Class 12 Business Studies Chapter 3 Notes- Business Environment

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Class 12 Business Studies Chapter 3 Notes

Chapter No03
ProvidingNcert solutions
Chapter NameBusiness Environment
SubjectBusiness studies
Medium English
Study MaterialsFree VVI Study Materials are Available
Download Pdfbusiness studies class 12 chapter 3 pdf notes

Business Environment Summary 

Business Environment Summary : Business environment means all those external economic, social, political and technological forces that affect business and its practice. In the modern era, special emphasis is being given to the study of business environment because its study is absolutely essential for managerial decision making.

There are various dimensions of business environment or environment such as political environment, economic environment, social environment, legal regulatory environment and technological environment etc.

Business Environment 1

The nature of economic environment is dynamic, that is, there are continuous changes in it. Business environment changes have taken place in India too and its course is still going on. The success of a business depends on how successful it has been in predicting and correctly identifying the changing business environment and adjusting itself accordingly. 

The changing economic environment in India can be studied mainly under two time periods. In the first time period, the economic environment from 1951-1990 AD is studied. In the second time period, the new economic policy of 1991 and the impact of changes in government policy in the context of liberalisation, privatization and globalization on business and industry can be studied. 

Presently, the policy of liberalization and globalization is being adopted under the new economic policy in our country so that Indian

The economy can become balanced. The environment is always dynamic and changing. Business has to be dynamic to keep pace with changes in the environment. For this, a large number of skilled and experienced managers are required. 

These managers are responsible for the changes in the business environment. They also operate the business according to the changing environment. As a result, there is profit in the business due to which the business becomes successful.


Q. 1. What do you understand by business environment? (What do you mean by Business Environment?) 

Ans. Business environment or environment means all those external economic, social, political and technological forces that affect business and its practice. In fact, business environment refers to the conditions for doing business. Business is run according to the type of environment prevailing there. 

Q. 2. Write the definition of business environment given by V.P. Michael. (Give the definition of Business Environment given by VP Michael.)

Ans. While giving definition of business environment, V.P. Michael has said that business environment is a combined form of environmental components which provides environment for business. It has a direct relationship with every business organization that operates in it. 

Q. 3. What is the importance of business environment?

Ans. Business environment has various importance. Which are as follows-

1. Helpful in providing information about risks and dangers, 2. Profitability, survival and growth of business, 

3. Helpful in giving information about strengths and weaknesses, 

4. Making good use of the opportunities presented by the environment, 

5. Helpful in making future barricade, 

6. Help in image building

7. Optimum use of resources. 

Q.4. What is the relationship between business and environment? 

Ans. Business environment is the combination of various dynamic, complex and uncontrolled external economic, socio-political, physical and technological factors within which the business has to function. The environment itself forces business to adopt new shapes, forms, new roles, beliefs and new attitudes. The environment provides new opportunities to encourage business.

Q.5. To what extent is the environment helpful in alerting us to dangers? 

Ans. Business operates in an open environment. The fast pace of development has made geographical boundaries secondary. Economies are opening up. While this openness provides new opportunities, on the other hand, there remains a possibility of new threats, crises and problems arising. 

Economic policies, increase and decrease in demand, changes in consumer trends, competition etc. are challenges for business. To solve all these problems one must have knowledge of the business environment.

Q.6. What do you understand by economic environment? How does it impact business? 

Ans. The economic environment of business mainly includes three components – the economic system of the country, economic policies of the country, economic conditions existing in the country, economic system reflects the economic ideology and economic structure of a country. The economic policies of the country affect the industry and economic activities of the country. 

Economic conditions determine the possibilities of economic development. These three factors have a very significant impact on business.

Q.7. What is meant by social environment of business? What impact does this have on business?

Ans. The social environment of business is created by the components of society’s tendencies, desires, aspirations, education, intellectual level, values, beliefs, customs and traditions etc. Neglecting these elements makes managers vulnerable to criticism from society. Business cannot be run by ignoring the values ​​and goals of the society. Therefore, awareness towards the social environment enhances the dignity of business organizations. 

Q.8 . Write a note on the political environment.

Ans. Political Environment: The interactions between government, administration and business affect the functioning of business. Many business structures arise due to political decisions. Many times such political decisions are taken. Which are helpful in the growth of business. 

Many times these political decisions also have adverse effects on business. There are some decisions which change the entire business. 

Q. 9. Write a note on legal environment. (Give a note on Legal Environment.)

Ans. The scope of the legal environment is very wide. Through this, all aspects of business in the economic world are controlled. Activities related to business, such as licensing, title and restricted transactions, securities issue, stock and produce marketing, contracts, property and estate agency, regulation, equity documents, activities of banks, all the activities from formation of companies to liquidation are included in the legal environment. .

Q.10. What is the impact of government policies on business environment? (How Govt. Politics affects the business environment 2)

Ans. Government policies have a huge impact on the business environment. Government agencies help in the establishment, protection and development of industries in the country and inspire the people of the country to invest and provide conditions and circumstances for investment. The economic progress of the nations which are developing today is attributed to their economic policies.

Q. 11. What is the role of economic policies in the business environment of India? (What is the importance of Economic Politics in Indian Business Environment?)

Ans. In our country, five-year plans are executed through the system of economic planning, whose main objective is to improve the economic life of the people there. Along with economic planning, there are some areas in which implementation is done through the economic policy of the country. Economic policies have an impact in areas such as monetary policy, public expenditure and credit policy, deficit financing etc.

Q. 12. What changes has the government made for economic liberalization in India? (In India what changes have been made by Govt. for Economic Liberalization?) 

Ans. The government has taken the following steps for economic liberalization in India-

(i) New financial system, (ii) Monetary trends, (iii) Changes in industrial policy, (iv) Inviting foreign investment and technology, (v) Formulation of policies for public sector, (vi) For monopoly industries. Policy, (vii) Changes in foreign trade policy etc. steps have been taken by the government.

Q.13. What liberalization steps has the government taken in the new industrial policy? (What steps are taken by Govt. in New industrial policy for liberalisation?)

Ans. Many liberal steps have been taken in the industrial policy announced on July 24, 1991, under which the licensing system has almost been abolished. The reserved industries have been opened to the private sector. More concessions have been given to foreign firms. The objective of this new industrial policy is to free the Indian industrial economy from unnecessary controls. 

Q.14. What economic policy has been adopted regarding foreign investment and industrial technology? (What policy is adopted for foreign investment and industrial techniques?)

Ans. The government has made several liberal changes in economic policy to encourage foreign investments and technology. To attract foreign investment, it has been decided to give 51 percent stake to foreigners. Earlier this share was 40 percent. Now as per the policy, arrangements are made for foreign exchange for import of capital goods for industries related to foreign capital. 48 industries have been given the option to appoint foreign experts with full permission from the government.

Q. _ 15. What policy has been made for monopoly industries? (What policy is adopted by Govt. for monopoly industries?) 

Ans. In the policy of liberalization, the asset limit of companies covered under the Monopoly and Restrictive Trade Practices Act has been abolished. Now it is not necessary to take prior permission from the Central Government for establishment, expansion, merger, amalgamation and modernization of units and for appointment of operators. 

A major impact of the announcement of the new policy is that the provisions of the Monopolies and Restrictive Trade Act have almost been eliminated.

