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Business environment refers to the factors external to a business enterprise

which influence its operations and determine its effectiveness. Business
environment may be healthy or unhealthy. Healthy business environment
means the conditions are favourable to the growth of business whereas
unhealthy environment implies conditions hostile or unfavourable to
business operations. Business and its environment interact with each other.
Economic system and other conditions in the environment determine the
success of business enterprises. The firm and its management have to adjust
to the conditions prevalent around it. However, business enterprises try to
influence and shape the environment. Successful working of business
concerns improves the economic and social conditions in the country.

No business concern can ignore the environment around it except at its own
peril. “The penalty of environ mental disregard is heavy. It not only reduces
profit margins and makes opportunities for expansion slip, but it also
arouses social hostility and makes social environment growingly inhospitable
to business operations.”

A study of business environment offers the following benefits:

1. It provides information about environment which is essential for

successful operation of business firms.

2. It opens up fresh avenues for the expansion of new entrepreneurial

operations. The entrepreneurs may come forward with new ideas and
with new ventures when they find environment suitable to their

3. Knowledge about changing environment enables businessmen to

adopt a dynamic approach and maintain harmony of business
operations with the environment.
4. By studying the environment entrepreneurs can make it hospitable
to the growth of business and thereby earn popular support.

Thus, the entrepreneur should continuously study the nature of environment

and its influence on business. However, mere study is not enough. Attempts
must be made to influence the environment in order to make it congenial
and favourable to entrepreneurial activities. The most successful
entrepreneur is one who not only adjusts to the environment but also
modifies the environment to suit his requirements through the direct and
indirect influences he can exercise over the system.


Business environment may be classified into four broad categories; namely

(i) economic, (ii) legal, (iii) political; and (iv) socio-cultural.

Economic Environment

Economic environment is of multidimensional nature. It consists of the

structure of the economy, the industrial, agricultural, trade and transport
policies of the country, the growth and pattern of national income and its
distribution, the conditions prevailing in industrial, agricultural and other
sectors, the position relating to balance of trade and balance of payments,
and other miscellaneous conditions of the economy.

There is a close relationship between a business firm and the economic

environment around it. The success of a business enterprise depends
considerably upon the State and growth of the economy. Commenting on the
Indian economic environment and its impact on Indian business houses, Dr.
Surinder P.S. Pruthi wrote: "The face of the Indian business has altered
considerably during the last few years as a series of legislative enactments
and other environmental features. The abolition of the managing agency
system, the birth of the concept of joint sector, the promulgation of the
Monopolies and Restrictive Trade Practices Act, the growing role of financial
institutions in the management of private sector undertakings, the
emergence of a professionally trained class of managers, growing
internationalisation of business, etc., have all combined to change the face
of Indian business in recent years."
An economy comprises public and private sector and the relative role of
the two sectors in the economy makes a lot of difference to business. In a
privately owned and controlled economy (free economy), the primary goal
of a business firm is to earn profit and profitability is the main criterion of
judging the efficiency of business. On the other hand, in a society owned
and controlled economy (closed economy), the primary goal of business is
social benefit and social responsibility is the main criterion of judging its

In a mixed economy like India, business enterprises work for both profita-
bility and social interest. In this age of planning, business enterprises work
within the framework of a planned business environment. Private sector
has to function within the conditions largely created by the State. The
private and public sectors must function as parts of a single organism
rather than as two separate entities.

The Industrial Policy of 1956 stressed the need for proper direction and
regulation of the private sector as well as the increasing role of the State
to achieve rapid growth in national wealth. In the words of the planners, "It
(private sector) has to visualise for itself a new role and accept in the
larger interest of the country a new code of discipline. Private enterprises,
like any other institution, will endure and justify itself only to the extent
to which it proves to be an agent for promoting the public good."

Some changes were made in the Industrial Policy in 1970 and 1973.
Restrictions on large industrial houses, preferential treatment to small
scale sector, boost to joint sector, etc., are some of these changes. In
recent years there has been a trend towards liberalisation, simplification
and rationalisation of industrial policy.

