2. The political environment includes factors
such as the characteristics and policies of
the political parties, the nature of the
Constitution and government system and
the government environment encompassing
the economic and business policies and
regulations.
Political Environment
3. The political environment in an economy is
influenced by:
• Ideology of the party in power
• Nature of bureaucracy
• The political stability
• The foreign policy
6. State and Government
State, in its wider sense, refers to a set of
institutions that possess the means of
legitimate coercion, exercised over a defined
territory and its population referred to as
society.
The term government refers to the process of
governing, to the exercise of power. It also
means the people who fill the positions of
authority in a state.
7. Responsibilities of Government
towards business
Political institutions
Provision of peaceful atmosphere
Provision of a system of money and credit
Balanced development and growth
Provision of basic infrastructure
Provision of information
To assist small scale industries
Transfer of technology
Competition with private sector
Licensing and inspection
Protection from foreign competition
8. Responsibilities of business
towards government
Regular payment of taxes
Voluntary programmes
- Sponsoring social welfare programmes
- Environmental preservation
- Promoting education
- Assistance in drought, flood etc.
Providing Feed back information
Government contracts
Providing service to the government through becoming
member in advisory boards
Corporate contributions to the political activities
10. Into three distinct but interrelated branches: Legislative, Executive and Judiciary –
have to function within their own spheres demarcated under the Constitution. In other
words, the doctrine of Separation of Powers has been implicitly recognized by the Indian
Constitution.
The Indian government is divided
Government of India
Executive
Judiciary
Legislative
The Parliament of India - the
President of India + the two
Houses
Lok Sabha (House of the
People) and Rajya Sabha
(Council of States).
The Supreme Court of India
consists of a Chief Justice and
30 associate justices
The President of India, Vice
President, Cabinet, executive
departments and agencies.
11. Legislature
Most powerful institution
Role is to make the law
Powers
- Policy making
- Law making
- Approval of budgets
12. Executive
Referred to as government
Responsible for implementing the law
To shape, direct and control the business
activities
Includes cabinet, bureaucrats
13. Judiciary
Responsible for interpreting and applying law
It has to look into the exercise of authority by the
executives is according to the general rules laid
down by the legislature.
To settle legal disputes that affects business
considerably.
- Disputes between employers and employees
- Disputes between two companies
- Disputes between employees
- Disputes between employers and the public
- Disputes between employers and the government
14. Functions of Government
Basic/Minimal Functions: Include the pure
public goods such as the provision of property
rights, macro-economic stability, control of
infectious diseases, safe water, roads, and
protection of the destitute (poor).
15. Intermediate functions: include matters such
as management of externalities i.e. pollution,
regulation of monopolies, and the provision of
social insurance (pensions, unemployment
benefits).
Activist Functions: involve measures to
stabilize and promote markets and to
redistribute assets/income.
16. IMPACT OF POLITICAL ENVIRONMENT
ON BUSINESS
The political system prevailing in the country promotes,
shelters, directs and controls the business activities of
the country.
The viability of a business depends on the ability within
which it can meet the challenges arising out of the
political-legal framework.
To ensure economic development of the country, the
political system should be honest, stable, efficient and
dynamic. The system must ensure political participation
of the people as well as personal security to the citizens.
17. 5-17
Political Risk
Risk of change in political environment or
government policy that would adversely affect a
company’s ability to operate effectively and
profitably (e.g. Wal-Mart in India)
When perceived political risk is high, a country
will have a difficult time attracting foreign direct
investment.
18. FACTORS CAUSING POLITICAL
INSTABILITY
Civil War
Declaration of Emergency in the country
Changes in the form or structure of
Administration of Government