Q. 16. What impact has the policy of economic liberalization in India had on the foreign trade policy? (What is impact of Economic Liberalization of foreign trade policy in India?) 

Ans. As a result of this policy, India has achieved success in the field of foreign trade. This policy is very liberal towards imports. In the new policy, import of 201 items has been made under open general license and import of 153 items has been exempted from state trade. Apart from this, this policy has encouraged technology import by ending the automatic licensing system and liberalizing the import of computer systems. 

Q.17. What changes have been made in monetary trends under the new economic policy? (What monetary affairs are changed on new economic policy?)

Ans. Some important changes have been made in the monetary sector. The concept of annual money supply control has been given a place in the economy. Chakraborty Committee has accepted the ideology of discretionary currency. Many decisions have been taken to stop inflation. Apart from this, trends like increasing interest rates on government loans, indexing of interest rates etc. are also developing in the monetary sector. 

Q. 18. What are the elements of general environment of business? (What constitutes, general environment of business 2)

 Ans. The environment of any organization is generally divided into three different levels. General working environment, environment and indoor environment. Following are the elements of general environment: (i) Economic environment, (ii) Non-economic environment,

(iii) Social environment and (iv) Political environment.

Q. 19. What is the importance of information about business and environment? (What is the importance of knowing about business and environment?)

Ans. The importance of information about business and environment is as follows-

1. Information about the changes taking place in the internal environment of the business is necessary for the business to get information about its internal situation.

2. To get information about business challenges and problems at the right time, one should have knowledge of the business environment.

3. Information about the business environment is necessary to maintain the strength of the business in the changing environment and to face the changing environment. 

4. Information about business environment is necessary to face international events, working system of institutions, problems and challenges arising from pressures etc. 

Q. 20. Mention managerial response to changes in business environment. (Explain Managerial response to changes in Business Environment.) 

Ans. Managerial response to changes in business environment can be referred to as

1. Acquisitions and mergers, 2. Capital structure, 3. Diversification strategy, 4. Consolidation of multinational companies, 5. Consumer focus, 6. Distribution and direct marketing, 7. Brand image, 8. Technology upgradation, 9. Competitive advertising, 10. Anticipation and Adaptation 11. Production capacity, 12. Mental revolution among workers, 13. Emphasis on social responsibility and 14. Change in managerial style.


Q. 1. What do you understand by business environment? (What do you understand by Business Environment?)

Ans. Business is a group word which has arisen in combination with many external circumstances and environment like economic, political, historical, commercial, cultural etc. All business activities are completed within the social environment. Any business activity is completed only in the social environment. No commercial activity can be carried out in the forest without humans. In this way business is nurtured within the society itself. External forces and conditions affect the business environment. 

These external forces are beyond the control of the business organization and its managers and affect the functioning of the organization. These are external, specific and general. Special powers refer to the customers, creditors and creditors of the business which directly affect the operations of the business. General forces such as government policies, labor unions, activities of competing firms and technological changes also affect business.

Q. 2. “Business is what its environment makes it.” Describe. (“Business is what its environment has made it.” Discuss.) Or, explain how environmental forces and business activities

Are related to each other. (“Discuss how environmental forces and business activities are interrelated.)

Ans. [First of all, a brief description of question number 1 has to be given.] It is clear that the business firm acquires money, materials, machines and other resources from its environment.

Receives. Any change in price, quality or supply will definitely affect the firm. 50 This product and service is offered. The society decides what should be the quality, quantity and price of the product which it will accept. Therefore, the survival of the firm depends on the environment that determines its goods and services. Hence the environment and business is perfect for a large business unit. Business should keep changing depending on its environment. 

Q.3. Explain the impact of dynamic nature on business environment. (Explain Impact of Globalization on Business Environment.) 

Ans. Impact of Globalization on Business Environment – Meaning: There are very rapid and significant changes in the business environment. Increasing interference of government, rapidly changing technology and changing nature of international trade. The seeds of Globalization were first sown in India in 1991 when the New Economic Policy was announced by the Government of India in July, 1991. Under this new economic policy, Indian companies were given permission to set up industries in India in collaboration with foreign companies and Indian companies in foreign countries were given permission to set up industries in foreign countries.

Encouragement was given to establish industries along with companies. Impact: The impact of globalization is evident from the following changes in the business environment-

1. The size of foreign trade has increased rapidly.

2. In recent years, the Government of India has signed agreements for cooperation in automobile, cement and electronic industries with the industries of Japan, West Germany and the United States. Have come to do it.

3. The changing nature of India’s foreign trade structure and cooperation with foreign industries has changed the Indian business environment.

4. Emergency taxes were reduced to a certain extent.

5. Automatic approval was given to 51 percent foreign investment in primary industries. 

6. Unrestricted approval has been given to foreign technological cooperation in identified high priority industries. Commerce is the group of all those activities which are actually used till the distribution of production.

Q.4. What do you understand by political, government and administrative environment? Explain in detail how it affects the economic environment? (What do you understand by Political, Ruling or Government Environment? Explain its detail how it affects business environment. ) 

Ans. The interactions between politics, government, administration and business affect the functioning of the business. Many business structures arise due to political decisions. These political decisions have a good impact on business, but sometimes these decisions have an adverse effect. 

Some political decisions completely change business. The second important aspect associated with the political aspect is the government or government.

Is the side. Different governments influence business in different ways. 

Therefore, it is necessary for business to be familiar with the political, government and administrative environment and to fulfill business interests from this environment as per the time. 

Q.5. How does the legal environment affect the business environment? (How does legal environment affect business environment?)

Ans. The legal environment of a country affects its economic, social and political life. The legal environment also provides protection to the system and it can be forced to function properly. Efforts are made to promote public interest through the legal framework. 

Many restrictions are imposed by law on activities for social welfare and public aspirations. The scope of the legal environment is very broad. Through this, all aspects of business in the economic world are controlled. Different acts are made for different aspects of business. 

Legislatures, committees and commissions are formed and courts and tribunals are established under the constitution of the country.

Q.6. Describe the economic environment affecting business. (Give the factors of Economic Environment affecting business.)

Ans. Every type of business wants an economic environment. Capital, plant and machines, buildings, stock, office equipment, cash resources etc. deeply influence the business. The achievement and value of skilled workers and technicians in the economy is also a consideration for the business. The country’s price level, productivity, tax and fiscal policies of the government also significantly influence business activities. 

In the economic environment of business 3. It mainly includes three components – the economic system of the country, the economic policies of the country and the economic conditions prevailing in the country. Apart from this, two important components of the economic environment are the courageous managers of the business and its customers.

Q.7. What do you understand by the economic policies of the country? And how do they affect business? What do you understand by Economic Policies of a nations? And how it affects Business?)

Ans. The economic policies of a country significantly influence the business, industry and economic activities flourishing in that country. Fluctuations in economic activities, growth, contraction, export, promotion, expansion, development, research, competition etc. are affected by the economic policies of that country and in a developing economy, economic policies are determined by economic equality, employment generation, stability, poverty alleviation, inflation and Control on contraction, resource allocation, income growth, internal savings and investment growth etc. are done to achieve the goals. The main policies of a country can be as follows-

1. Industrial policy, 2. Monetary policy, 3. Fiscal policy, 4. Tax policy, 5. Deficit financing and 6. Income, employment, price policy.

Q.8. What is the role of social environment in business environment? (What is the role of Social Environment in Business Environment?) 