Legal Environment

Business must function within the framework of legal structure. Therefore,

an adequate knowledge of laws and rules is necessary for efficient
managerial performance. When new laws are made and controls exercised
through legal enactments, the first reaction of the business community is
to oppose them and disobey them. Management should try to understand
what should be the right laws and strictly obey them when so made. In
addition, it can influence the government to change and improve the law
and make it useful to the business community.

There are several business laws in our country. These relate to development
of corn panics, foreign collaboration, foreign exchange, labour
management, industrial disputes, social security benefits, and other such
allied problems. A working knowledge of these laws is very helpful for the
entrepreneur and the business executive. Such knowledge will keep them
away from innocent breaches and resultant penalties. Some laws differ from
Slate to State and amendments arc made from time to time. Therefore, the
entrepreneur must always keep in touch with those who know the latest
position in law. In addition, an entrepreneur should:

(a) read the books that enlighten on the legal side of business
(b) consult government agencies concerned with the implementation of
business laws.
(c) retain labour law consultants.

Political Environment

In a democratic country like India, politics cannot be ignored. Managers and

entrepreneurs should understand the working of the political system. Such
understanding and concern for national problems will help them in the long
run in discharging their responsibilities to the satisfaction of the public.

Public opinion is very important and today's public opinion becomes

tomorrow's legislation. Businessmen should, therefore, learn to take public
opinion into account in the decision-making process. If business does not
learn how to deal adequately with public opinion, it will face a disaster.
This does not mean that business should surrender itself to public opinion.
Rather, it implies intelligent response in order to change wherever
necessary and a constructive approach to problems.

There exists an interacting relationship between business and politics.

Business cannot develop without the understanding and support of the
politicians. Similarly, business strategy and business activities influence
politics and the Government. It is, therefore, in the interest of businessman
to ensure that the Government is stable and helpful to business.
Government should also take the business community into confidence while
preparing and implementing plans for the country's development.

It is commonly observed that business community and the Government are

hostile to each other and there is lack of trust among the two. Businessmen
should establish a cordial relationship and proper communication with the
people in power and win their confidence. They should try to study and
understand the political processes and the working of the Government
departments and agencies.

As regards relationship of businessmen with politicians there are two

opposite approaches. The traditional approach is that businessmen should
not align themselves with any political party and should keep themselves
away from the political bosses. The modern view is that businessmen should
take keen interest in the political affairs of the local, State and Central
Governments. They should have their representatives on various
Government bodies at all levels of policy formulation and planning.

Socio-Cultural Environment

Traditional culture should be protected in so far as it is not a hindrance to

innovation, motivation, and development. In under developed countries a
great deal of superstition exists and people believe that success or failure
depends upon the God's mercy. Much time is wasted when activities like
laying down the foundation of a building or a project are postponed for
auspicious days recommended by Pandits. As a result lime and cost overruns
occur frequently. Certain occupations are not considered fit for particular
castes or communities. Social position or status is linked with ownership of
land and house rather than with ownership of an enterprise. All this results
in considerable immobility and inflexibility and thus wasted labour.

Work is done in a customary way and experimentation is resented. Incentive

to hard work and more earnings is reduced because one has to share his
income with the members of the joint family. Savings and investment are
left to the household who is usually an old person devoted to traditions and
static customs. In such an economic culture carrot and stick approach is
used to motivate people. On the other hand, the modern view is that
employees should be treated as human beings. Unless a healthy work
environment and modern attitudes towards work are developed,
entrepreneurship cannot flourish. Depressing social conditions and
conservative attitudes hamper innovations. It is not easy to maintain and
create the required quantity and quality of entrepreneurship.


