INDIAN BUSINESS ENVIRONMENT

Pankaj Kumar

RBS

Business Environment

• Business Environment consist of all those factor that have a bearing on the business.

• A business environment is the social, technological, economic and political environment in which a business functions. The business environment affects organizational decisions, strategies, processes and performance

Components of Business Environment

• Social environment : The social environment is the identical or similar social positions and social roles as a whole that influence the

individuals of a group.

• Technological environment: Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get a competitive

advantage.

Components of Business Environment ( Cont.)

Economic environment : The economic environment consists of the

Demand dynamics, Supply situation, Pricing factors, Degree of competitiveness, Impact of profitability.

It includes the fiscal policy, monetary policy and the taxation policy, the FDI norms, the investment criterion and financing decisions.

Components of Business Environment ( Cont.)

• Political environment : The political environment includes Regulatory burden and red tape, Taxes levels of political corruption, Public works services, Labor market regulation, Policy predictability, Property rights, Contract enforcement, Regulations controlling startup and Bankruptcy, competition law,

Nature of Indian Economic System

• The economy of India is the twelfth largest in the world, with a GDP of US $1.25 trillion (2008).

• It is the third largest in terms of purchasing power parity.

• India is the second fastest growing major economy in the world, with a GDP growth rate of 9.4% for the fiscal year 2006–2007

Nature of Indian Economic

System (Cont.)• India's economy is • diverse, • Agriculture, • Handicrafts,• Textile,• Manufacturing, and • A multitude of services.

Nature of Indian Economic System (Cont.)

• State planning and the mixed economy• General budget• Currency system Rupee Exchange rates

• Five Year Plan System.• Financial institutions Reserve Bank of India Railways

Bombay Stock Exchange National Stock Exchange

Nature of Indian Economic System (Cont.)

• Sectors Agriculture Industry Services

• Socio-economic characteristics Poverty Corruption Occupations and unemployment Regional imbalance

Social Responsibility of Business

• Social Responsibility of business refer to what the business does,over and above the statutory requirement ,for the benefits of the society.

• Social Responsibility came into existence in India in 1965 when it correlated with Gandhiyan concept of trusteeship with “ Responsibility to customer,worker,shareholder,and the community

Classical view of Social Responsibility

• According to classical view business has only economic objective and no other responsibility beyond that.

• Classical states that business os only to use its resources and engage in activity designed to increase its profit and engage in open and free competition.

Contemporary view of social responsibility

• Business is an ecological one according to which business is an integral part of the society.

• Social Responsibility is for : StakeHolder Social Need Social good benefit for other Needy people

PHILANTHROPIC Responsibilities Be a good Corporate Citizen. Contribute resources to the community; improve quality of life.

ETHICAL Responsibilities Be ethical. Obligation to do what is right,

just and fair; Avoid harm.

LEGAL Responsibilities

Obey the Law Law is society’s codification of right and wrong;

Play by the rules

ECONOMIC Responsibilities

Be Profitable The foundation upon which all others rest

The Pyramid of Social Responsibility

Level 1 ECONOMIC

Responsibilities

Be profitable

The foundation upon which all other levels rest

Economic Components It is important to perform in a manner consistent

with maximising earnings per share It is important to be committed to being as

profitable as possible It is important to maintain a strong competitive

position It is important to maintain a high level of

operational efficiency It is important that a successful firm be defined as

one that is consistently profitable.

Level 2 LEGAL

ResponsibilitiesObey the Law

Law is society’s codification of right and wrong; Play by the rules

Legal Components It is important to perform in a manner consistent

with expectations of government and the law. It is important to comply with various national and

supra-national laws and regulations. It is important to be a law-abiding corporate

citizen. It is important that a successful firm be defines as

one that fulfils its legal obligations. It is important to provide goods and services that

at least meet the minimal legal requirements.

Level 3 ETHICAL

ResponsibilitiesBe Ethical

Obligation to do what is right, just and fair; Avoid harm.

Ethical Components It is important to perform in a manner that is consistent

with the expectations of societal mores and ethical norms.

It is important to recognise and respect new or evolving ethical/moral norms adopted by society.

It is important to prevent ethical norms from being compromised in order to achieve corporate goals.

It is important that good corporate citizenship be defined as doing what is expected morally or ethically.

It is important to recognise that corporate integrity and ethical behaviour go beyond mere compliance with laws and regulations.

Level 4 PHILANTHROPIC

ResponsibilitiesBe a Good Corporate Citizen

Contribute resources to the community; improve quality of life

Philanthropic Components It is important to perform in a manner consistent

with the philanthropic and charitable expectations of society.

It is important to assist the fine and performing arts. It is important that managers and employees

participate in voluntary and charitable activities within their local communities.

It is important to provide assistance to public and private educational institutions.

It is important to assist voluntarily those projects that enhance a community’s ‘quality of life’.

Why Social Responsibility?

Self-defense - If business is not proactive, the public or government will press for more regulation

Obligation - Business exists due to being sanctioned by society - owes debt to society

Self-interest - S.R. good for business in long run

Arguments Against Social Responsibility

Social expenditures amount to theft of business owners’ equity

Business lacks the ability to pursue social goals.

Business would gain too much power if involved in the social domain. (Social issues should be left to those accountable to the voters.)

NEW ECONOMIC POLICY

• Since July 1991, the government has initiated a series of radical changes in its

• Policies relating to industry, • Trade,• Finance,• Foreign investments and fiscal aspects..• Together called the structural

adjustment programme (SAP)

NEW ECONOMIC POLICY

BACKGROUND • The new economic policy was necessitated by the worst

economic crisis, which was never witnessed by the country after Independence.

• The most visible sign of the country’s economic crisis was its extremely low foreign exchange reserves of Rs.2400 crore, which was reached in early 1991.

NEW ECONOMIC POLICY

• The second major aspect of the economic crisis was the rapidly increasing burden of national debt, which exceeded 60 per cent of GNP in 1991.

• The third and the most damaging feature of the 1991 crisis was the high price level.

Objectives of the Policy

• Reducing the government deficit to 6.5 percent of GDP in 1991-92 and five percent in 1992-93, with further reduction thereafter leading to containment of inflation;

• Reduction of the current account deficit in the balance of payments to 2.7 percent of GDP in 1991-92 and to 1.5 percent by 1995-96 as a result of export-growth

• Raising GDP growth to around six percent by the mid- 1990s

Component of the Policy

• Liberalization

• Privatization

• Globalization, and

• Stabilization.

Economic Reform Strategies

1. Open economy 2. Integrate with world markets 3. Market determined economic

growth 4. Export oriented strategies 5. Delicensing, deregulation, debureaucratisation

Economic Reform Strategies

• 6. Selective and effective state interventions• 7. Market determined prices at large.• 8. Contain all kinds of deficits• 9. Deflationary monetary and fiscal policies• 10. Private investment as growth engine• 11. Withdrawal from the area of private

interest• 12. Minimize gap between public and

private sector.