LEGAL ENVIRONMENT : FEMA, MRTP Act, Consumer Protection Act, SEBI, The Environment Protection Act

 LEGAL ENVIRONMENT 

For describing and analyzing the legal environment of business in India, we present here briefly an overview of some specific socio-economic legislation. We may list these legislations which define the legal environment of business. 

A. Company Laws 

For smooth governance of the business, the company laws play a crucial role. These become the focal laws which impact the commercial environment and subsequent decision making. These important set of laws are governed by the Ministry of Corporate Affairs through the Companies Act, 1956, 2013 and other allied acts, bills and rules. The underlying object is to safeguard the interest of various investors, stakeholders and customers. Two primary bodies ensure its execution namely the Serious Fraud Investigation Office (SFIO) and the Competition Commission of India (CCI). Different acts which are constituted in this direction are “Companies Act 2013, Limited Liability Partnership Act, 2008, Insolvency and Bankruptcy Code, 2016, Competition Act, 2002, Partnership Act, 1932, Chartered Accountants Act, 1949, Cost and Works Accountants Act, 1959, Company Secretaries Act, 1980, and Societies Registration Act, 1860” etc. It is regulated through National Company Law Tribunal (Tribunal or NCLT), National Financial Reporting Authority (NFRA), and the Serious Fraud Investigation Office (SFIO).

COMPANIES ACT 2013 

Meant at improved corporate governance and increased accountability, this act aims at improving the ‘ease of doing business’ in India. It brings forth conceptions like one–person company, small company, dormant company and corporate social responsibility (CSR) etc. It hosts noteworthy modifications in the ways of doing business, including the technologically advanced ways such as improved governance (e-governance), e-management, timely and orderly compliance, legal enforcement, self-disclosure and related norms, role of auditors, mergers and acquisitions, class action suits and registered valuers. 

a) The One Person Company: requires having minimum paid up capital of INR 1 Lac without any legal obligation for holding Annual General meeting (AGM). 

b) Small Company (other than a public company) with a paid-up share capital of maximum fifty lakh rupees or upto five crore rupees (if prescribed) or its last reported profits is not more than two crore rupees and turnover of maximum twenty crore rupees (if prescribed). 

c) Minimum members for private company –maximum member heads can be 200 now from the earlier 50. 

d) All official communications, should bear the full name of contact person, address of company’s registered office, Corporate Identity Number (CIN No. which is a 21-digit number allotted by Government), Telephone number, fax number, Email id, contact website (if any). 

e) All companies (public/private) under the Companies Act 2013 to comply with the Registrar of Companies (RoC) for beginning their business operations. They require submitting the Performa with the director’s declaration mentioning the subscribers/ promoters, with the number of paid-up shares or agreed to be taken by them. The company also requires verifying its registered office with the RoC. 

f) The new Companies Act 2013 mandates closing the financial year by the 31stMarch. Also the eligible age for Managing Director or whole time Director is decreased from 25 to 21 years. 

g) The Indian company requires constituting a ‘CSR committee’ and 2% of the average net profits of the last three financial years be compulsorily be spent on the CSR activities subjected to fulfilment of certain conditions like the minimum net worth of INR 500 cr. Or minimum annual turnover of INR 1000 cr. or net profit of Rs. 5 crore or more. 

h) Financial Statements are now defined under the act as comprising of all companies (except one person company, small company and dormant company) are now mandatorily required to maintain the following, which may not include the cash flow statement), a balance sheet as at the end of the financial year, a profit and loss account / an income and expenditure account for the financial year, as the case may be Cash flow statement for the financial year, a statement of changes in equity (if applicable) etc. 

B. Capital Market 

The Securities Contracts (Regulation Act, 1956) 

SCR Act 1956 is the core law which governs the activities of the Indian stock exchanges. Besides safeguarding the investors, it aims to curb unsolicited transactions/dealings of securities and formulate a transparent mechanism. This act recognizes various stock exchanges’ memberships and the rules governing thereof; lays down processes for trading activities, including that of security contracts and listing of the securities at the bourses. 

By definition, “A stock exchange has been defined as a body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling, or dealing in securities”. Our country had a separate mechanism to operate the stock exchanges across the nation but now we have nine recognised stock exchanges namely, the Bombay Stock Exchange (BSE), Calcutta Stock Exchange (CSE), 

India International Exchange (India INX), Indian Commodity Exchange Limited, Metropolitan Stock Exchange of India Ltd., Multi Commodity Exchange of India (MCX), National Commodity & Derivatives Exchange Ltd., National Stock Exchange Ltd. (NSE) and NSE IFSC Ltd. 

Securities and Exchange Board of India Act, 1992 

Enacted on 4thApril, 1992, the SEBI Act aims developing the securities market in transparent and disciplined manner for providing investor protection. It attains for providing fairness in dealings, high governance and institutionalization of standard business practices aimed at fostering efficiencies by an integrated system offering the services at genuine costs thereby building trust in investors and issuers, both; flexible to continuously match the emerging requirements. 

SEBI is a statutory regulatory body established under this act. The SEBI board comprises of the chairman, two members of finance and law background nominated by the Central Government, one member from the RBI, and two more members appointed by the Government of India. They ensure the investors security in various ways. Cumulatively, the SEBI pursues the following functions: 

a. Manage the stock exchanges’ and security markets’ business operations. 

b. Registering and supervising various capital market entities like stock brokers, subbrokers, share transfer agents, bankers to public issues, trustee of trust deeds, registrars to public issues, merchant bankers, underwriters, portfolio managers, investment advisers and similar intermediaries or self-regulatory organisations having roles in the capital markets. This also includes recording and managing the combined investment schemes like the mutual funds. 

c. Curbing prohibitive, fraudulent, unfair and unethical trade practices by promoting investors’ education, training and awareness initiatives of intermediaries and customers. 

d. Prohibiting ‘insider trading’. It also regulates the acquisition of shares, mergers and takeovers. 

e. Periodic audits of the bourses and related intermediaries, seeking information, inspections, enquiry matters etc. The board may levy underlying fee or similar charge for it. Besides, the board carries research for the above purposes to coordinate and regulate the control over the activities performed. 

Over-the-Counter Exchange of India (OTCEI) 

OTCEI was established in 1990 (started functioning in 1992) as an electronic stock exchange without a proper trading floor. The Exchange was established with an objective of supporting enterprising promoters for securing cost effective project finance besides offering its investors with transparent transaction systems. It went further in the capital markets by providing technologically enabled mechanisms like screen-based nationwide trading, market making and scrip-less trading. The OTCEI performs the following functions: 

i) Extend services to small companies for generating cost effective funds from the capital market; 

ii) Provide easy access for the small investors to the capital market. Also, facilitating investors’ by boosting their confidence; 

iii) Smooth, transparent investor grievance redressal mechanism even to the far geographical areas; and providing much required liquidity. 