The entrepreneurial activity at any time is dependent upon a complex and

varying combination of socio-economic, psychological and other factors. The
various environmental factors exercise a strong influence on the personality
or personal backgrounds of the entrepreneurs. Therefore, any attempt to
understand the entrepreneurial spirit among people should include an
examination of the socio-economic origins of the entrepreneurs. The
process of interaction and adaptation between the individual and his
environment goes on continuously.

A few empirical studies have been conducted to examine the socio-

economic origins of entrepreneurs. In one such study of 40 enterprises in
two districts of Andhra Pradesh, the following socio-economic factors were

1. Caste origins: To begin with some social groups produce a

larger and more capable body of entrepreneurs than other
groups. This is due to the influence of prevailing social factors.
It has often been suggested to at certain religions and castes
encourage the growth of entrepreneurial talent. The caste
system has been found to be exercising its own influence on
the occupational mobility. Some religious communities like the
Parsees, Marwaris and Sindhees seem to have an affinity for
industrial activity. It is true that certain castes have imbibed in
themselves a particular culture that fosters entrepreneurship.
It was mainly the people hailing from Kamma, Kapu, Vysya,
Brahmin and Kshatriya communities who dominated the
entrepreneurship in the two industrial estates. The study of
Hadimani also revealed that entrepreneurs from the trading
castes (Marwaris) succeeded better in the initial stages. Caste
system in India led to rigid traditions and customs and
economic activity was rigidly stratified by the caste system.
Therefore, a few ethnical communities engaged in trade and
industry for centuries in India. Marwaris, Parsees, Jains,
Baniyas, Sindhis, Vaishyas, and Khatris have been the
dominant sources oi' entrepreneurs hip. Dominance of certain
ethnical groups in entrepreneurship is a global phenomenon.
The protestant ethics in the west, the Summurai in Japan, the
trading classes in U.S.A. and the family business concerns of
France have distinguished themselves as entrepreneurs.

Hadimani found that caste attachment was high in both weavers and
non-weavers. In case of the former such attachment hindered
entrepreneurship while in the latter it promoted entrepreneurship. A
holistic approach to the problems of caste dualism revealed that
Marwaris succeeded better because they had entrepreneurial traits.
Enduring qualities of business men such as hardwork, devotion to
work, honesty and quality control were more pronounced among
Marwaris. However, entrepreneurship is no more confined to the
traditionally known communities.

2. Entry into entrepreneurship: The time and age at which

the entry is made into entrepreneurship are important factors.
The Kamma community entered the field of entrepreneurship
earliest of all other communities. It reveals the resourcefulness
and enterprising quality of Kamma entrepreneurs. In com-
parison with Kamma and Kshatriya entrepreneurs, Kapu and
Brahmin entrepreneurs entered into entrepreneurship at a
younger age and Vysya entrepreneurs at an older age.

3. Family background: This factor includes size of family,

type of family
and economic status of family. Hadimani's study revealed that
Zamindar family
helped to gain access to political power and exhibited higher
level of entrepreneurship. To some extent, joint family
provided family property to invest and
expand the family firm. Background of a family in
manufacturing provided a
source of industrial entrepreneurship. Occupational and social
status of the family
influenced mobility.

The average annual income of the entrepreneurs from different

sources a: the time of commencement was found to be around Rs.
19,000. This does not suggest that economic status greatly influences
the emergence and performance of entrepreneurship. About 57.8 per
cent entrepreneurs had an urban background and others had a rural
background. Obviously, rural background is not a handicap for the
exercise of entrepreneurship though urban background may prove to
be an added advantage.

4. Religious background: Religion exercises a strong

influence on attitudes towards material gains relatively to
efforts. Max Weber propounded the theory that the 'protestant
ethic' among Christians fosters the right attitude for
entrepreneurship. On the other hand, Islam and Hindu
religions do not foster such an attitude. However, subsequent
researchers have questioned Weber's theory. Several empirical
studies reveal that religions in India do not inhibit
entrepreneurial spirit. Hadimani suggests that mo re than the
form of religion practised the type of interpretation given to
different religious values determine entrepreneurial success.
For example, Marwaris dharma (Moral duty), artha (wealth)
and kama (desire) were inner worldly while Moksha (salvation)
was outer worldly and that too at the end. On the other hand,
weaving caste entrepreneurs considered moksha as the
ultimate goal of life.

