mix better.