C. Foreign Exchange Management Act (FEMA) 

 Under the guidance from the central government which articulates the foreign trade policy, the central bank i.e. the Reserve bank of India carries the responsibility of implementing it by deploying the foreign exchange control act, known as “Foreign Exchange Regulation Act 1947”. This act stood updated in the year 1974 by FERA. Thereafter in 1991, the globalization saw the requirement of newer policy measures and thus FERA made way for the 

Foreign Exchange Management Act (FEMA), 1999. 

It carries significance in the view point of foreign trade and foreign exchange. It is applicable on any business entity involving an Indian resident. Significant features of FEMA are enlisted below: 

I. Limitations concerning assets owned by the non-residents and transactions pertaining to bringing in and taking out of the currency and precious metals stood abolished. Limitation pertaining to the acquisitions of immovable property and its holding etc. in India also has been done away with. 

II. Hospitality to non-residents on Indian visits stood allowed. On similar lines, the Indian residents visiting outside India for related activities stood allowed too. 

III. Lowered restrictions for holding the immovable property outside India. 

IV. Cases pertaining to seeking funds, deposits or loans in India from the Indian residents stand simplified. Also, foreign nationals need not seek approval for taking up employment in India; appointment of people as agents, advisors on technical/ management profiles relaxed. The new act encourages setting up of branch offices/ liaison offices encouraged and foreign travel permissions have been relaxed. 

This act aims at consolidating and amending the legal forex related impediments to promote international business and external trade besides regulating the Indian forex market.

D. The Sick Industrial Companies (Special Provisions) Act 1985, (SICA, 1985) 

The rapid industrialization clubbed with the multinational corporations influencing the business environments in India, there was a growing need for institutionalizing an act to govern the menace of growing industrial sickness. On one hand the government puts efforts to promote the industrial setups and on the contrary when these setups are graded ‘sick’ it causes multiple damage in terms of employment, production loss, locking of funds etc. So reviving these companies to salvage and monetise the assets becomes important. Thus, the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) was legislated for appropriate recognition of sick (and potentially sick) companies. In the same direction the SICA proposed the constitution of the Board for Industrial and Financial Reconstruction (BIFR) for identifying the industrial sickness reason, its extent and putting forward remedial measures to limit the sickness. Besides it aims to contain this sickness and take measures to revive these industrial units. From 1st December’ 2016, the SICA stood repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (“Repeal Act”), thereby diluting the BIFR and its constituent/ related bodies.

SICA and its Repeal 

Broadly, the functioning of BIFR and AAIFR (Appellate Authority for Industrial and Financial Reconstruction) was not only much time consuming but stood uncertain too. It was therefore decided to solve the ambiguities and single entity be formed to handle and dispose all such company related matters. 

Thus, the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) were formed under the guidelines of the Companies Act, 2013 (Companies Act). The NCLT works on the company management issues and it got further strengthened by the Insolvency and Bankruptcy Code, 2016 (Bankruptcy Code) thus obsoleting the BIFR and AAIFR besides the pending proceedings only. 

SICA has the following objectives: 

i. identification and timely perusal of sick and potentially sick business entities; 

ii. initiation of the ‘Redressal mechanism’ for fast resolvance, either preventive or remedial process by the expert panel; 

iii. accelerate the desired corrective actions; iv. apprehend, review and coordinate for future scope. 

With the increasing complexities in the politico-legal business environments, SICA became obsolete in combating corporate sickness. 

THE INSOLVENCY AND BANKRUPTCY BOARD OF INDIA 

The board, established on 1st October, 2016 under the Insolvency and Bankruptcy Code, 2016 (Code), is one of the important pillars in the corporate business system which relates to the various laws pertaining to re-organisation/ restructuring, insolvency of the company and resolution pertaining to corporate board and stakeholders, partnership firms on scheduled timelines. It aims at asset maximization (both in quality and quantity), encouraging entrepreneurship, leveraging assets, etc. 

Being a one of its kind entity, it strives to aim at business governance by enhancing its processes. It oversees the Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information Utilities by regularly administers the processes pertaining to corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy. It has recently been tasked to promote and manage corporate insolvencies. 

The function of the Chapter XIX (sections 253 to 269) in Companies Act, 2013, particularly pertains to the revitalization of the sick units. In the initiatives towards ‘Ease of Doing Business’ 27 Sections have been amended in the Companies (Amendment) Act, 2017including redefining the Associate Company by bringing in the Joint venture perspective. The voting powers of subsidiary company was also changed. Disclosures by the companies at the time of prospectus to SEBI were added to. Other modifications involved loans, audits and qualifications and powers of the directors. 

Insolvency and Bankruptcy Code, 2016

The competitive business environments, particularly resulting from the evolving technologies and increasing competition have served to be an enabler for new businesses but on the other hand, the weaker ones increasingly demonstrated tendencies towards sickness thus seeking amendments in repealing the SICA Repeal Act. This was executed by substituting the section 4, sub-clause (b), the following sub-clause shall be substituted, namely— 

“(b) On such date as may be notified by the Central Government in this behalf, any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) shall stand abated: 

Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016: 

Provided further that no fees shall be payable for making such reference under Insolvency and Bankruptcy Code, 2016 by a company whose appeal or reference or inquiry stands abated under this clause. 

The provisions of the Code dealing with amendment to the SICA Repeal Act came into force from November 1, 2016; however, the Ministry has appointed December 1, 2016 as a date on which the provisions of the SICA Repeal Act shall come into force. A question may arise as to which date shall be considered i.e. November 1, 2016 or December 1, 2016. On careful reading, one may note that clause (b) of section 4 states as follows: 

The Central Government, vide notification dated November 25, 2016 has notified the provisions of the SICA Repeal Act. Therefore, any reference made to BIFR, any inquiry pending before BIFR, any appeal preferred to AAIFR, or any proceedings pending before BIFR/AAIFR shall automatically stand abated w.e.f. December 1, 2016.”

‘Sick Company’ 

The sick company thus is defined as “Where on a demand by the secured creditors of a company representing fifty per cent or more of its outstanding amount of debt, the company has failed to pay the debt within a period of thirty days of the service of the notice of demand or to secure or compound it to the reasonable satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the prescribed manner enclosing relevant evidence for such default, non-repayment or failure to offer security or compound it, for a determination that the company be declared as a sick company”. 