5. Education and technical know how: Education,

entrepreneurship and development are interrelated. Education
is the best means of developing man's resourcefulness which
encompasses different dimensions of entrepreneurship. Ashok
Kumar found in his study that majority of the entrepreneurs
were graduates and post-graduates particularly in engineering
and other technical disciplines. Kamma and Brahmin
entrepreneurs were relatively more educated than others. It
may be expected that the high level of education may enable
the entrepreneurs to exercise their entrepreneurial talent more
efficiently and effectively.

6. Occupational Background: Employed people were more

attracted towards entrepreneurship than those engaged in
agriculture or business. A sizeable number of entrepreneurs
were the unemployed youth prior to starting the industrial
units. Entrepreneurship is thus not confined to any particular
occupation. What is required is the presence of entrepreneurial
spirit and zeal. Most of the entrepreneurs came from families
where the pa rental occupation was agriculture or

7. Migratory character: As much as four - fifths of the

entrepreneurs were immigrants having come from different
places within the State or from outside.

8. Type of Industry started: Nearly two-thirds of the

entrepreneurs started industrial units in engineering works. A
little more than one–tenth preferred to start units in non-
metallic products while 7.5 percent started units belonging to
plastic works industry. A few other entrepreneurs started
units belonging to food products, aluminium products and
other miscellaneous products.

9. Type of ownership preferred: More than one-half of the

units were partnership firms, nearly one-third were sole
trading concerns and about one-tenth were private limited
companies. Most of the entrepreneurs preferred partnership to
avoid legal formalities involved in starting a company.

Another study of 334 entrepreneurs in the Anakapalle and Gudivada

districts of Andhra Pradesh revealed that more than 90 percent of
entrepreneurs at both the towns were Hindus. Gavaras and Kammas
were the two dominant castes and they belonged to land owning and
land tilling class. This shows that the bold of the caste structure on
occupations in India is getting loosened. Entrepreneurial opportunities
are now open to people who are willing to take risks irrespective of
their caste origins.

About two-thirds of the entrepreneurs entered into entrepreneurs hip

before the age of 25 years. People from the mercantile communities
entered comparatively at a younger age due to their early orientation and
guidance by their parents. Non-traditional merchants entered into the
merchant activities on a large scale only after 1960s. However, the degree
of occupational mobility of these farming castes was greater than
traditional merchant castes. Occupational mobility was found to be tow but
growth rate was high.

Formal education helps to develop entrepreneurial skills like resourceful-

ness, initiative and entrepreneurs. However, the lack of higher education is
not a limiting factor. The study revealed that majority of the entrepreneurs
lacked higher education, most of the young persons with higher education
prefer white collar jobs in the Government. However, technicians,
engineers and other professionals are now coming forward as entrepreneurs.
This is an encouraging trend. The entrepreneurs were well informed, widely
travelled and experienced. Most of them entered business neither casually
nor accidentally but after preparation.

Structure and economic status of the family are important because these
determine the support which an entrepreneur gets from his family. Such
support influences the success of an entrepreneur. "Membership of a
resourceful family or community facilitates entrepreneurship. Joint family
system is supposed to inhibit individual is in and accumulation of control.
But once a beginning is made the family become the breeding ground for
more entrepreneurs. The same family members who are a drag on resources
prove to be strength in adversity. About half of the entrepreneurs were
living independently and the other half in joint families.

The average annual earnings increased from grandfather to father and from
father to the entrepreneur himself. This improvement in economic status
must have had a positive impact on entrepreneurs' activities. The financial
soundness of the past generation creates a sense of security and thereby
encourages the spread of entrepreneurship. The magnitude of
entrepreneurial activity also depends upon the economic status or financial
origins of the entrepreneur. Most of them show initiative in consolidating
and building up on the base provided by the father and the grandfather.
Few of them start from a scratch and thus become selfmade entrepreneurs.

