Political environment of business

POLITICAL ENVIRONMENT OF BUSINESS PRESENTED BY Aun Ahmed

MACRO-ENVIRONMENT FORCES
CULTURAL
DEMOGRAPHIC
ECONOMIC
NATURAL
POLITICAL
TECHNOLOGICAL

The political environment includes all laws,government agencies,and lobbying groups that influence or restrict individuals or organizations in the society.

The political environment in an economy is influenced by:
Philosophy of political parties
Ideology of the party in power
Nature of bureaucracy
The political stability
The foreign policy

In the early 1950s the Congress party adopted socialist pattern of society ,this was mainly responsible for the public sector dominated economy which lasted until the early 1990s.The dramatic changes in the political environment in the erstwhile USSR and East European countries that gave rise to drastic changes in their economic policies in the late 1980s.And these developments encouraged a revolutionary change in India’s economic policies in 1991.

In 1991 Indian economy faced severe
macro-economic imbalances:
Huge deficit in the balance of payments
Current Account Deficit rose to 3.2% of GDP
Foreign currency assets dipped from US $3.4 bn (march 1990) to US $975 mn on July 12,1991

The salient features of the NEP-1991:
Liberalisation
Extending privatisation
Globalisation of the economy
The New Economic Policy of 1991 and the signing of GATT in 1993 have reshaped the business environment in India.

LIBERALISATION
Liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. In some contexts this process or concept is often, but not always, referred to as deregulation .

PRIVATISATION
The process of moving from a government-controlled system to a privately run, for-profit system.
The repurchasing of all of a company's outstanding stock by employees or a private investor. As a result of such an initiative, the company stops being publicly traded.

PRIVATISATION & DISINVESTMENT
Privatisation leads to change in management with change in ownership. Change in management is not a necessary condition in the process of Disinvestment. Disinvestment refers to dilution of the stake of the government to a level where there is no change in control that results in the transfer of management.

GLOBALISATION
Globalisation describes a process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade. The term is sometimes used to refer specifically to economic globalization : the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration , and the spread of technology .However, globalisation is usually recognized as being driven by a combination of economic, technological, sociocultural and political factors.

MAJOR MEASURES AS PART OF THE LPG STRATEGY OF INDIA
DEVALUATION of Indian currency by 18-19% against major currencies in the international foreign exchange market. This measure was taken to resolve the BOP crisis.
Disinvestment: under the privatisation scheme,most of the public sector undertakings have been / are being sold to private sector.
Dismantling of the industrial licensing regime:at present only six industries are under compulsory licensing mainly on account of environmental safety.

Allowing FDI across a wide spectrum of industries and encouraging non-debt flows.
E g. allowing FDI up to 100% under the automatic route for most manufacturing activities SEZs.
NRI scheme: The general policy and facilities for FDI as available to foreign investors/companies are fully applicable to
NRIs as well.

Throwing open Industries reserved for the public sector to private
participation. Now there are only three industries reserved for the public sector.
Abolition of the MRTP Act.
The removal of quantitative restriction on imports.
The reduction of the peak customs tariff from over 300% to 30%.
Wide ranging financial sector reforms in the banking, capital marketing, insurance sectors, including deregulation of interest rates.

Globalization in India had a favorable impact on the overall growth rate of the economy.
Consequently India’s position in the global economy has improved from the 8th position in 1991 to 4th place in 2001; when GDP is calculated on a purchasing power parity basis .

During 1991-92 the first year of Rao ’s reforms program, the Indian economy grew by 0.9% only. However the GDP growth accelerated to 5.3 % in 1992-93, and 6.2% 1993- 94. A growth rate of above 8% was an achieved during the year 2003-04.

India’s GDP growth rate can be seen from the following graph since independence India to become 3rd largest Economy by PPP in the world by 2012 PriceWaterhouseCoopers

STATISTICS OF CHANGES Source: ECONOMIC SURVEY 2004-05 57.6 56.7 51.4 38.7 Services 21.9 21.6 22.1 26.1 Industry 20.5 21.7 26.5 35.2 Agriculture 2004-05 2003-04 2002-03 1984-85 % of GDP

Political environment of business

by Aun Ahmed on Apr 22, 2011

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