E. Monopolies and Restrictive Trade Practices (MRTP) Act 1969 (MRTP ACT) 

The MRTP act has its roots arising out of the Directive Principles of State Policy embodied in the Constitution of India. Article 39(b) and (c) which says to ensure: 

i) “that the ownership and control and material resources of the community are so distributed as best to sub serve the common good, and 

ii) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment”. 

Monopolies generally benefit a few but harm many as they tend restricting the competition mainly controlling the prices of commodities in the market thereby resulting manipulation by a few. 

The MRTP (Amendment) Act, 1991, has omitted provisions regarding the Central Government’s permission for substantial expansion, establishment of a new undertakings, mergers, take-over, etc. Establishments, howsoever big or small, are now free to expand, or establish new undertakings, or effect mergers. 

Monopolistic Trade Practices 

“Any trade practice which leads or is likely to lead to any of the following effects is regarded as a monopolistic trade practice".

i) Unreasonably high price; 

ii) Unreasonably high cost of the production of goods or the provision of services; 

iii) Unreasonably high profits; 

iv) Prevention or reduction of competition; 

v) Limited technical development; 

vi) Limited capital investment; and 

vii) Deterioration in the quality of goods” 

Restrictive Trade Practices

The term restrictive trade practice is defined t mean a trade practice which has or may have the effect of preventing, distorting or restricting competition in any manner and in particular if it: 

i. tends to obstruct the follow of capital or resources into the stream of production; or 

ii. tends to bring about manipulation of prices or conditions of delivery or to affect the flow of supplies in the market relating to goods or services in such manner as to impose on the consumers unjustified costs or restrictions. 

Every agreement falling within the one or more of the following categories is deemed to be an agreement relating to restrictive trade practices and is subject to registration under the Act: 

• Refusal to deal and/ or Boycott 

• Tie-up sales and Exclusive dealing and/or Discriminatory dealings or Territorial restriction/restrictions or withholding of output or supply 

• Concert in prices and terms and conditions of purchase or sale 

• Resale price maintenance and controlling manufacturing process 

• Agreement having the effect of eliminating competition/competitors etc. 

Unfair Trade Practices 

They have been defined as per the Act “to mean a trade practice which for the purpose of promoting sales, use or supply of any goods or for the provision of any services, adopts any unfair method or deceptive practice, including: i) bargain sale, ii) bait and switch selling, iii) offering gift or prizes in promotional contests, and not providing them etc”.

F. Consumer Protection Act, 1986 

Our country has been a large market and has attracted traders from the business and commercial perspective. Owing to the large geographical spread and low level of education amongst the people, the fraudulent practices were witnessed and in order to curb them many legislations were enforced like the Sale of Goods Act, 1930; Essential Commodities Act, 1955; the Prevention of Food Adulteration Act, 1954; Prevention of Black Marketing and Maintenance of Supplies of Essential Commodities Act, 1980; Standards of Weights and Measures Act, 1956; Agricultural Products Grading and Marketing Act (AGMARK),1937; Indian Standards Institution Certification Act, 1952; MRTP Act, 1969, etc. 

MRTP Act though was able to put a check on the rapidly increasing consumer fraudulent practices the need for an inclusive consumer protection legislation was much required, thus making way for the Consumer Protection Act, 1986 for providing fast and cheap redressal to consumer grievances. 

 The Act recognizes the following six rights of consumers namely: 

1. “Right to safety, i.e., the right to be protected against the marketing of goods and services which are hazardous to life and property. 

2. Right to be informed, i.e., to be informed about the quality, quantity, potency, purity, standard and price of goods or services, as the case may be, so as to protect the consumer against unfair trade practices. 

2 Right to choose, i.e., the right of access to a verity of goods and services at competitive prices. In case of monopolies, say railways, telephones, etc., It means right to be assured of satisfactory quality and service at a fair price. 

3 Right to be heart, i.e., the consumers; interests will receive due consideration at appropriate forums. It also includes the right to be represented in various forums formed to consider consumers’ welfare. 

4 Right to seek redressal, i.e., the right to seek redressal giant unfair practices or restrictive trade practices or unscrupulous exploitation of consumers. 

5 Right to consume education, i.e., the right to acquire the knowledge and skill to be an informed consumer.” 

G. Competition Commission of India 

The informal activity of regulating the market rivalry by business houses is traditional however it surfaced in the year 2002 when the government recognised the need to regulate this market competition and thus the Monopolies and Restrictive Trade Practices Act of 1969 was repealed thereby making way for the Competition Act of 2002. This act was subsequently amended in 2007 and 2009. The act proposes for a legitimate framework be articulated and practiced in the competition policies (thereby curbing the anti-competitive practices with punitive action). CCI was formed under this Act which makes way for providing an environmental culture imbibed with free, fair and healthy market competition, clubbed with trade freedom and customer and societal orientation. This forms the three structural pillars to deter the unhealthy competition namely, anti-competitive agreements, their combination meanings and abuse of dominance. The commission stands empowered to levy penalty on the offenders amounting “up to 10 per cent of the average turnover of the company” during the last three financial years upon all offending enterprises and/or alleged individuals. Further, the entities found involved in cartelization by the Commission can be penalized for the higher amount of ‘up to three times of the profit’ for the found period, or ten per cent of the turnover for the period in the agreement. 

H. The Environment Protection Act, 1986 

The Indian Constitution mentions Indian citizens compassionately protecting and improving the natural environment including forests, lakes, rivers and wild life. In this direction, the Environment Protection Act, 1986, envisaged with two complementing acts namely the Water (Prevention and Control of Pollution) Act,1974, and Air (Prevention and Control of Pollution) Act, 1981, have an objective to lay down a framework for environmental protection and its subsequent preservation. The components of the natural environment comprise of water, air and land besides their interactive relationships with humans and other living elements and the ecosystem. This act enables the Central Government with certain powers to protect and improve the environmental quality by curbing and abating the environmental pollution. This involves constituting and delegate authoritative office to achieve the abovementioned objectives. 

I. A Few Other Legislations 

We have understood by now that the legally structured environment stands robust enough and we have gone through certain laws and enactments influencing the said environment. Besides them, there are certain more legislations which impact the Indian business environment in various other conditional circumstances: 

POLITICAL AND LEGAL ENVIRONMENT

 POLITICAL ENVIRONMENT 

Business, though by its very nature is an economic activity, but the business managers, in order to stay effective, have to consider the non-economic environment of the business too. In this direction, we have understood the socio-cultural environmental component in the previous part of this unit. Here, we would understand another important component i.e. the politico-legal environment of business. A political system is assumed to be having the qualitative prerequisites such as being stable, honest, efficient and dynamic. Democracy brings in the political participation of the citizens thereby providing them personal security which in-turn contributes for growth of any business in a country. In a political system the role of Government as a political institution is to formulate social policies aimed to deliver on high social benefits at minimum social costs. The government thus facilitates business by making decisions and supporting the economic activity in form of health, infrastructure, education, law and order etc. implemented on different levels like local, regional, national or international.