Ans. Social environment plays an important role in creating business environment. Some important points in this are as follows – 1. The belief has increased in the society that there are always opportunities in the society for the people who have the will and capacity to work.

2. Devotion and belief towards business. 

3. Development of competitive spirit especially in every sphere of life.

4. Feeling of respect towards a person irrespective of caste, religion and sect.

5. Love for knowledge and education.

6. Faith in logic, science and technology.

7. Higher quality of life.

Q.9. What effect does economic condition have on business? What could be the economic conditions? (Give impact of Economic conditions on Business? Gly different types of Economic Conditions.)

Ans. Economic conditions, on the one hand, are considered an indicator of economic progress and on the other hand, they provide the basis for the possibilities of economic development. The importance of economic conditions for business is linked to the fulfillment of business possibilities and opportunities. Economic conditions: Economic growth also affects the standard of living and quality of life of the people. Based on the economic conditions, the business prepares plans and programs regarding exploration of new markets, expansion of business, new products, advertising strategy, 100 percent export ventures, etc.

Major economic conditions may be as follows: 1. Supply of natural resources, 2. Level of economic development, 3. Capital formation, 4. Level of utilization, 5. Market size, 6. Business structure 

Q. 10. Describe the policy of economic liberalization in India. (Discuss the policy of Economic Liberalization in India.) 

Ans. It was only after Rajiv Gandhi became Prime Minister in 1985 that new trends were outlined in the economic policy of the government. The things that the Prime Minister paid special attention to were increasing productivity, assimilating modern technology and making full utilization of potential a national campaign. 

Public sector was given important place and at the same time it was decided to remove the shortcomings of the public sector. To provide a wider scope for the private sector, many policy changes were made which relate to industrial and licensing policy, import-export policy, technological advancement, policy related to foreign capital. Along with this, special attention was paid to the removal of administrative controls and restrictions and simplification of the fiscal and administrative regulation system.

Q. 11. What measures did the government take to encourage the economic environment of the country? (What steps are taken by Govt. to improve Economic Environment or Business?) 

Ans. The measures to encourage the economic environment of the country have been divided into two categories – (a) Direct measures and (b) Indirect measures. 

direct measures 

1. To arrange economic and social overheads and capital.

2. To prepare concrete programs for rapid economic development. 

3. To contribute to the capital formation of the country.

4. To participate directly in industrialization.

indirect measures

1. To prepare tariff policy and implement it.

2. Determining the price policy.

3. Bringing change through fiscal policy and tax policy.

4.Implementing coastal and foreign trade policy.

Q. 12. Which political, government and administrative components is necessary to be known for a business? (What are administrative and political factors that should be known for a Business?) 

Ans. For business, it is necessary to be familiar with the political and government environment.

1. Political ideology, viewpoint. Therefore, a businessman should be aware of the following components of the political environment-

2. Political regimes such as communist, socialist and democratic regimes.

3. State intervention, control, exchange and liberalization.

4. Parliamentary, legislative and administrative decisions

5. Nature of central, state and local governance.

6. Government and governance system

Q. 13. What effect do the economic policies of a country have on business and industries? Describe in detail. (What are the impacts of economic policies on the industry of a business? Explain.) Or, How do the economic changes initiated by the Government of India affect the functioning of Indian business? (How the economic changes initiated by the Government of India influence the working of Indian business?)

Ans. The economic policies of a country significantly influence the business, industry and economic activities that flourish in that country. Fluctuations in economic activities, growth slowdown, localisation, promotion, expansion, development, stagnation etc. Economic policies of that country affect exports. Determination of economic policies in a developing economy. Economic equality, employment, poverty alleviation, control on inflation, income growth. The goals of sharing dreams, capital formation, export promotion, foreign investment etc. can be achieved. The following policies are included in the economic policy of a country. These policies are based on the business and industries of the country-

1. Industrial policy, 2. Fiscal policy, 3. Tax policy, 4. Deficit financing, 5. Policy for specific industries, 6. Monetary policy and 7. Income employment price policy.

Q. 14. Why was the need for a business environment felt? (Why there is need of Business Environment?)

Ans. The need for a business environment arose to simplify the increasing complexities of business. Due to the following increasing complexities of business, the need for business environment was felt –

1. Increasing government interference in business. 

2. Technological changes taking place in the modern business world 

3 Labor related problems. 

4. Increase in competition from foreign companies. 

5. Increasing problem of pollution 

6. Requirement of huge financial resources. 

Q. 15. What is the role of government in creating economic environment? (What is the Role of Government in providing Economic Environment?) 

Ans. In all countries, whether they are under capitalist system or communist or socialist or mixed economic system, the role of government holds an important place. The role of government is not the same in all economic systems. There are many reasons for this, such as the level of development, competition, poverty level, welfare nature of the state etc. , Generally the government of a country plays the following four types of roles. 

1. Role of regulator 

2. Role of enforcement or promotion.

3. Role of entrepreneurship.

4. Role of the planner.

Q. 16. What actions has the government taken to enhance the economic environment? (What steps have been taken by Government development of Economic Environment?)


1. To maintain public services in the country. 

2. To nurture the spirit of development of the country. 

3. To make economic institutions development-oriented. 

4. To increase the proper utilization of resources. 

5. Influencing the distribution of income 

6. To bring about a situation of full employment. 

7. Controlling economic pressures. 

8. To increase investment as per the need of development. 9. To control the quantity of currency.

Q.17. What are the main components of the economic environment? (What are the major components of Economic Environment?)

Ans. Economic environment – ​​Elements of economic environment are – gross national production, regular profit, rate of price increase, productivity, employment rate, payment balance, interest rate, tax rate and consumer interest, credit and economic environment has a deep impact on the organization’s policies and actions. For example, due to the lifting of economic control on cement in 1982, its production capacity increased rapidly. The resulting increase in supply changed the market situation from scarcity to substantial surplus. 

Q. _ 18. Does change in climate affect business decisions? (Do change in environment influence the business decision?) 

Ans. Business environment is surrounded by two types of environments-

(a) Economic environment and (b) Non-economic environment.

In both, the business environment is affected by changes in the environment and at the same time it affects the business environment.

Q. 19. What process do Indian managers undergo due to these changes? (In what way Indian managers responded to these changes?)

Ans. The economic changes initiated by the Government of India have affected Indian business and Indian managers to a great extent. Indian capital structure has become stronger. Indian companies have gained access to the international market. The confidence of people living abroad in the Indian economy has strengthened. The production capacity of Indian companies has increased.


Q. 1. Explain the meaning of business environment. What are its different components? (Explain meaning of Business Environment. What are the different components of Business Environment ?)

Ans. Business Environment: According to Raineeke & Shoell, ‘Environment is the sum of all those external factors to which the business is exposed and is directly or indirectly affected.’ (“The environment of business consists of all those external a things to which it is exposed any by which it may be influenced, directly or indirectly.”)

In the words of William Glueck and Jouch, “The environment consists of factors external to the firm, which constantly pose opportunities and threats to the firm. Among these, social, economic, technological and political conditions are prominent.

According to Richman and Copin, “There are pressures and controls in the environment which are mostly beyond the control of the firm and managers.” It is clear from the above ideas that the business environment is dynamic, complex and uncontrolled.

