2What goods and services does a government want to provide What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support?Political Environment:How changes in government policy might affect the business
3Post-independence concerns over external exploitation resulted in the Nehru government adopting an import substitution. This resulted in the Indian economy being closed to imports and Indian exports being kept away from the world markets for several decadesEconomic reforms brought foreign competition, led to privatization of certain public sector industries, opened up sector hitherto reserved for the public sector and led to an expansion in the production of fast-moving consumer goods.
4Political factors can be Stability of the governmentFair-trade lawsAntitrust lawsTax lawsMinimum wage legislation andEconomic policy of the governmentpollution lawsDefense and military policyDiplomatic events in surrounding countriesThese factors can be restrictive or beneficial. Restrictive factors are those factors that limit profits
5Political system should be StableHonestEfficientdynamic
6Factors affecting political instability Civil warDeclaration of emergency in the countryChanges in the form or structure of administration of Govt
8State and GovernmentState, 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.
9The Scope of State Functions Minimal FunctionsIntermediate FunctionsProviding pure public goodsDefense, Law and orderMacroeconomic managementPublic healthProtecting the poorAddressing externalitiesEducation, environment Regulating MonopolyOvercoming imperfect educationInsurance, financial regulation Social Insurance (pension)Activist FunctionsIndustrial policyWealth redistribution
10Economic roles of Government Regulatory rolePromotionEntrepreneurial rolePlanning role
15Role of Political Institutions Legislature-makes laws, approves budgets,controls executive and acts as a mirror of public opinion.Executive or Government.Judiciary.
16Legislature Most powerful institution Role is to make the law Powers Policy makingLaw makingApproval of budgets
17Executive Referred to as government Responsible for implementing the lawTo shape, direct and control the business activities
18Judiciary Responsible for interpreting and applying law It ensures that the exercise of executive authority confirms to general rules laid down by Legislature.It settles the relationship between private citizens and the government.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 employeesDisputes between two companiesDisputes between employeesDisputes between employers and the publicDisputes between employers and the government
19Judicial powers The authority of the court to settle legal disputes. Judicial review-the authority of the court to rule on the constitutionality of legislation.
20LEGAL ENVIRONMENT:It refers to the legal systems obtaining in the country. It refers to the rules and laws that regulate behavior of individuals & organization.There are basic legal systems prevailing around the world:Islamic law: It is derived from the interpretation of the Quran and practiced in Muslim majority countries.Common law: It is prevalent in countries which are under British influence.Marxists law: It has takers in communists countries.
21Relationship between business and government ResponsibilityAccountabilityDuty
22Responsibilities of business towards government Regular payment of taxesVoluntary programs- Sponsoring social welfare programes- Environmental preservation- Promoting education- Assistance in drought, flood etc.Government contractsProviding service to the government through becoming member in advisory boardsCorporate contributions to the political activities
23Responsibilities of Government towards business Political institutionsProvision of peaceful atmosphereProvision of a system of money and creditBalanced development and growthProvision of basic infrastructureProvision of informationTo assist small scale industriesCompetition with private sectorProtection from foreign competitionEstablishment and enforcement of lawMaintenance of order.Orderly growth.Infrastructure.Assistance to small industries.Government competition.Inspections & licenses.
24The Constitution of India Most significant document which is fundamental to the governance of the State.The constitution of Indian Republic is the product of not political revolution, but of the research and deliberations of a body of eminent representatives.
25Three parts of the constitution The PreambleThe Fundamental RightsThe Directive Principles of State Policy
26The PreambleThe Indian Constitution starts with a preamble, which outlines the main objectives of the Constitution. It may be noted that though the preamble is not a part of the Constitution and is not justifiable, yet its significance cannot be denied. It servers as a key to the Constitution.An introduction to the Constitution and contains its basic philosophy. It states that“We the people of India having solemnly resolved to constitute ourselves into a Sovereign, Socialist, Secular, Democratic Republic and to secure to all citizens………..adopt, enact and give to ourselves this Constitution.
27Economic Importance Economic Justice Liberty of Thought, Expression, Belief, Faith and WorshipEquality of Status and of Opportunity
28Fundamental Rights and Business The Indian Constitution incorporates a list of Fundamental Rights and guarantees their inviolability by executive and legislative authorities. Part III (Articles 12-35) deals with the Fundamental Rights granted to individuals. These rights were finalized by the committees of the Constituent Assembly headed by Sardar Vallabhai Patel. The fundamental rights are superior to ordinary laws.
29Fundamental Rights Right to equality Right to freedom - Freedom of speech and expression- Freedom to assemble peacefully and without arms- Freedom to form associations or unions- Freedom to move freely throughout the territory of India- Freedom to reside and settle anywhere in India- Freedom to practice any profession or to carry on trade or businessRight against exploitationRight to freedom of religionRight to cultural and educational freedomRight to constitutional remedies
30Right to Equality Equality before law- Article 14. Prohibition of discrimination- Article 15.Equality of opportunity- Article 16.Abolition of Untouchability- Article 17.Abolition of Titles- Article 18.