The political environment comprises of many political factors which effect the business activities at various times and impact, like the bureaucracy levels, corruption, freedom of media and press, tariffs and related measures of trade control, employment regulation, environmental and pollution control laws, health and social safety laws, Competition regulation and cartelization, Tax policy (tax rates and incentives), Trade unionism and related laws, consumerism, e-commerce and related laws about the quality and quantity of the product, Intellectual property law (Copyright, patents etc.). All this is done based on the ideology of the political party forming the government which attains it by formulating and executing them under a set of policies and programmes. This is attained through legislations and enactments, rules and regulations, systems and procedures, policies and plans, statements and announcements, directives and guidelines by the Government, which is the essence of the politico-legal environment.

Political environment of a country comprises of three elements viz. legislature, executive and judiciary. Political scenario of a country decides the economic policies and trade regulations. Hence, political environment of a country can be crucial for the business operations. Most of the economic reforms are the reason of some political decisions. For instance, prior to 1991 economic reforms, India followed a socialist economic policy approach which was driven by public sector dominated development strategies. However, 1991 economic reforms introduced the concept of private players in the market. In the recent times, the government has allowed 100% FDIs in most of the sectors which has resulted in foreign companies investing more in India markets.

ELEMENTS OF POLITICAL ENVIRONMENT 

Political Ideologies 

Political ideologies are the mix of multifaceted ideas, philosophies and objectives which is the foundation of the political parties. Most of the political organisations are politically diverse due to the members of organisation having diverse backgrounds. Political ideologies can differ due to multi-culture environment in the country. People belonging to different social groups, ethnicities, communities, economic class or religion can have different ideologies. These variations impact people to join or support different political parties. Harmony among different political ideologies is necessary to maintain peace and stability within a country. 

Democracy 

Democracy has been a fundamental part of India’s progress and growth story and has helped in binding people from different cultural background and regions. A democratic environment ensures equal political and legal rights to each and every citizen of a nation. It ensures freedom of speech, expression and opinion. Since every citizen cannot decide for himself / herself therefore, countries practice a system of elected representatives. The elected representatives formulate laws for a nation. These representatives are elected by the people of the nation. Democracy also ensures a fair and independent judiciary. 

Civil Liberties 

Civil liberties ensure the provision of freedom and fundamental rights to every citizen. These include freedom to press, equality before law, personal and social freedom and freedom from biased government policies. Countries with high civil liberties are considered to be free and are more preferred by companies for investments. More liberal countries ensure fair judicial trials in case of disputes and hence are preferred by business organisations. 

International Political Relations 

Political relations and diplomacy with foreign nations results in more avenues for trade and business which in turn creates multi-lateral or bilateral trade opportunities. For example, trade pacts between USA and India have resulted in several development opportunities for both the nations. Political friendship among different nations creates a favourable environment for international trade and commerce. 

Political Stability 

Political stability is crucial for growth and development of any economy. Political instability can hinder the flow of foreign capital and adversely affects foreign investment in the country. For instance, clashes between two groups in a region can cause adverse effects on the economic activities in that area. 

Government Policy 

Stable policies are better for planning corporate strategies and building-up confidence in the industry. Policies formulated with clear directions can support better economic development.

LEGAL ENVIRONMENT 

Legal environment of any country deals with rules, regulations, policies and the law of the land as whole. These laws are made for the protection of consumers, investors, environment and national interest. For example, there are several organisations like SEBI, Consumer Commissions or National Green Tribunal (NGT) in India for the enforcement of such laws. Further, the legal environment of a country also includes taxation laws and annual budgets. 

The changes in government policies such as trade policies, industrial policies, fiscal and monetary policies can have a great effect on the business. For example, by increasing the limits of permissible FDIs in the retail sector has led to the emergence of global e-commerce companies. While at the same time, it has been seen as the threat to local vendors with increasing markets for e-commerce. 

ELEMENTS OF LEGAL ENVIRONMENT 

Elements of the legal systems include the laws, rules and regulations applicable in the country. As per Rao (2008) it includes the following: 

• Common law – Law is implemented according to the situation and the prevailing customs, traditions, culture, etc. 

• Civil Law – They are the detail set of laws formulated, discussed and passed by the parliament e.g., contract act, company law and civil codes. 

• Theoretical law – These are the laws derived out of the religious laws in the country. 

• Property rights 

• Intellectual property rights 

• Labour laws and codes 

• Fiscal and monetary policy 

• Competition Law 

• Foreign exchange laws – FEMA and FERA Act 

Evaluation of Politico-Legal Environment 

Political and legal environment plays an integral role in the economy. A favourable politico-legal environment is crucial for growth and survival of business. These factors govern the entry of foreign firms in the domestic market of the country. Government and allied agencies act as a regulator of foreign companies where government policies are considered to be gatekeepers. Political ideologies of the ruling party are also important for creating a favourable business environment. A pro-business ideology will lead to more opportunities for foreign investment in the country. Likewise, legal environment draws the perimeter of the permissible trade and commerce activities within the geographical boundaries of a country. 

Business organisations are required to operate within the legal framework. Due to the rapid increase in globalization and flexible FDI policies, several laws are created to protect the interest of domestic traders in India. Business organisations are required to have full knowledge about the trade laws, rules and related policies. Moreover, the increasing complexity of legal environment can cause difficulties in the business operations. Increased concern about the environmental protection and sustainability has led to creation of environmental protection laws. Failure of implementing these laws will not only lead to governmental actions but will also effects the image of the business adversely. Hence, favourable politico-legal environment is necessary for a stable economic growth and development. Political instability can create social unrest which in turn can hamper local businesses in the area. For example, roadways, being blocked as protest-sites can hamper the supply chains.

Current Scenario of Politico-Legal Environment 

Boost to Manufacturing 

Government has given a boost to manufacturing activities in the country through ‘Make in India’ campaign. Under this campaign, government created conducive environment for doing business. In order to boost manufacturing in India, government has set up panels to fast-track investment proposals, addressing problems in investment process and creating an investor-friendly environment in the country. Efforts are being made to make India a manufacturing hub and crating more employment opportunities for the locals. In the recent times, several multinational companies have setup production facilities in India. 

Changes in Industrial Policies 

Several policy changes have been made in the recent past to ease the entry of foreign investments in the country. Department of Industrial Policy and Promotions (DIPP) has made efforts to make policies more flexible and simplified including infusing technology into various processes for effective and efficient governance. For instance, application for industrial licenses has been made online which has made it more accessible. 