External is the combination of economic, social, political, physical and technical factors under which the business has to function. The environment itself forces business to adopt new shapes, forms, new roles, beliefs and new attitudes. In many circumstances, business gets encouragement and new energy from the environment in search of new opportunities. It is also true that business is also an important component in the change of environment. 

55 Many decisions have to be taken in the economic sector – type of production, order, price structure, production system, distribution chain, income management etc. In an independent economy, these decisions are taken by the businessmen. The business class takes its decisions keeping in mind the dynamic environment. All business activities are determined in the context of the economic, social, political, legal, ethical and cultural environment of the nation. 

Therefore, an alert and aware businessman does not ignore the environment, but takes business decisions only after accepting the constraints, limitations, opportunities and policies of choice. Components of Business Environment: The business environment is very vast and complex. This is the mesh formula of the various components, with

It is changing every moment. Its forces, conditions and effects are constantly dynamic. Business, progress and development depend on two elements – the quality of the business itself and its external factors in which it is nurtured and developed. Different components of business environment. Economic Components – This includes economic events, economic policies, demand, supply, investment, industrial trends and economic pressure, investment flow and level, import-export, fiscal and taxation policies, monetary policy etc.

2. Geographical and Ecological Components: This includes natural resources, environment, climate, topography, marine and aerial structure, geological resources, magnetic and solar energy etc.

3. Political Components: This includes the state of government, economic and governance system, political vision, administrative institutions, constitutional system, security etc.

4. Social and Cultural Components – In this, social values, customs, beliefs, notions, social system, materialism, religion, culture, rituals etc. are prominent.

5. Science and Technological Components – Under this, scientific research and standards, technological development, mechanics, nuclear power, satellite communication system, celestial research laboratories etc. are prominent.

6. Legal and Judicial Components — These include the judicial system, various types of occupational, industrial labor control codes, administration system etc. 

7. Other Components – Population, educational level, consumer behavior,

Security, crisis and danger, international powers, industrial power and conflict etc. are included.

Q.2 . What changes have been made in industrial policy in recent times? (What changes were made in the industrial policy in the recent past?)

Ans. New Industrial Policy-

1. Many licenses have been exempted except in certain industries.

2. Industrial registration schemes have been abolished.

3. A new comprehensive facility was also introduced which provides greater flexibility in operations.

4. Information Technology Bill was passed by the Parliament.

5. Foreign equity up to 51% allowed for new companies in 34 high priority industries. Existing companies can also raise up to 51% foreign equity even if a new business plan or expansion program incurs losses. 

6. The government has launched the Electronic Hardware Technology Park Scheme (EHTP) to allow up to 100% foreign direct investment in the field of electronics. Started the plan.

7. Where the availability of foreign exchange is certain through foreign equity, permission is given automatically for capital goods.

8. Automatic individual scheme for import of foreign technology and royalty payment has been started in some designated high priority industries. 

9. The moratorium on dividend repatriation rate by foreign investors has been withdrawn.

10. Specially empowered Foreign Investment Enforcement Board (FIPB) has been set up for speedy approval of foreign investment proposals.

11. The government abolished many restrictions and liberalized foreign direct investment by Indian companies.

12. Foreign Exchange Management Act 1999 was passed. It replaced FERA

13. Restrictions were lifted on all products.

14. FTZ was replaced by SE.

15. Agricultural Economic Zone Scheme was implemented.

16. The limit of property for use in future has been abolished. This limit brings any company within the Section 8 limit or makes it a dominant company.

17. No MRTP permission is required for application for MRTP investment nor for establishment of a new unit or expansion merger if approval is required for amalgamation and acquisition.

18. Restrictions on acquisition/transfer of shares have been removed.

19. P.A.U. Its important role has been limited and only some basic industries like manufacturing of war material and railways have been subordinated to it.

20. The scope of BIFR has been extended to the public sector. 

21. The role of PSUS was abolished. It was decided that new PSUS would not be established. The current expansion will not be done through additional equity shares of the government. Instructions were given to raise the necessary capital from the market for the expansion of PSUS. The price preference for issuing tenders for purchases by the government was abolished. 

The decision to bring the loss-making PSUS under the ambit of BIFR was part of the restructuring programme. No money will be given for rehabilitation of sick units. Government equity capital in PSUS will be disinvested.

New Trade Policy: Liberalization of foreign trade has brought about a lot of changes in the foreign trade situation of the country. Import-export trade has been freed from the clutches of control. In one stroke, the country’s import-export activities will be affected for years.

Controls were abolished and many of the weak policies that had affected foreign trade and investment policy during these years were withdrawn.

Q.3. What economic changes has the Government of India started in 1991? Briefly explain some important major changes.

(What economic changes initiated by the government of Indian since 1991 ? Explain in brief the major changes.)

Ans. Economic Changes

1. Barring a few non-permitted items, almost all other items were allowed to be imported. 

2. Imports have been completely removed from the license and the direction of most imports has been changed.

3. There has been a huge reduction in import duty on many items including capital goods.

4. Import duty on all goods except non-essential consumer goods was reduced to 30% and below.

5. Tariffs and exchange rates will be used as a means of controlling the flow of trade, including potentially respectable market bridging, and quantity restrictions will have to be removed.

6. The government implemented the Rupee/Dual Exchange Rate System partial conversion system in 1992-1993 and the Current Account Unified Exchange Rate System full conversion system in 1993-94.

7. Partial convertibility has allowed the conversion of 60% of the currency received in the country into rupees under the dual price policy system. Foreign currency is allowed to be converted at the rate determined by the market. Foreign currency can be converted at the rate determined by the market while 40% at the government regulated rate. Later the government further improved the situation and made the rupee fully convertible on trade.

8. Abolition of export tax.

9. Export credit at cheaper rate and reduction in import tax.

10. The conversion of rupee during trade acted as an incentive for exports. 11. Simplifying the process related to export promotion. Since June 1962, the compensation for heavy import duty on exports was increased on 161 affected items and from June 1993, this compensation increase was extended to an additional 331 items. Duty Drawback Imports The higher rate of import duty imposed on raw materials used in the manufacturing of export products enables the exporter to compete better in the international market.

12. Export Oriented Unit (EOU) scheme and Export Zone (EPZ) scheme were simplified and special incentives were given for these schemes in agriculture, horticulture, fisheries, poultry and animal husbandry.

13. New Export Promotion Capital Goods Scheme (EPCGS) Another export incentive scheme, it exempted import of capital goods at a rebate of 15% import tax with the condition of export. 

14. Deemed exports, manufacturers having ISO 9000 and 14000 certification were made eligible for licensing and export definitions were further liberalized.

Supplies from EOO/SEPZ limit supplies against EPGC licenses and supplies against prior licenses have been granted export recognition. Revenue and Monetary Reforms—

1. Reduction in revenue deficit.

2. Reforms in the tax system.

3. Reduction in corporate tax and personal income tax rates.

4. Something in settlement of capital gains tax and hydro tax 

Existing exemptions and concessions were removed and tax payments and changes were strengthened.

5. Substantial cuts were made in indirect taxes, production tax and import tax.

6. Phased reduction in statutory liquidity ratio.

7. Allowing some degree of flexibility in matters of deposit interest rates.

8. Set values ​​in terms of capital adequacy, recognition of assets and provision for loss on loans.

9. To achieve independence on the basis of capital and to meet the new criteria of capital adequacy, nationalized banks were allowed to go to the capital market.

