Political environment

Chapter 4
 INTRODUCTION
• The political environment of a country has a enormous
influence on the business.
• The viability of a business depends upon the ability with
which it can meet the challenges arising out of the
political-legal environment.
• The political system prevailing in a country promotes,
shelters, directs and controls the business activities of
the country.
• To ensure economic development of the country, the
political system should be stable, honest, efficient and
dynamic.
• The system must ensure political participation of the
people as well as personal security to the citizens.
• A stable and dynamic political environment is thus,
indispensable for business growth.
• There are some factors which may cause political
instability such as civil war, declaration of emergency in
the country, changes in the form or structure of
administration of Govt etc.
Political Institutions
•The political environment comprises three vital political
institutions:
1. Legislature
2. Executive
3. judiciary
 Legislature
• It is the most powerful institution. The main
powers are vested in the legislature are:
• In today’s economies, particularly of developing
countries like India, relevance of a protective legal
environment for business assumes immense
proportions as it is the very foundation of every
investment decision.
Policy making
• The business has to be within the law of the land.
• Every aspect of business from its birth till death is Law making
covered under the laws to ensure that not only
profit is earned in a justified and fair way. Approval of budgets

• It also ensures that in attainment of business

interests the interest of each person is fully Executive control
protected and the profit of the business are
distributed in a manner beneficial to the society. To act as a mirror of public opinion
 Executive

• Government is the executory body of the laws which are framed by the
legislature
• In simple words, the role of the Govt, is to shape, direct and control the
business activities.
• The translations of depends the objective of any laws to the reality
depends as much upon the law itself as on its implementation.
• The implementation of the law in its word and spirit only can ensure the
realisation of its true objectives.
• Indian constitution provides for a federal setup with powers being divided
between central and state governments. The powers and functions of
central and state govt are described in the constitution.
 Judiciary
• The third political institution is judiciary.
• The judiciary sees to it that the exercise of authority by the executives is according
to the general rules laid down by the legislature, it may declare that any particular
order issued is in fact, ultra vires(beyond the authority).
• It is the power of the judiciary to settle legal disputes that affect business
considerably.
• Following are a few examples of the disputes which are often referred to courts
for settlement and the verdicts are sought:
a. Disputes between employers and employees
b. Disputes between employer and employer
c. Disputers between employee and employee
d. Disputes between employers and public
e. Disputes between employers and the Govt.
 • In some cases the courts of justice protect the citizens from unlawful acts
passed by the legislatures and arbitrary acts Govt or the executive.
• The judicial verdicts have far reaching consequences on business. The
consequences become more intense and severe because:
a. Judicial errors do occur, though infrequently
b. Judges may vary in the severity of punishment inflicted.
c. Possibility of wrong assessment of penalty
d. Conflicting verdicts may be pronounced by different judges on the same
or similar disputes.
e. There is a lot of confusion in the labour law themselves.
• Todays requirement is that the judicial system should be overhauled by
performance so that order and confidence of the masses can be restored in
it.
 Relationship between business and
Government
• According to Dimock ‘the two most powerful institutions in society
today are business and govt, where they meet on common ground
amicably or otherwise together they determine the public policy both
foreign and domestic for a nation”.
• The term responsibility, accountability, obligation or duty are all used
interchangeably in the context of relations between govt and
business.
Responsibilities towards Government
• Regular payment of taxes
• Voluntary programmes
• Providing information
• Government contracts
• Providing service to the government
• Corporate contributions to political activities
 Responsibilities of Government towards
Business
• The business as its own expectations from the Govt. specifically, the
expectations of the business or the responsibilities of the
Government towards business are as follows:
• Political institutions
• Provision of a peaceful atmosphere
• Provision of a system of money and credit
• Balanced development and growth
• Provision of a basic infrastructure
• Provision of information
•To assist small scale industries
•Transfer of technology
•Competition with private sector
•Licensing and inspections
•Protection from Foreign competition
Rationale and extent of state intervention
• One of the features of modern business is the increasing involvement
of the govt in business activities.
• As of today, there is no country in the world where the govt of the
land does not interfere, in one form or the other, in its economic
activities.
• Involvement is all the more pervasive in our economy which till
recently was a planned and regulated one.
Reasons for state intervention
• Government is sponsor
• Planned economy
• Ours being a socialist society
• Need to prioritise industries
• Assumption of responsibility of social and economic people
• Development of core industries
• Market failure
Types of intervention
•Formal and informal controls
•Coercive and inducive controls
•Direct and indirect controls
•Effect on competition
•Promotional and regulatory controls
Role of Government in Business/Reasons
1. Elimination of poverty
• The state activism in economic activities is necessary to eliminate poverty.
• It must be admitted that poverty still exists in spite of the growth
registered in the economy.
2. Alleviation of poverty or govt has capacity to alleviate poverty
• World Development Report(WDR), 1991, states that no market economy
has ever eradicated poverty so far.
• It is only state intervention that has helped fund programmed that have
alleviated poverty.
• Today even in the US there is the growing concern about the need for the
state to intervene in the provision of healthcare and education.
• It is not that the private sector in our country has credited itself with glory
so as to demand total withdrawal of the government’s presence in the
economy.
 Contd….
• It may be stated that the role of the government in future must be
redefined but not ended.
• The redefinition must be in the direction of improving quality of
intervention. This must be India’s agenda in future.
• “The important thing for govt is not to do things which individuals are
doing already, and to do them a little better or a litter worse but to
do those things which at present are not done at all”
-----John Maynard Keynes
• What is not done till now is the improvement of the social sector;
primary education, health, housing, nutrition and the like.