Business Reforms 

 Several reforms are being undertaken at state as well as centre level to make significant improvements in way business operates in India. The government has introduced various initiatives to ease doing business in India. India has been placed at 63rd position on World Bank’s Doing Business 2020. For instance, Government of India has increased the limits of FDIs in insurance and defense sectors and thereby attracting more foreign capital in the country. This will lead to creation of employment and overall economic development (“Doing Business in India”, 2020). 

Bank Mergers 

In the past few years, government has decided to merge certain public sector banks to reduce the number of nationalized banks and improve the quality of governance. The number of national banks has been reduced from 27 banks to 12 public sector banks (Singh, 2019). 

Infrastructure Development 

 The current government has taken several steps for the modernization and development of infrastructure in the country. The focus is not only on the urban cities but several tier I and tier II cities have also been developed as the part of a scheme named as ‘Smart Cities’. The government has announced to develop 100 cities as smart cities under which many industrial corridors are to build. Several other projects in different sectors like green energy, transportation and real estate have been planned. These planed projects will create future business opportunities and foreign collaborations (Yadav, 2015). 

Skill Development Programmes 

Indian government launched ‘Skill India’ movement in 2015 with an aim to provide skill based education to the youth of the country. The programme focussed at imparting vocational training with a vision to empower workforce suitable for skill-based jobs. For example, ‘Seekho aur Kamao’ was scheme launched for the youth of union territories of Jammu and Kashmir and Ladakh under which they were trained according to their qualifications and given employment opportunities in the state (NSDC, 2017). Such initiatives were planned to reduce the dependency white collar jobs and encourage skill-based employment. 

GOVERNMENT FRAMEWORK FOR PROMOTING BUSINESS 

In the role of the government to support business and related economic activity, a robust supportive mechanism is required to be provided in promoting a sustainable institutional structure. 

The Ministry of commerce and Industry 

The Ministry of Commerce and Industry has the responsibility to manage and promote the industrial and commercial activity in the country. It formulates Industrial policy which provides with the planned framework of promoting industrial development in sync with the economic goals of the nation. The Niti Aayog, Ministry of Micro, Small and Medium Enterprises, Ministry of Skill development and Entrepreneurship all contribute in the attainment of their individual (promotional regulatory, technical and advisory) goals. 

The Department for Promotion of Industry and Internal Trade (DPIIT) 

The department was earlier called Department of Industrial Policy & Promotion and was renamed as DPIIT in January, 2019.The Department functions on matters related to Internal Trade, welfare of traders and their employees and start-ups. The role of DPIIT is to promote/accelerate industrial development of the country by facilitating investment in new and upcoming technology, foreign direct investment and support balanced development of industries.

The Department for Promotion of Industry and Internal Trade (DPIIT) spearheads ‘the Ease of doing business’ initiative which provides a ‘carpet welcome’ to the foreign investments to India. This involved providing time-based and ‘single window clearances’ towards establishing business in our country. The department also promotes Startup India Initiative and Production Linked Incentive (PLI) Scheme. 

The Department of Commerce regulates the following:

I. International Trade: Policy related matters involving various tariff and non-tariff barriers, issues related to the WTO, their interpretation and implementation besides the dispute settlement/redressal mechanism. This further involves strengthening the bilateral and multilateral trade by International Commodity Agreements. 

II. Foreign Trade (Goods & Services): tasks related to external trade and relevant matters import and export of feature films, as well as unexposed cine-films. This also involves establishing Agricultural Export Zone (AEZ) and 100% Export Oriented Units (EOUs) for boosting manufacturing and promoting external trade by suitably amending the related policy and regulatory framework from time to time. 

Aimed at promoting international trade relations it attains the objective through bodies like Export Promotion Board, Board of Trade and International Trade Advisory Committee and Export Promotion Councils/Export Promotion Organisations. State Trading Corporation (STC) also facilitates the said objective of trade promotion. 

III. Special Economic Zones (SEZs): Fostering economic development with SEZs is a relatively new way of attaining industrial as well as foreign trade growth. This includes providing a favourable policy environment, further comprising a conducive foreign trade policy, a supportive fiscal regime, and an attractive investment policy, etc. This is achieved by an organised structure and subordinate offices under this Department1. Directorate General of Anti-Dumping and Allied Duties (DGAD). 2. Directorate General of Foreign Trade (DGFT). 3. Directorate General of Supplies and Disposals (DGS&D). 

IV. Statutory/Autonomous Bodies/Public Sector Undertakings/Other Organisations: Agricultural & Processed Food Products Export Development Authority (APEDA), Coffee Board, Export Inspection Council of India (EIC), Rubber Board, Spices Board, Tea Board, The Marine Products Export Development Authority (MPEDA), Tobacco Board. Public Sector Undertakings include: ECGC (Export Credit Guarantee Corporation of India Limited), ITPO (India Trade Promotion Organisation), MMTC Limited (formerly Minerals and Metals Trading Corporation of India Limited), PEC Limited (formerly The Projects and Equipment Corporation of India Limited), STC Limited (State Trading Corporation of India Ltd.), STCL Limited (formerly Spices Trading Corporation Ltd.).

Of the many acts applicable under the Ministry of Commerce and Industry regime, ‘Special Economic Zones Act, 2005’, carries a mention here. 

The Tariff Commission 

Tariff Commission in India got created by the union of the Tariff Board, Tariff Commission (old) and Bureau of Industrial Costs & Prices (BICP). BICP got combined with it for better functioning with effect from 1st April, 1999. 

NITI AAYOG (NATIONAL INSTITUTION FOR TRANSFORMING INDIA) 

It was in 2014, that the NITI Aayog (National Institution for Transforming India) got constituted by transforming the earlier existing ‘Planning Commission’ for enhancing the developmental process; nurture an overall business enabling environment extending from the realms of Public Sector and Government of India. This involved more coordinated role with the state governments thereby strategically fostering good governance, best practices, providing strategic expertise and coordination with all levels of government (central as well as the state) for the collective attainment of developmental goals. 

Public Private Participation (PPP) 

The PPP Vertical is assigned with the various activities involving the policy formulation for ensuring that the desired objectives for timely creating the infrastructure to promulgate the economic growth and development. Such projects being capital intensive in nature requires regular capital infusion and management thus the PPP becomes the choice for Construction, Operations and Management of the infrastructure projects. For Niti Aayog, the PPP remains evolutionary, in terms that it remains reform-oriented by suggesting institutional, regulatory and procedural changes. By process and document standardization, the subsequent appraisal of PPP projects becomes easy thus resulting in higher FDI in such developmental projects. 