10. Allowed disinvestment up to 49% of equity capital. 

11. Permission granted to establish banks in private sector.

12. Insurance Regulation and Development Act (IRDA) was passed by the Parliament. Improvement in Capital Market—

1. Under the Port Folio Investment Scheme, the limit for obtaining debentures of shares of Indian companies by NRIs and foreign corporate units has been increased from 5% to 24%.

2. SEBI was made a statutory institution. 

3. Low restrictions on interest rates in the public sector have been removed, except on debentures and tax free wands. Market forces will now determine the interest rates on these securities.

4. The Office of Corporation Control (CCI) has been abolished. Automatic pricing of shares has been allowed.

5. Bonus offers have been made more generous.

6. To provide protection to investors, the scheme of registration of sub-nockers was implemented. The private sector has been given the freedom to set up mutual funds.

7. Pension coops, mutual funds, investment trusts, asset management companies and institutional portfolio managers operating in the capital market of India were opened to foreign institutional investors. Foreign brokers were allowed to operate in the capital market.

8. Phased end of economic assistance and lifting of price controls. Cash Compensation Support (CCS), which forms the bulk of export subsidy, was completely abolished.

9. Subsidy on fertilizers and petroleum products was reduced. In fertilizers, the government freed Fort Favit potassium and mixed fertilizers from price control.

10. Price and distribution controls on iron and steel were removed. 11. Among pantry products, the government completely deregulated the price of Tovaricant. Kerosene and L. P.G. In relation to this, it allowed double pricing and parallel marketing by the private sector.

12. The government also diverted the import of these products. Now Indian and foreign private sector can also enter these businesses and sell those products. The government diverted the import of naphtha and allowed actual users to directly source from foreign suppliers.

Q. _ 4. What is meant by economic environment? What is its specialty? (What is the meaning of economic environment? What is its advantages?)

Ans. Economic environment is made up of two words i.e. economic environment = economic environment. Meaning of economic – All those activities are called economic activities which are done by a human being to earn his livelihood. Mainly these economic activities can be divided into five parts-

(i) Consumption (ii) Production (iii) Exchange (iv) Distribution (v) Revenue.

Meaning of Environment – ​​Environment means those immediate circumstances which affect human economic, social, political, cultural life etc.

Economic environment: In this way, all the social, political, cultural, natural conditions that affect or are affected by the economic consumption, production, exchange, distribution and unity of the society is called economics. Characteristics of Economic Environment-

The following characteristics of the environment-

“(i) Relationship with Economic Environment – ​​Economic environment is related to the economic activities of man. Agriculture industry is included in economic activities.

“(ii) Impact of other factors – National and international factors have an impact on the economic environment. The physical and social environment determine its form, size etc.

(ii) Government Guidance – The economic environment is often influenced by policies, incentives, various types of assistance programs, etc. 

(ii) Public View – If the people of the country remember the current government, then emphasis will be laid on earning more and more money by any means and morality will deteriorate. This will pollute the economic environment.

(v) Distribution of Income – When there is unequal distribution of income and wealth in the society, the economic environment becomes stagnant due to the concentration of economic power. Many illegal methods like rough-marketing, bribery etc. start being used more.

(i) Availability of Capital – If adequate amount of capital is provided, various types of businesses and trades can be run by the public as per their wish. Therefore, the economic environment expands, on the contrary, when there is a shortage of capital, economic activities also get reduced.

(vii) Economic View – Many economic ideologies like capitalist, socialist, communist, socialist, mixed etc. are prevalent which affect the nature of economic environment, shapelessness, expansion etc. Whatever economic ideology prevails in the country, the economic system is also set accordingly.

Q.5 . What are the factors affecting the economic environment? (What are the factors affecting Economic Environment?)

Ans. The following many elements affect the economic environment- 

1. Availability and exploitation of natural resources: The economic environment in the country depends on the availability of natural resources available there and their potential exploitation. The position of the country mainly has a huge impact on climate, trade and climate. The countries which are situated in the middle of the landmass can easily trade with all the countries, whereas the countries which are situated in a corner in the east or west. Is. He faces distance related difficulties in doing business with many countries. 

2. Human resources and their use (Availability of Human Resources) – Human resources are the main determinant of the economic environment. In countries where sufficient number of new resources are available and the labor force is skilled, hardworking and trained, economic development takes place in three ways. The quantity of production, level of employment and technological development in the country depend on the availability of human resources and their optimal use.

3. Economic System: The economic system of a country has a huge impact on the economic life of the residents of that country. There are three types of economies prevalent in the world – capitalist, socialist and mixed economies. In capitalist, there is minimal interference from the government. In a socialist economy, the government has control over production, exchange, distribution etc. In a mixed economy there is harmony between both private and public. 

4. Economic Policies: The economic policies of any country have a wide and important impact on the economic environment of that country. Economic policies include food policy, fiscal policy, industrial policy, agricultural policy, population policy, price policy, trade policy, import-export policy, transport policy, employment policy etc.

5. Economic Conditions: Various conditions present in the country have a direct impact on the economic environment of that country. These economic conditions mainly include level of economic development, level of national income, insurance and banking system, tax structure, assistance, foreign borrowing load, condition of trade balance and balance of payments, basic availability, business cycle, poverty, unemployment, economic inequality. There are many such are done. Money Market and Capital Market

6. Money market and capital market play a vital role in creating the economic environment. Short-term loans and credit are arranged through the money market and long-term credit is arranged through the capital market. Economic policy) is an important place in the country. The more these markets there are in the country, the greater will be the mobility of capital. Describe the economic reforms taking place in various sectors.  

Q.6. Explain the success and criticisms of the new economic policy. (Explain the successes and criticism of new economic policy.)

Ans. Successes of the new economic policy- 1. Increase in National Income – India’s national income at current prices was Rs 4,50,280 crore in 1990-91. Which was Rs 15.90,301 crore in 1999-200. happened. In 1990-91, based on 1993-94 prices, the AAP was Rs 6,14,386 crore. Which also increased to Rs 10,11,224 crore in 1999-2000. yes

2. Increase in Development Rate – In 1991-92, the rate of economic growth was only 0.8 percent, as a result of various economic reforms done under the New Economic Policy, it increased to 6.7 percent in 1996-97. Percentage increased.

3. Increase in Foreign Trade – India’s manufactured trade was Rs 32,553 crore in 1990-91, which increased to Rs 1,18,817 crore in 1996-97. And Rs 19,753 crore in 1998-09. Went from.

4. Increase in Foreign Exchange Reserves – Excluding own and SDR, foreign exchange reserves in the country were only Rs 14,578 crore in 1991-92. Was left only. Due to this, foreign investors became apprehensive and they started taking their investments out of India. It again increased to Rs 1.02.507 crore in 1997-98. Done. 

5. Decrease in Fiscal Deficit – Fiscal deficit as a percentage of Gross Domestic Product (GDP) was 7.7% in 1990-91. After the implementation of economic reforms in 1991–92, it came down to 5.4%. 

Criticisms of new economic policy-

1. Entry of MNCs – Due to encouragement of liberalization and privatization policy, entry of companies in India increased. This may pose an existential threat to indigenous companies.

2. Increase in unemployment – ​​Due to increasing foreign competition, closure of indigenous industries and adoption of latest foreign technology, the problem of unemployment in the country is gradually becoming acute.