About 44 percent of the entrepreneurs were proprietary concerns. About 55

percent were partnerships and the rest were companies. Greater number of
entrepreneurs originating from nuclear families organised themselves into
family partnerships. This shows that family bond has been strengthened by
business bond.

A look into the place of activity and nature of market revealed that about
84 percent of the entrepreneurs operated from the local area and 90
percent of the entrepreneurs had local or regional markets. However, the
markets for trading, manufacturing and other services were widely spread
than those for fanning and professional services.

N. Gangadhar Rao conducted a study of 87 entrepreneurs operating in 13

industrial estates of Andhra Pradesh. He found

1. Enterprises of Vaisyas constitute the single largest group but

Kammas account for more than l/4th of the total units.
2. Most of the entrepreneurs entered enterprises at the age of
30-40 years.
3. Quite contrary to the popular belief that entrepreneurs are
drawn mostly from merchant classes, white collar workmen
emerged as the single largest group.
4. Half of the entrepreneurs were either graduates or post-
graduates but the other half were non-graduates.
5. Average annual earnings of all the entrepreneurs and their
fathers at the time of starting the enterprise were found to be Rs
6. Migration was very low and the pull of the place where they
lived initially was very high. More than two-thirds of them were
sons of the soil.
7. Partnership is the most popular form of organisation.
8. Entrepreneurs' family members played a useful role in
shaping the entrepreneurial ambitions.
9. All but two entrepreneurs expected financial assistance from
the nationalised banks and other State agencies. Ancillary
relations with large firms, dependable partners, allotment of
plot/shed, assistance from Government in importing machinery
or materials were other expectations.
10. Availability of technical knowhow, ease of setting up, lack of competi-
tion and previous employment in industry were the main reasons for
choice of industry.

Sharma investigated the economic, social and geographic origins of the

entrepreneurs who promoted 220 public limited non-government
manufacturing companies during April, 1961 to March 31, 1963.

1. Occupational origins: An overwhelming majority (134 out

of 198) of the individual entrepreneurs came from the
mercantile background. However, a shift in favour of newer
occupations, e.g., technicians, real estate owners, etc., was
noticed. The entrepreneurs are now drawn from diverse
backgrounds which suggests that the base of entrepreneurship
is getting widened.

2. Educational backgrounds: About 30 per cent of the

entrepreneurs were graduates, 10 percent postgraduates, 10
percent undergraduates. About 28 percent had professional
qualifications in engineering and technology and about 11
percent in law. Rest had professional education in medicine,
accounting and management.

3. Social and geographic origins: The traditionally trading

castes of Banias-- Hindu and Jain, Chettiars, etc. constituted
47% of all enterprising families and 49% of all promotions.
However, the share of these castes was going down as more
people from other communities (Brahmins, Patels, Loharas,
Khatris, Sikhs, Aroras, etc.) joined the ranks of industrialists.

4. Nature of enterprise: Well-established business houses

and professionally qualified entrepreneurs have by and large
preferred the modern sector (engineering, metals, chemicals
and electricals). On the other band, newer entrepreneurs have
floated enterprises in the traditional sector (textiles). In
general individuals having technical knowledge entered related
industries in the modern sector. But a slightly lower proportion
of new entrepreneurs than the old ones possessing education
unrelated to specific nature of industry went into the
traditional sector. The traditionally trading communities relied
more on the modem sector while the South Indian
entrepreneurs preferred their floatations in the traditional

The socio-economic background exerts significant influence on the level of

entrepreneurial motivation, access to resources, risk-bearing capacity, etc.
which in turn influence significantly the growth of entrepreneurs. In his
study, H. Sadoak evaluated the socio-economic origins of 'First Generation
Entrepreneurs' who were defined as those who have first time taken
entrepreneurship after independence. He used 'Survey Interview Method'.