31Freedom of Religion Freedom to manage religious affairs-Article 26. Freedom for paying taxes for the promotion of religion-Article 27.No religious instructions in government educational institutions-Article 28.
32Cultural & Educational rights Right to protect language,script and culture- Article 29.Right to establish and administer educational institutions- Article 30.
33Right against Exploitation Prohibition of traffic in human beings and forced labour- Article 23.Prohibition of employment of children- Article 24.
34Right to Freedom Rights under Article 19- - speech and expression. - to assemble peacefully and without arms.- to form associations or unions.- to move freely throughout the territory of India.- to reside and settle anywhere in India.- to practise any profession or to carry on any occupation,trade or business.Protection in respect of conviction of an offence-Article 20.Protection of life and personal liberty- Article 21.Protection against arrest & detention- Article 22.
35Right to constitutional remedies Citizen can approach the Supreme Court for implementation of fundamental rights- Article 32(1).The Indian Parliament can power any court to issue notice within its jurisdiction without infringing or influencing the powers of the Supreme Court Article 32(3).The State cannot suspend the right to constitutional remedies except in cases provided by the Constitution- Article 32(4).
36Reasons for state intervention Delayed growth must be sponsored.Modern economy must be planned.Government is bound to enter into industrial & commercial activities in a socialist economy.Government policies decide what undertakings should be established,how it should be run etc.For economic & social well being of people money can be generated by active participation of government in business.For a strong base for future development government must assume responsibility at least in relation to core industries & facilities.Government intervention is necessitated by the failure of markets.
37Types of State Intervention On the basis of nature- formal and informalOn the basis of approach- coercive and induciveOn the basis of spread- direct and indirectOn the basis of effect- promotional and regulatoryOn the basis of effect on competition- make competition work- set standards for competition- supplement competition
38Role of GovernmentRegulation.Promotion.Entrepreneurship.Planning.
39Directive Principles of State Policy The Directive Principles of State Policy which have been enshrined in Part IV of the Constitution aim at realizing the high ideals of justice, liberty, equality an fraternity as outlined in the preamble to the constitution. There are ideas which are to inspire the state to work for the common good of the people and establish social and economic democracy in the country.
40Economic ImportanceTo provide adequate means of livelihood for all the citizens.To secure equal pay for work to both men and women.To protect the workers, especially children.To regulate the economic system of the country that is does not lead to concentration of wealth an means of production.
41Directive principles of state policy Provisions dealing with welfare (Art. 38, 42, 45, 47)Provisions dealing with social justice/ (Art. 39, 41, 43, 46)Provisions promoting democracy (Art. 40, 44, 45)Miscellaneous provisions relating to environment etc., (Art. 48, 49, 50, 51)
42Significance of DPSP DPSP are backed by public opinion. Provide for a welfare state.Importance as Moral Ideals.Directives constitute a Guide for the State.Source of continuity in policies.Are supplementary to fundamental rights.Yardstick for measuring the Worth of the Government.Helpful in interpretation of the Constitution.Ambiguity of Directive Principles is useful.
43BasisFundamental RightsDirective Principles of state policyInjunctionsFundamental rights are negative injunctionsDPSP are positive injunctions.JusticeableAre justiceable.Are not justiceable.SuperiorityAre legally superior to DPSP,as they are enforceable.DPSP are non enforceable.AttainmentHave already been attained.Yet to be attained.BackingAre backed by Law.Are backed by Public Opinion.SuspensionCan be suspended during emergency under article 352.DPSP unless implemented are in a state of permanent suspended animation.Type of democracyProvide for political democracy.Aim at socio-economic democracy.
44Directive principles of state policy A unique feature of our Constitution.Instruments of instructions to the legislature and the executive.
45FactorsDescriptionImplicationsBarriers to FDIFDI not permitted in pure retailingFranchisee arrangement allowedAbsence of global playersLimited exposure to best practicesLack of Industry StatusGovernment does not recognize the industryRestricted availability of financeRestricts growth and scaling upStructural ImpedimentsLack of urbanizationPoor transportation infrastructureConsumer habit of buying fresh foodsAdministered pricingLack of awareness of Indian consumersRestricted retail growthGrowth of small, one-store formats, with unmatchable cost structureWastage of almost 20%-25% of farm produce
46High Cost ofRealEstatePro-tenant rent lawsNon-availability of government land,zoning restrictionsLack of clear ownership titles, high stampDifficult to find good real estate in terms of location and sizeHigh land cost owing to constrained supplyDisorganized nature of transactionsComplexTaxationSystemDifferential sales tax rates across statesMulti-point octroiSales tax avoidance by smaller storesAdded cost and complexity of distribution.Cost advantage for smaller stores through taxevasionMultipleLegislationsStringent labor laws governing hours ofwork, minimum wage paymentsMultiple licenses/clearances requiredLimits flexibility in operationsIrritant value in establishing chain operations;adds to overall costs