3. Increase in Foreign Investment – ​​Due to liberalisation, foreign capital is continuously expanding its footprint in India. When the huge interest and dividends to be paid on this foreign capital after a period will drain out of the country. Indian economy will be engulfed in many crises.

4. Pressure Politics—Developed nations are pressurizing India to adopt free trade, in which the United States is leading. Foreign companies want to invest in these areas. Where indigenous companies are doing very good business. 

5. Crisis of Economic Inequalities: All the benefits of liberalization and privatization policy are being reaped by big industrial houses, business establishments and foreign investments. There has been a decline in the government treasury due to concessions given in various types of charges. 

Q.8 . What is meant by economic planning? Explain the characteristics of economic planning. (What does economic planning mean? Explain the importance of economic planning.) 

Ans. At present, financial planning is the most popular subject. Today, the sound of economic planning is echoing in all the developed and semi-developed countries of the world. Every country in the world that wants rapid economic development, whether it is a capitalist country, a socialist country or a communist country, definitely adopts economic planning in some form or the other. The popularity of economic planning is mainly based on two types of elements. 

Semi-developed nations resort to planning to develop rapidly by making best use of their resources. Through planning they try to eliminate unemployment and poverty in their country. Developed nations resort to the -20 plan for further economic development and economic stability. Not only this, many countries take the help of planning for development through collective efforts.

According to Sis, planned economy is a system of economic organization in which individual and separate units, enterprises and industries are considered as a coordinated system, the objective of which is to use all the available resources in a given period for maximum satisfaction of someone’s needs. ” Features of economic planning-

1. Method of Economic Integration – Planning is a method of economic organization, in which the economy is organized in a special way.

2. Continuous Process – Planning is not a short-term but a continuous process. Once planning is adopted the planning process continues continuously.

3. Pre-determined Objectives – Economic planning is designed to achieve pre-determined and well-thought-out objectives.

4. Fixation of Priorities: Economic concentrations are always C. There are more possibilities for development, but all the work cannot be completed at one time. 5. Evaluation – In a planned economy, not only is there a close scope of development work, but after the implementation of those programs, the results of those programs are also evaluated. Appraisal is also done.

6. Government Interference – In a planned economy, economic forces are not left free to work independently, rather there is interference and control in every economic activity.

Q.9 . Describe the main objectives of economic planning. (Explain the main objectives of economic planning.)

Ans. The main objectives of economic planning are as follows –

(A) Economic Objectives – (i) Fast economic development through planning

The country wants to achieve faster economic growth than an independent economy. This work can be easily done in planning by optimum use of all the resources of the country.

(ii) Increase in Production: Through economic planning, the objective of increasing production in all sectors of the economy is determined.

(iii) Best Utilization of Resources – In an unplanned economy, resources are used indiscriminately, whereas in a planned economy, arrangements are made for the best use of resources.

(B) Social Objectives-

(i) Social security is provided to every member of the society from time to time.

We have to face five enemies, such as death, accident, disease, old age and unemployment. In economic planning, social security is arranged against these enemies. 

(ii) Social Equality: On one hand, equality is established in economic planning, while the objective of social equality is also kept. 

(iii) Control on Adulteration: In planning, production and distribution of goods harmful to a person’s health is prohibited.

(c) Political Objectives 4 (i) Protection from Enemies A country aims to protect itself from foreign attacks by strengthening its defense system through planning programmes.

(ii) Establishing Peace: Today the need for planning at the international level for establishing world peace is being felt.

(iii) International Co-operation – Many countries of the world have used planning for international cooperation. International cooperation helps in development.

Q. 10. What is the responsibility of business towards the community or society? (What are the social responsibilities of a Business?)

Ans. A businessman is also a citizen like any other citizen. Therefore, he should also perform his duties like a good citizen. As a businessman he has many responsibilities towards his community. Fulfilling them well is a sign of a good citizen.

These responsibilities are as follows –

(i) Providing employment opportunities to the local community – Employment should be given to the people of the area or place where the business is located. If local employees with technical and special skills are not available, they may be recruited from outside. But most of the people in the business should be kept at that particular place. 

(ii) Providing facilities and assistance in education, health, housing etc. to the local community (Providing Housing Facilities) Businessmen can spend some part of their earnings by building schools, hospitals, residential houses, gardens, libraries, kindergartens etc. in their nearby areas or By providing financial grants, we can provide great social service to the local community. 

(iii) Being helpful in raising the standard of living of the people (Uplifting Standard of Living) – The income of local people can be increased by giving them employment in business, which can prove to be helpful in raising their standard of living.

(iv) Providing assistance to helpless persons and handicapped persons (Helping Weaker Section of Society): Social responsibility of business can be fulfilled properly by providing financial and other kind of assistance to the helpless or handicapped persons in the society.

(v) To contribute to the programs that take the society towards progress (Helping National Social Services) Contributing to the advancement of social programs prevalent in the country like family planning, small savings, rural improvement etc. is also a less important aspect of business. There is no social responsibility.

Q. 11. Explain the main features of Indian Planning.

Ans. (i) Mixed Economy – In the industrial policies of 1948 and later in 1956, it was decided to adopt the development of the public sector along with the development of the private sector in some very important and basic sectors, as a result of which in the plans Development goals are set for both private and public sectors. (ii) Property Directed Planning – Planning Commission of India

It is not a government organization, rather it is an advisory organization. The plans prepared by it cannot be imposed. (iii) Universality: In India, the schemes are designed in such a way that neither any geographical area of ​​the country, nor any section of the society, even if it is a worshiper,

Whether he believes in the system or belongs to any social class, nor any part of the economy remains outside the scope of planning. 

(iv) Physical and Financial Planning – The specialty of Indian planning is that for the success of planning, arrangements are made for appropriate use of physical and financial resources. By mobilizing real resources in physical organization

Efforts are made to achieve production targets and in financial planning, resources are assessed and finance is arranged for investment.

(v) Continuous Process – The planning process in India is a continuously running process. After the Third Plan, due to the economic crisis, the process of Five Year Plans was postponed and three plans of one year each were started (1966-69) and again in 1969, the process of Five Year Plan was started with the Fourth Plan (1969-74).

Was started as. 

Q. 12. Explain the characteristics of business environment. (Explain characteristics of Business Environment.)

Ans. Characteristics of Business Environment: Following are the main characteristics of business environment:

1. Factors of Business Environment are Interdependent: The environment is made up of many components. All these components are interrelated to each other. Therefore the impact on business

Cannot be identified independently. 2. The entire business environment is dynamic. The environment is made up of many components and changes keep happening in some or the other of these components.

3. Business environment hits firms differently: It is not necessary that any change in the environment has the same effect on all businesses. Therefore, the characteristic of the environment is that it affects different businesses differently. 

4. Business Environment has long-term impact. Changes in the environment have long-term impact on business because the changed environment keeps affecting the profitability, productivity and growth of the business.

5. Other Characteristics – (i) Business is considered a medium to bring change in the society. (ii) The business environment is uncertain and uncontrolled. (iii) Uncontrolled components of the environment have immense impact on business and create many obstacles. (iv) Many dangers arise due to sudden changes in the environment. (v) The responsibility of identifying major and important changes occurring in the environment rests with the business itself. (vi) Despite adverse conditions in business, it is necessary to have a wide adaptability.

Q.13. What is the importance of business environment?