The Ministry of Finance 

It was re-organized in the year 1949 in two departments namely, the Department of Revenue and Expenditure; and Department of Economic Affairs. Presently, the Ministry of Finance has the following five Departments: - 

a) Department of Economic Affairs 

b) Department of Expenditure 

c) Department of Revenue 

d) Department of Financial Services 

e) Department of Investment and Public Asset Management 

f) Department of Public Enterprises 

The Department of Economic Affairs, assists the Central Government in maintaining sound public finances through efficient use of the nation's economic resources, promoting conditions that accelerate sustainable economic growth through developing sound economic policies and preparing for future economic challenges and opportunities, and leading India’s bilateral and multilateral economic and financial engagements. It manages the matters with its institutions like: 

i. Security Printing and Minting Corporation of India Ltd. 

ii. National Savings Institute. 

iii. Securities and Exchange Board of India. 

iv. Securities Appellate Tribunal. 

v. Specified Undertaking of the Unit Trust of India/National Financial Holding Company Ltd. 

vi. National Skill Development Corporation. 

vii. National Skill Development Fund/Trust. 

viii. National Skill Development Agency. 

ix. Delhi Mumbai Industrial Corridor Trust. 

x. Forward Markets Commission 

FISCAL AND MONETARY POLICY 

These two policies formulate the financial framework of the nation. Monetary and Credit Policy, is formulated by the Reserve Bank of India by which it aims at bringing in price stability, control inflation and regulate liquidity of the nation’s economy. This is achieved through various instruments like managing the money supply and other policy matter changes from time to time. Through the banking system it regulates liquidity and interest rates and loan off takes for spurring industrial growth. With the Monetary Policy, the RBI strikes the balance between maintaining liquidity and credit/ loan off take by regulating between lending and borrowing rates of interest for the commercial banks. This is achieved through careful assessment of the business environment and then attaining the objectives with deployment of its instruments like Bank Rate of Interest, Cash Reserve Ratio, Statutory Liquidity Ratio, Open market Operations, Margin Requirements, Deficit Financing and printing of currency and credit regulation. It strives for establishing a price stability to overcome the fluctuations which may deter the market sentiments, especially in the foreign trade. This generates national economic growth and aids in employment generation too. 

The fiscal policy is the nation’s revenue and expenditure policy by which it plans to strike the balance between the ever growing needs and the limited resources availability in the country. It indicates the prioritization in the several governmental purchases and taxes. It is done by virtue of its ‘thrifty nature’ by promoting saving and investments in order to maximize the demand which stands important in not only providing economic stability but also aids in the time of recession. This is achieved through careful assessment, budget provisioning and limiting the Govt. expenditure, Tax management (Direct, indirect and new taxes), Wage Control, Public Debt and maintaining surplus budget etc. On one side the Monetary policy acts by altering money supply and the interest rates; the fiscal policy aims for bringing in much needed price stability by carefully and continuously managing between the incomes and the expenditures of the country in order to provide a conducive and stable environment for providing economic growth, overcoming recession and generating opportunities for employment, infrastructure building, law and order, education, etc. 

Social Cultural Environment

 SOCIAL ENVIRONMENT 

Businesses operate in a society thus their continuous interaction with the society is natural. Businesses require the support from the society in terms of manpower, capital, facilities, etc. while the businesses owe to fulfill their obligations back to the society as they have a social purpose. This in-turn enables them fulfill their responsibility and obligations towards the society as per their accepted levels of social commitment. This becomes an integral part of operating the business for a businessman and thus the understanding of the social environment of business becomes imperative. 

Social environment is one of the elements of macro environment of the business. Social environment comprises of social institutions, relationships, beliefs and social structure of the society. In terms of business, social environment of an organisation includes the social values of the workforce along with the society within which the organisation functions. It consists of all the beliefs, customs and practices followed in the society. A business operating within the parameters of a society has to deal with the distinctive values and customs which formulate the factors of social environment affecting a business organisation. In case of a country like India, with diverse cultural backgrounds, the social environment becomes more complex. The social factors are usually influenced by family, friends, co-workers and even the social media. Proliferation of social media influence in present day modern life has increased the perimeter of social environment.

ELEMENTS OF SOCIAL ENVIRONMENT 

 Let us identify the various critical elements of social environment and the reciprocal relationship between the business and the society. 

• Social problems, prospects, social institutions and systems along with their social values and attitudes. 

• Education and culture and their impact on Social groups and activities. 

• Socio-economic order and corresponding role and responsibilities of the Government. 

Though the above list is suggestive, not exhaustive but it enables you to identify the sociocultural environment of business. Let us now discuss the different elements of the social environment.

Attitudes and Beliefs 

 Attitudes are the perception which people have towards certain situations or commodities. Attitudes are primarily formed on the values and beliefs of a person. Consumer attitudes towards a product or service can influence the demand and supply of that particular product or service. For example, favourable attitude towards a low sugar diet has led to increased demand for sugar free products in the market. This shows that the attitudes and beliefs of people have an impact on the social environment. 

Social Class 

 Each society has a certain extent of social and economic inequality. Social inequality deals with the discrimination based on caste in a society. The caste system in India resulted in social differentiation and has created a difference in the number of opportunities available to people. In other words, social class signified the social status of an individual. Consumer choices differ on the basis of their social status. Another way of class distribution is based on the wealth and income of the individuals and are divided into lower class, lower middle class, upper middle class and upper class. The lower class is considered to have the least earning and upper class is considered to have the most earnings amongst all. These income groups often coincide with the social status of an individual. For instance, people belonging to higher income group usually have a higher social status and vice versa. 

Lifestyle 

Adopted lifestyle is another element which affects the attitude and behavior of the people. Lifestyle is fundamentally concerned with how the people live and spend their money. The lifestyle pattern has changed in the recent times. People are opting for more simplified and natural ways of life. The awareness towards sustainable practices has changed the way of life. With the pandemic this practice has become all the more prevalent. Preferences Preferences are the personal taste of individuals about a product or service. These preferences are directed by other social elements such as friends, neighbours, family, education and income. The preferences change with time. This is correlated with the change in the income status thereby the shift in the lifestyle of people. If we go back few decades back then TV was considered to be a luxury and now it is considered to be a necessity. The preferences result in a dynamic shift for a social environment. 

Social Communities 

 Social communities include the circle of friends and co-workers. The need of social belongingness compels an individual to adhere to practices followed amongst the community members. In many cases people decide upon purchasing a product based on the reviews of his/her social circle. The social community in which the individual lives has a great impact on his/her decisions be it the buying behavior, lifestyle status, education, etc. 

