politicalenvironmentofbusiness-110422134514-phpapp01

7/31/2019 politicalenvironmentofbusiness-110422134514-phpapp01

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POLITICAL ENVIRONMENT

OF BUSINESSPRESENTED BY

Aun Ahmed


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MACRO-ENVIRONMENTFORCES

1. CULTURAL

2. DEMOGRAPHIC3. ECONOMIC

4. NATURAL5. POLITICAL

6. TECHNOLOGICAL


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The political environment includes alllaws,government agencies,and lobbying

groups that influence or restrictindividuals or organizations in thesociety.


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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


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In the early 1950s the Congress party adoptedsocialist pattern of society,this was mainly

responsible for the public sector dominatedeconomy which lasted until the early 1990s.Thedramatic changes in the political environment inthe erstwhile USSR and East European countriesthat gave rise to drastic changes in theireconomic policies in the late 1980s.And these

developments encouraged a revolutionarychange in Indias economic policies in 1991.


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In 1991 Indian economy faced severe

macro-economic imbalances:

Huge deficit in the balance ofpayments

Current Account Deficitrose to 3.2%of GDP

Foreign currency assetsdipped fromUS $3.4 bn (march 1990) to US $975mn on July 12,1991


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The salient features of theNEP-1991:

Liberalisation Extending privatisation

Globalisation of the economy

The New Economic Policy of 1991

and the signing of GATT in 1993have reshaped the business environment inIndia.


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LIBERALISATION

Liberalization refers to a relaxationof previous government restrictions,usually in areas of social or

economic policy. In some contextsthis process or concept is often, butnot always, referred to asderegulation.


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PRIVATISATION

The process of moving from a government-

controlled system to a privately run, for-profit

system.

The repurchasing of all of a company'soutstanding stock by employees or a privateinvestor. As a result of such an initiative,

the company stops being publicly traded.


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PRIVATISATION& DISINVESTMENT

Privatisation leads to change inmanagementwith change in

ownership.Change in management isnot a necessary condition in theprocess of Disinvestment.Disinvestment refers to dilution of thestake of the government to a levelwhere there is no change in control thatresults in the transfer of management.


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GLOBALISATION

Globalisation describes a process by whichregional economies, societies, and cultureshave become integrated through a globalnetwork of communication, transportation,and trade. The term is sometimes used torefer specifically to economic globalization:the integration of national economies into theinternational economy through trade, foreigndirect investment, capital flows, migration,

and the spread oftechnology.However,globalisation is usually recognized as beingdriven by a combination of economic,technological, sociocultural and political

factors.


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MAJOR MEASURES AS PART OF

THE LPGSTRATEGY OF INDIA DEVALUATION of Indian currency by 18-19% against major currencies in theinternational foreign exchange market.This measure was taken to resolve theBOP crisis.

Disinvestment: under the privatisationscheme,most of the public sectorundertakings have been / are being sold toprivate sector.

Dismantling of the industrial licensingregime:at present only six industries areunder compulsory licensing mainly onaccount of environmental safety.


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Allowing FDI across a wide spectrum of

industries and encouraging non-debt flows.

E g. allowing FDI up to 100% under the automaticroute for most manufacturing activities SEZs.

NRI scheme: The general policy and facilities forFDI as available to foreign investors/companies

are fully applicable to

NRIs as well.


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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.


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Globalization in India had a favorable

impact on the overall growth rate ofthe economy.

Consequently Indias position in the

global economy has improved fromthe 8th position in 1991 to 4th placein 2001; when GDP is calculated ona purchasing power parity basis.


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During 1991-92 the first year of

Raos reforms program, the Indianeconomy grew by 0.9% only.However the GDP growth

accelerated to 5.3 % in 1992-93,and 6.2% 1993- 94. A growth rateof above 8% was an achieved

during the year 2003-04.


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Indias 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


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STATISTICS OF CHANGES

% of GDP 1984-85 2002-03

2003-04 2004-05

Agriculture 35.2 26.5 21.7 20.5

Industry 26.1 22.1 21.6 21.9

Services 38.7 51.4 56.7 57.6

Source: ECONOMIC SURVEY 2004-05

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