The political environment influences business and includes factors like the ruling party's ideology, bureaucracy, and foreign policy. The political system should be stable, honest, efficient, and dynamic. Factors like civil war, emergencies, and changes in government structure can cause political instability. The government is divided into three branches - legislative, executive, and judiciary - which make laws, enforce laws, and interpret laws respectively. The government has responsibilities like providing infrastructure and a stable environment for business, while business has responsibilities like paying taxes and engaging in corporate social responsibility.

1. POLITICAL ENVIRONMENT

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

4. Political system should be
 Stable
 Honest
 Efficient
 Dynamic

5. Factors affecting political
instability
 Civil war
 Declaration of emergency in the country
 Changes in the form or structure of
administration of Government

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

9. Political and GOVERNMENT
INSTITUTIONS
EXECUTIVE
JUDICIARY
LEGISLATIVE Makes Laws
Interprets Laws
Enforces Laws

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