The main findings of his study are as follows:

1. Out of 100 units, 61 were located in backward districts.

2. 55 units were proprietorships, 27 partnerships and 18 private limited
3. 60 units were having project costs up to Rs 5 lakhs and 40 units
employed up to 10 persons.
4. 72 entrepreneurs were below 41 years of age.
5. About 70 percent of the entrepreneurs were graduates or postgraduates.
6. About 32 percent had experience in the same line, 40 percent in other
lines and 28 percent had no past experience. More persons without and
with experience in the same line started industries in notified backward
7. In backward regions. 70 to 90 percent of project costs came from
Government agencies. Most of the first-generation entrepreneurs could
not start their own projects without financial support from the financial
8. Average investment per unit and average employment were lower in
backward areas than in non-backward areas. There is a tendency among
the entrepreneurs to promote capital-intensive industries in backward
areas clue to the availability of central subsidy based on capital
investment. In order to create more employment opportunities in
backward areas employment subsidy rather than capital subsidy should
be used. However, the policy of incentives and institutional efforts have
helped to create income and employment opportunities through the
promotion of new industries.


A complex and varying combination of financial, institutional, cultural and

personality factors determines the nature and degree of entrepreneurial
activity at any time. The personal backgrounds of the entrepreneurs are
determined mainly by the environment in which they are born and brought
up and work. A multitude of environmental factors determine the
entrepreneurial spirit among people. The entrepreneurs in turn create on
impact on the environment. The interaction between the entrepreneur and
his environment is an ongoing process. At any given point of time, the
entrepreneurs derive meanings from the environment prevailing at that time
and try to adapt and/or change the environment to suit their needs.

The environment, particularly the external environment is dynamic. It keeps

on environment on the organisation depends largely on the degree to which
the organisation depends (immediate or remote) on the environment and
organizational response to environmental changes. All the factors outside
and inside (Individual, groups, machinery, equipment, procedures, rules,
policies, etc.) an organisation interact and affect the performance of the
organisation. Some of the environmental factors which hinder
entrepreneurial growth are given below:

1. Sudden changes in Government policy.

2. Sudden political upsurge.
3. Outbreak of war or regional conflicts, e.g. ‘sons of the soil’ call.
4. Political instability or hostile Government attitude towards industry.
5. Excessive red-tapism and corruption among Government agencies.
6. Ideological and social conflicts.
7. Unreliable supply of power, materials, finance, labour and other
8. Rise in the cost of inputs.
9. Unfavourable market fluctuations.
10. Non-co operative attitude of banks and financial institutions.

Entrepreneurship is environmentally determined. The most important

essential for entrepreneurial growth is the presence of a favourable business
environment. A healthy business environment requires active social and
cultural behaviour of the people, efficient economic conditions, helpful
motivating Government policies, etc. When environment mitigates
entrepreneurship it must be modified.


State plays now a vital role in the sphere of entrepreneurship. This role may
be classified into three categories:
1. Supporting role
2. Regulating role
3. Participative role

Support: The Government of India has launched several schemes

for the growth of entrepreneurship so as to ensure the rapid
economic development of the country. It has created a vast network
of institutions and agencies which provide several types of
assistance to new and established entrepreneurs. Public financial
institutions or development banks are one part of this institutional
framework. These banks at the national and State level provide
financial, managerial and promotional assistance.

At the national level Industrial Finance Corporation of India (IFCI), Industrial

Credit and Investment Corporation of India (ICICI), Industrial Development
Bank of India (IDBI), Small Industries Development Bank of India (SIDBI) are
the major institutions. Every State has its own-State financial corporation
and/ or State industrial development corporation. These agencies provide
industrial finance through term loans, underwriting and direct subscription
to industrial securities. They also render assistance in the identification and
promotion of industrial projects. They have set up several institutes for
undertaking training and research in different fields of management. They
have sponsored technical consultancy organisations (TCOs) for providing
necessary facilities and guidance to new enterprises. 'Seed capital' is
provided to new entrepreneurs on soft terms. In addition a directory of
industrial, technical and management consultants has been prepared so
that entrepreneurs can take their help in the formulation and
implementation of projects. Special schemes are available for backward
areas, women entrepreneurs, sick units and technical graduates, industrial
Reconstruction Bank of India (IRCBI), and Bureau of Industrial and Financial
Reconstruction (BIFR) have been set up to prevent and correct sickness in
industry. National Small Industries Corporation (NSIC) and other bodies are
operating to promote small scale entrepreneurs.