Social Institutions 

 Social institutions refer to social structures in a society under which an individual assumes certain roles for the fulfillment of social needs. People under these social institutions are required to follow certain norms and beliefs. There are five kinds of social institutions namely family, economics, religion, education and government. They are referred to as primary institutions which are further divided into secondary level institutions. Family gives rise to secondary institution as marriage and divorce. Hierarchical structure of a family affects an individual’s choice of goods and services. Further, secondary institutions of economics are property, trading, credit banking, etc. The secondary institutions also consider temples, churches, mosques, etc. on the basis of religion. 

Education and Culture 

Education and culture is another important element of social environment. You also would agree to the statement that the percolation of education has gained foothold and this may be attributed to the increasingly positive attitude towards education, especially from the rural areas. Age-old education, made way to technical or skill based education and then to the structured business education. All were poised to increase the employment opportunities aiming at increased manpower utilisation arising from a meaningful industry interaction. 

Role of Government 

Yet another important contributory element is the government and its role as ‘a welfare state’. It is an ‘apex social institution’ and carries much importance in a democratic set-up where it is assumed to be maintaining social order and harmony in the society. Business organisations and Government play a complementary role. In pursuit of performance driven cultures, organisations strive to bring in social cohesion. So terms like consumerism, trade unionism, the cooperative movement, professional management, and shareholders’ associations, etc. become the associated keywords for the social business environment.

CULTURAL ENVIRONMENT 

Culture is a range of human actions which are socially transmittable. Culture can be explained as a complex combination of morals, customs, law, art, beliefs, knowledge and habits acquired by any individual member of a society. Culture is embedded in the way of life. In other words, Culture is a product of social interaction among humans and determines the human behavior. Cultural environment is concerned with the culture within which the organisation operates and includes the culture of its target market and the workforce.

ELEMENTS OF CULTURAL ENVIRONMENT 

Cultural environment contains a number of important elements. 

Knowledge and Beliefs 

Knowledge and beliefs deal with the pre-existing concepts and philosophies possessed by an individual about his or her surrounding reality. They consist of myths, philosophical thoughts, abstract concepts as well as scientific facts. It is often witnessed that people belonging to a specific culture have set beliefs about a particular thing apart from those permissible within that culture and this may result in not accepting the other view point. 

Religion 

Religion is an important element of cultural environment. People belonging to different religions have different religious principles, beliefs, thoughts, customs, rituals and traditions. A business organisation should take into consideration every aspect of religious sentiments while marketing their products. 

Language 

India has a vast number of languages and dialects out of which 22 are officially recognized languages as per the Government of India. Apart from these officially recognized languages, there are regional languages which are spoken within communities only. Variances in the language can be a major concern for business organisation. Different words have different meanings in different languages. This can be extremely crucial before deciding upon a brand name in foreign country. Beyond words, non-verbal communications can also create issues for an organisation. Body language such as gesture and posture has different meanings across different cultures. A same symbol may have different interpretation in different nations or different regions of a country. Verbal or non-verbal language, both have an impact on the overall cultural environment. 

Ethnicity 

 Ethnicity refers to the fact of belonging to a particular cultural tradition. An ethnic group’s domination in an area can influence the decisions and strategies of the local businesses operating in that area. Such domination can also influence the choice of trade opportunities. In case of international markets, ethnicity plays a bigger role. For example, Indian citizens belonging to different cultures within the country belong to a single national ethnicity are referred to as Indians.

 Evaluation of Socio-Cultural Environment 

Socio-cultural elements are one of the most important factors of the business environment which can influence the managerial decision-making process and strategic goals of a business organisation. Business organisations do not exist in a vacuum. Each and every firm in the industry is surrounded by an environment. Changes in the factors of social and cultural environment can have an effect on the commercial activities across the nations. In other words, shifts in the social and cultural elements of the environment can lead to fluctuations in the demand and supply of an economy. In order to survive in the market a business organisation needs to adapt to the shifts of socio-cultural environment. 

The earlier concept of business was limited to profit-making. However, in recent times business is seen as a societal institution working for the betterment of society. Business organisations are considered to be an integral part of the social systems. These businesses have the capacity to influence the life styles of their consumers and the way society works.

Likewise, preferences and attitudes of the people can also influence the business strategies. For example, rising health concerns amongst individuals has resulted in option for a healthy diet. This has forced the organisations to be more cautious about the quality and choice of the ingredients they use in their products. Change in income and education level leads to fluctuations in demand for products and service. A rise in income level led to increased demand for high-end products. For instance, people earning more generally prefer to buy more expensive range of FMCG products as compared to low price brands.

Cultural dynamics also affects the functioning of the business organisations, internally as well as externally. Culture affects many things in an organisation such as pace of business, decision – making and negotiations, employee management, risk-taking capacity and sales and marketing. Culture is responsible for developing trust amongst employer and employees as well as between organisation and its consumers. For example, in India one of the Food and Beverages Company has to customize its menu as per the customs and traditions of the consumers.

A prime example of effect of socio-cultural environment on business can be seen in the promotional campaigns during festive seasons. The campaigns show families celebrating festivals together as a part of their cultural traditions and how the product or service fit into their traditions.

Current Scenario of Socio-Cultural Environment 

Change in Fashion 

Trends Fashion trends changes every few years. What might be popular ten years ago might not be popular today. Social media influence has rapidly increased the pace of changes in trends. Such changes lead to shift in consumer preferences and attitudes. For instance, clothing brands has to be aware of most recent fashion trends while launching new collection. Another example of this can be change in advertising patterns. Television and print media were considered to be the most popular method of promoting products in the past decade. However, with a rise in users of smart phones and social networking sites, advertising through social media has been a new rage in the field of marketing (Quain, 2019). 

Social Issues 

Socio-cultural elements not only impact the business strategies of an organisation but also affect the internal policies of the organisation. Raising concern around gender issues has forced organisations to incorporate equal policies and practices for male and female employees. For instance, flexibility in gender roles among husband and wife has led to creation of policies for paternity leave alongside maternity leave. Further, awareness about gender sensitivity has led to change in attitudes towards workplace harassment and gender discrimination. Another instance of such cultural changes is non-resistance towards racial discrimination at workplace (Quain, 2019). 

Population 

Rise in population in India has resulted in the constant need of urbanization. About one third of the population in India lives in urban areas. India has seen a constant rise in the number of urban population (O’Neill, 2021). Rapid growth in urbanization strengthened the need for urban infrastructure such as transportation, hospitals, schools, sanitation facilities and power supply. A major concern behind the rise in urbanization is migration of population due to industrialization. Moreover, India has major portion of working-age population or young population. This construct has created a labour class at cheap rates. Besides, this young population has created demands for digitized economy. Urban working professional are more interested in digital banking and saving options (UK Essays, 2018). 