(What is the importance of Business Environment ? )

Ans. Importance of Business Environment – ​​The importance of business environment is clear from the following facts – 

1. Helpful in providing information about changes: Information about the changes taking place in the internal environment of the business is necessary for the business to get information about its internal situation.

2. Helpful in providing information Threats – Information about the interactions of business and environment is necessary to get information about business challenges and problems and upcoming crises at the right time.

3. To get information regarding new challenges and problems. To get accurate information about new challenges and problems. These challenges can be in the following forms and sources-

(i) Problem of declining productivity. (ii) Continuous increase in production cost. (iii) Rapid changes in production systems, procedures and technology (iv) Changes in managerial styles, methods, and thinkers (v) Problems arising from new technology (vi) Uncertainty in fashion, style, design, clothing etc. Rapid change (vii) Complexities related to understanding human behavior (viii) Decreasing state of mutual harmony and good faith.

4. Helpful in providing information regarding Strength and Weaknesses: From the business environment, the businessman gets information about how strong or weak his business is in facing the environment.

5. Helpful in formulating information regarding strengths and weaknesses. Under this, it is seen how the competing firms are taking advantage of the business environment and then plans are prepared accordingly. 6. Other important factors of business environment

Business Environment)- 1. Political instability, excessive activity of pressure groups, dominance of bureaucracy.

It is not difficult for a business to get entangled in the increasingly complex web of government policies, laws, ordinances, orders, judicial processes and complexities and delays. In the name of public interest, it tightens the screws, making free and independent business activities almost impossible.

2. Socio-cultural values, beliefs, influence of caste and religion, mobility of labor, common people’s views towards work and wealth, people’s behavior towards business and other beliefs prevalent in the society and illiteracy etc. which affect any business. They are powerful enough to make plans and programs successful or unsuccessful.

3. Uncertain changes occur due to open market economies and these pose many threats to business.

4. The challenge of limitation of business activities due to different countries having different governance systems.

5. Problems arising due to many misdirected changes in the economic policies of governments and causing stagnation in business. 

Q.14. What effect does change in business environment have on managerial responsibility? (What is the Managerial Response due to changes in Business Environment 2 ) 

Ans. Changes in Business Environment – ​​Business environment is dynamic, hence there are continuous changes in it. Therefore, business problems also keep changing with time. For example-

1. Changes in immigration rules should make it easier for businessmen to import skilled and technical labor from abroad.

2. Change in public behavior. 

3. Change in political structure. 

4. Change in economic policies. 

5. Changes in statutory rules. 

6. Change in customer preferences.

7. Change in production system, techniques and technology. 

8. Increasing consumption, change in the size and form of consumption.

9 Changes in managerial styles, methods and ideologies 

10. Change in the format of competition. Due to continuous changes in the business environment, the objectives, plans and policies of the business also keep changing.

66 Managerial Responsibilities/Duties ——Many decisions have to be taken in a manager’s business, such as production process, variety, price, cost structure, production system, distribution etc. The manager takes his decisions keeping in mind the changing environment. . All the activities of business are determined in the context of the economic, social, political, legal, technological, ethical and cultural environment of the country, hence all the managers take up business only by accepting the challenges of changes in order to run and develop their business successfully.

Environment Analysis – Through environmental analysis, a proper adjustment is made to the business opportunities and internal capabilities of the business. Various stages and conditions of the environment influence the determination of business objectives. Therefore, it is necessary to analyze various components of the environment – ​​customers, government, challenges, competition levels, influences and various trends.

For environmental analysis, researchers use SWOT analysis. (SWOT means – S-Strengths, W-Weaknesses, O-Opportunities, T-Threats), under SWOT analysis the strengths, weaknesses, opportunities and threats of the business. Analysis is done. 

Through this analysis, threats, risks and opportunities arising from changes in the business environment can be properly identified. Keeping in mind the strengths and weaknesses of the business helps in formulating new policies. For example, the strengths and weaknesses are related to whether the business has financial resources available or not. Many times new business opportunities arise, but one’s own strength is not in a position to achieve them. Therefore, SWOT analysis helps the company to always be capable and ready to move according to the circumstances.

Diagnosis and Strategy: Strategy planning is done by diagnosing the results of business environment analysis. To determine the strategy, the opportunities and threats provided by the environment and the strength and weakness of the business are made the basis.

The main work of diagnosis is done by a team of manager and departmental managers. For this work the help of management professional experts is taken.

The following factors should be kept in mind in diagnosis and strategy formation – 1. Sometimes conflicting tasks have to be done in strategy formation because strategy formation

It is determined in the context of dynamic environment like – an organization can grow one of its business and can also divest another business at the same time. Whereas these are contradictory tasks.

2. The strategy should be created by experienced managers.

3. Strategy creators should be optimistic.

4. An alert and aware businessman should not ignore change, but

Psychological preparation should be done by accepting the change.

Q. 15. Describe the various dimensions of business environment. (Discuss the various dimensions.)

Ans. The main components of business environment or macro environment or general environment are as follows:

1. Economic Environment, 2. Political Environment, 3. Social Environment, 4. Legal Regulatory Environment, and 

5. Technological Environment.

1. Economic Environment – ​​Economic environment has special importance among the various components of economic environment. The economic environment can be broken into three parts. Now we will study their impact on business. These are the following-

(i) Economic System: To understand the economic environment, it is necessary to get information about the economic system prevalent in a country. The economic system affects the openness of business. There are mainly three types of economic systems (a) Socialistic Economic System – In this system

Business is run and controlled by the government, that is, individuals have no freedom to run the business. The government has control over all means of production. No one has the right to own any property. All individuals enjoy the benefits of a centrally planned economy. 

This method of economy is mainly adopted by Russia, China, Hungary and Poland. (b) Capitalistic Economic System – In this system, more emphasis is given to private ownership of business. Therefore, business expands more. It is also called free market economy. Under this, the means of production (like labour, land, capital etc.) are owned by private people. 

What to produce, how to do it, and who will do it are determined by market forces. In the form of Nishkarma it can be said that there is complete freedom for consumption, production, savings, investment etc. This economy is prevalent in America (USA) and Canada.

(c) Mixed Economic System – Under this system, business is owned by both the government and private people. Under this, some basic industries are run under the control and ownership of the government. In order to safeguard the national interest, private sector industries are also monitored by the government. India is a good example of countries adopting mixed economy.

(ii) Economic Policies: Economic policies have a deep impact on the business of a country. Economic policies are decided to conduct economic activities. Economic activities include import-export, employment, tax structure, industry, public expenditure, public debt, agriculture, foreign investment etc. The following economic policies are determined to conduct all these economic activities-

(a) Import Export Policy, (b) Employment Policy, (c) Taxation Policy, (d) Industrial Policy, (e) Public Expenditure Policy Public Expenditure Policy), (f) Public Debt Policy, (g) Agriculture Policy, (h) Foreign Investment Policy etc.

All these policies have an impact on business, such as banning imports under the export policy, domestic industries will benefit.

(iii) Economic Conditions – Economic conditions mean those conditions which are related to the possibilities of economic development of the country. On the basis of economic conditions, the government starts many programs in public interest. 

These programs affect business. Businessmen are influenced by these and make many programs which are as follows – advertising strategy, exploration of new markets, introduction of new products in the market, new production methods etc. Some examples of economic conditions are as follows – (a) Foreign Capital, (b) Supply of natural resources

Natural Resources), (c) Level of Economic Development, (d) Rate of Interest, (e) National Income, (f) Industrial Development, (g) Foreign Trade, (h) General Price Level etc.