In addition to institutional framework, the Government has developed

industrial infrastructure in the form of transportation, communications,
power, etc. It provides incentives and subsidies of various types to
deserving entrepreneurs. But for the assistance and facilities provided by
the Government, entrepreneurial base in India would have remained

Regulation: In order to achieve the objective of socialist pattern of

society, Government of India has enacted innumerable regulations
and controls. These regulations are designed to set priorities of
industrial development, to regulate the pattern of production and
distribution, to check the growth of monopolies and concentration
of economic power, etc. Some of the more important ways in which
Government regulates business activities are given below:

(i) Industrial Policy Resolutions

(ii) Industrial licensing under the Industries Development
and Regulation Act, 1951
(iii) Capital Issues Control
(iv) The Companies Act, 1956
(v) Control over Monopolies and Restrictive Trade
(vi) Fiscal and monetary controls
(vii) Controls over exports and imports
(viii) Foreign exchange regulations
(ix) Commodity controls

Private industrialists in India often complain that there are too many
controls and these controls have failed to achieve the intended objectives.
In recent years there has been a trend towards liberalisation of economic
activities. The control and regulatory mechanism is a dynamic process and
has to be viewed against the environmental situation existing at a point of
time. Different degrees of control may be necessary at different stages of
economic growth.

Participation: In India, Government has emerged as the single

largest entrepreneur through the public sector. The top ten
companies in India in terms of size are all in the public sector. Key
and basic industries like iron and steel, coal mining, aeronautics,
power, railways, communications, cement, etc. are mostly owned
and controlled by the Government. All major commercial banks and
insurance companies have been nationalised.

Government began to participate in industry and trade because it felt that

private sector alone will not be able to industrialise the country at the
desired pace and scale. Government enterprises seek to achieve economic
(planned growth, rapid industrialisation, generation of surplus), social
(employment generation, balanced regional development, egalitarian
society), and political (self-reliance, national defence, etc.) objectives.


Development of a healthy business environment is an essential condition for
growth of entrepreneurs. New enterprises can flourish and grow only under
favourable economic, social and political conditions. Unfortunately,
economic and social conditions in underdeveloped countries are
unfavourable and even prohibitive. There is lack of adequate infrastructure
and capital. Social institutions are hopelessly traditional and social attitudes
inhibit entrepreneurial behaviour. People in general are conservative and do
not initiate and appreciate changes. Obviously entrepreneurship cannot
flourish under such conditions. Therefore, it is very difficult lo create and
maintain the required quantity and quality of entrepreneurship in
underdeveloped countries.

Business environment in underdeveloped countries is such that

entrepreneurship can be organised on a small scale. Shortage of capital and
imperfect market restricts large scale enterprises. Most of the
entrepreneurs can imitate but few can innovate. That is why these countries
place emphasis on the small scale sector as an instrument of economic
planning and development. Political ideology also requires the development
of a decentralised industrial structure where ownership and economic power
are mostly distributed. The State in these countries provides preferential
treatment to small scale enterprises lo generate employment, to mobilise
local capital and skills and to ensure a more equitable distribution of income
and wealth.
In order to supplement the efforts of private entrepreneurs the Government
in underdeveloped countries has become an important entrepreneur. Active
participation of the Slate in business helps to spread innovating and
imitating entrepreneurship throughout the country. In addition the
Government takes various physical and financial measures to stimulate the
growth of entrepreneurship.