Impact of Economic Environment on Business – Following are the main examples of impact of economic environment on business-

(i) After reforms in the banking sector, banks should provide loans on easy terms and provide better services. Due to this the business is developing rapidly.

(ii) Due to changes in the economic environment, leasing companies, mutual funds and venture capital businesses were established. 2. Political Environment: Various political environments

Moral is the sum of ideologies of parties. Under this, elements related to government are included, such as the type of current government (i.e. third or multi-party government), government attitude towards various industries, various rules and regulations.

Progress towards passing, platforms of political parties, knowledge of candidates for various positions, efforts by various groups to garner effective support for their cause, etc. Every political party has a different approach towards the business community. A living example of this is what happens in the stock market during election days.

Can be seen in ups and downs. It is possible that with the expectation of a particular political party coming to power, the share prices may start touching the sky and with the expectation of another party coming to power, the share prices may come down to the lowest level. This makes it clear that the first political party has a positive attitude towards business, hence it has a positive impact on the stock market and the expectation of the second political party coming to power increases the share prices.

The huge decline in the business reflects the negative outlook towards its business.

 Impact of Political Environment on Business: Some examples of the impact of political environment on business are as follows – (i) In 1977, the Janata Government adopted a strict attitude against Multinational Companies (MNCs). As a result, IBM and Coca-Cola were forced to

Had to leave. (ii) The new government encouraged multinational companies to invest in India.

Has gone. This opened the doors for multinational companies to enter India on a large scale. As a result, Coca-Cola had to leave India.

(iii) Due to political interest, Hyderabad started being considered as Cyberabad i.e. the center of Information Technology-IT. As a result, many IT companies were established.

3. Social Environment – ​​Business takes birth and develops in the society. Therefore, it is natural for various components of the society to have an impact on business. 

Social factors include customs, fashion, traditions, desires, aspirations, level of education, population, standard of living of people, religious values, distribution of income, corruption, family

Framework, consumer vigilance etc. are included. Impact of Social Environment on Business – All social factors influence business decisions in some way or the other. 

For example, goods have to be produced according to fashion. Similarly, religious values ​​influence business, such as a few years ago when manufacturers of Banaspati Ghee imported meat to make ghee. When people strongly protested against this, the government informed about the presence of ghee in it and people protested against it and reduced their consumption.

4. Legal Regulatory Environment (Legal-Regulatory Enviornmnet) The legal regulatory environment is formed by the combination of business activities. The main commercial activities in respect of which acts are made are as follows – buying and selling, industrial disputes, wages, running of partnership business, running of company business, foreign exchange etc.

The following acts related to the above business activities have been passed in India- 

(i) Sales of Goods Act,

(ii) Industrial Dispute Act,

(iii) Minimum Wage Act.

(iv) Indian Partnership Act. 

(v) Indian Companies Act,

(vi) Foreign Exchange Management Act, 

(vii) Trade Mark Act,

(viii) Essential Commodity Act, 

(ix) Consumer Protection Act,

(x) Standards of Weights and Measures Act. The provisions of all these Acts have an impact on business decisions.

Impact of Legal Regulatory Environment on Business – Following are the main examples of impact of legal regulatory environment on business-

(i) With the removal of controls in the capital market, a large amount of capital was raised through many new issues in the primary market.

(ii) Due to relaxation of restrictions on Foreign Direct Investment (FDI) and Foreign Exchange, multinational companies entered India in large numbers. As a result, an unprecedented increase in foreign exchange reserves was recorded.

5. Technological Environment: Technology includes the discovery of new methods and equipment to produce goods and services. Technological changes provide better production methods and optimize use of raw materials. 

Technological changes provide both opportunities and threats to business. If a company understands these in time, then it achieves its objective, otherwise its existence is in danger. For example, in view of the ever-increasing prices of petrol, a technological change by the automobile industry is to produce vehicles with lower petrol consumption. 

Only that company will survive which will be able to keep pace with this change. Therefore, companies should constantly keep an eye on technological changes so as to take advantage of business opportunities.

Impact of Technological Environment on Business Examples of impact of technological environment on business

are the following- 

(i) The arrival of television in the market had an adverse impact on the cinema and radio industries. 

(ii) The introduction of photo machines in the market had an adverse effect on the carbon paper business.

((iii) The cotton textile industry was adversely affected by the introduction of garments made from artificial threads in the market.

(iv) Digital watches almost ended the business of traditional watches.

Q.16. Discuss the changing nature of Indian economic environment. (Explain the changing scenario of Indian economic environment.)

Ans. The Government of India started a series of economic reforms in July 1991 to rescue the country from the economic crisis and accelerate the pace of development. The focus of economic reforms was Liberalisation, Privatisation and Globalisation. The meanings of these three words are as follows-

1. Liberalisation: Liberalization means freeing the economy from the clutches of bureaucracy to make it more competitive. (Liberalisation means to unshackle the economy from bureaucratic cobweb to make it more competitive.) Its main features are as follows-

(i) To eliminate the requirement of license in most of the industries. 

(ii) To independently determine the scale of business activities.

(iii) Removal of restrictions imposed on movement of goods and services from one place to another.

(iv) Freedom in determining prices of goods and services.

Freedom from unnecessary controls on the economy. 

(vii) Simplifying the import-export process

(viii) To make it easier to attract foreign capital and technology.

2. Privatisation – In short, privatization means such an economic process by which a public sector undertaking is completely or partially brought under private ownership. 

(In brief, privatization means such an economic process through which some public sector undertaking is brought either partially or completely under private ownership.) In a broader sense, privatization is also setting up of a new enterprise in the private sector instead of the public sector. 

Not only this, depriving the public sector of the production of goods whose production was earlier reserved for the public sector or allowing the private sector to produce them without depriving them is also called privatization.

Its main features are as follows-

(i) Reduction in the role of public sector and increase in the role of private sector.

(ii) To reduce the fiscal burden on the government. 

(iii) Reducing the size of Government Machinery. 

(iv) To accelerate the pace of economic development. 

(v) To improve the management of enterprises. 

(vi) To increase government funds. 

(vii) To increase competition by opening up industries reserved for the public sector to the private sector also.

3. Globalisation: Globalization means integration of the economy with the rest of the world. (Globalisation means integrating the economy with the rest of the world.) Its main features are as follows-

(i) Free flow of goods and services among all countries. (ii) Free flow of capital in all countries. 

(iii) Free flow of information and technology among all countries. 

(iv) Free movement of people in all countries 

(v) Similar dispute resolution method in all countries.


Q. What is the difference between general external environment and specific external environment? 

Ans. Specific external environment refers to those forces which directly affect the firm such as consumers, creditors, traders, etc. On the contrary, general external environment means those forces which directly affect the business, that is, it affects other forces and those other forces affect the business environment.

Q. How does social environment affect business organizations? 

Ans. Social forces-Business has to produce goods as per the needs of the customers. Business cannot ignore the customs, education, ideology and income level of the people in the production of goods. Since independence, the demand for books has increased with the spread of education. Due to increase in people’s income, TB, fridge, PCR etc. etc. demand has increased.

NCERT Solutions for Class 12 Commerce Stream

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