Multi-Diversity 

In present times, a majority of the organisations have a mixed culture workforce, especially in case of multinational organisation. India is a multi-diversity nation with mixed culture race. In order to deal with people from different cultures one must be careful about their business practices, communication style and management style as they might vary among different cultures. For targeting a consumer segment from other culture, an organisation must keep aside preconceived notions and put in efforts to learn about them (Saylor Academy, 2012).

ECONOMIC ENVIRONMENT IN INDIA

 ECONOMIC ENVIRONMENT IN INDIA 

The economic environment in India consists of various macro level factors related to the means of production and distribution of wealth which have an impact on business and industry. These include: 

(a) Stage of economic development of the country. 

(b) The economic structure in the form of mixed economy which recognises the role of both public and private sectors. 

(c) Economic policies of the Government, including industrial, monetary and fiscal policies. 

(d) Economic planning, including five year plans, annual budgets, and so on. 

(e) Economic indices, like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balance of payments, and so on. 

(f) Infrastructural factors, such as, financial institutions, banks, modes of transportation communication facilities, and so on. 

Business enterprises in India do realise the importance and impact of the economic environment on their working. Almost all annual company reports presented by their chairpersons devote considerable attention to the general economic environment prevailing in the country and an assessment of its impact on their companies. 

The economic environment of business in India has been steadily changing mainly due to the government policies. At the time of Independence: 

(a) The Indian economy was mainly agricultural and rural in character; 

(b) About 70% of the working population was employed in agriculture; 

(c) About 85% of the population was living in the villages; 

(d) Production was carried out using irrational, low productivity technology; 

(e) Communicable diseases were widespread, mortality rates were high. These was no good public health system. 

In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. 

The main objectives of India’s development plans were: 

(a) Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty; 

(b) Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries; 

(c) Reduce inequalities of income and wealth;

(d) Adopt a socialist pattern of development — based on equality and prevent exploitation of man by man. 

In accordance with the economic planning, the government gave a lead role to the public sector for infrastructure industries whereas the private sector was broadly given the responsibility of developing consumer goods industry. At the same time, the government imposed several restrictions, regulations and controls on the working of private sector enterprises. India’s experience with economic planning has delivered mixed results. In 1991 the economy faced a serious foreign exchange crisis, high government deficit and a rising trend of prices despite bumper crops. 

As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. 

The broad features of this policy were as follows: 

1. The Government reduced the number of industries under compulsory licensing to six. 

(b) Many of the industries reserved for the public sector under the earlier policy, were reserved. The role of the public sector was limited only to four industries of strategic importance. 

(c) Disinvestment was carried out in case of many public sector industrial enterprises. 

(d) Policy towards foreign capital was liberalised. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted. 

(e) Automatic permission was now granted for technology agreements with foreign companies. 

(f) Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India. 

Appropriate measures were taken to remove obstacles in the way of growth and expansion of industrial units of large industrial houses. Small-scale sector was assured all help and accorded due recognition. 

In essence, this policy has sought to liberate industry from the shackles of the licensing system (liberalisation), drastically reduce the role of the public sector (privatisation) and encourage foreign private participation in India’s industrial development (globalisation). 

Liberalisation: 

The economic reforms that were introduced were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions. They signalled the end of the licence-pemit-quota raj. Liberalisation of the Indian industry has taken place with respect to: 

1. abolishing licensing requirement in most of the industries except a short list, 
2. freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities, 
3. removal of restrictions on the movement of goods and services, 
4. freedom in fixing the prices of goods services,
5. reduction in tax rates and lifting of unnecessary controls over the economy, 
6. simplifying procedures for imports and experts, and 
7. making it easier to attract foreign capital and technology to India. 

Privatisation: 

The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was a reversal of the development strategy pursued so far by Indian planners. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991, adopted the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction. The term disinvestments used here means transfer in the public sector enterprises to the private sector. It results in dilution of stake of the Government in the public enterprise. If there is dilution of Government ownership beyond 51 percent, it would result in transfer of ownership and management of the enterprise to the private sector. 

Globalisation: 

Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. Till 1991, the Government of India had followed a policy of strictly regulating imports in value and volume terms. These regulations were with respect to (a) licensing of imports, (b) tariff restrictions and (c) quantitative restrictions. The new economic reforms aimed at trade liberalisation were directed towards import liberalisation, export promotion through rationalisation of the tariff structure and reforms with respect to foreign exchange so that the country does not remain isolated from the rest of the world. Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market. This has been made possible by the rapid advancement in technology and liberal trade policies by Governments. Through the policy of 1991, the government of India moved the country to this globalisation pattern. 

Demonetisation: 

The Government of India, made an announcement on November 8, 2016 with profound implications for the Indian economy. The two largest denomination notes, `500 `1,000, were ‘demonetised’ with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills. This led to eighty six per cent of the money in circulation invalid. The people of India had to deposit the invalid currency in the banks which came along with the restrictions placed on cash withdrawals. In other words, restrictions were placed on the convertibility of domestic money and bank deposits. 

The aim of demonetisation was to curb corruption, counterfeiting the use of high denomination notes for illegal activities; and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authorities. 

Features 

1. Demonetisation is viewed as a tax administration measure. Cash holdings arising from declared income was readily deposited in banks and exchanged for new notes. But those with black money had to declare their unaccounted wealth and pay taxes at a penalty rate. 

2. Demonetisation is also interpreted as a shift on the part of the government indicating that tax evasion will no longer be tolerated or accepted. 

3. Demonetisation also led to tax administration channelizing savings into the formal financial system. Though, much of the cash that has been deposited in the banking system is bound to be withdrawn but some of the new deposits schemes offered by the banks will continue to provide a base loans, at lower interest rates. 

4. Another feature of demonetisation is to create a less-cash or cash-lite economy, i.e., channeling more savings through the formal financial system and improving tax compliance. Though there are arguments against this as digital transactions require use of cell phones for customers and Point-of-Sale (PoS) machines for merchants, which will only work if there is internet connectivity. On the contrary, these disadvantages are counterbalanced by an understanding that it helps people into the formal economy, thereby increasing financial saving and reducing tax evasion. 

IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY 

The policy of liberalisation, privatisation and globalisation of the Government has made a significant impact on the working of enterprises in business and industry. The Indian corporate sector has come face-to-face with several challenges due to government policy changes. These challenges can be explained as follows: 

1. Increasing competition: 

As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector. 

1. More demanding customers: 

Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services. 

1. Rapidly changing technological environment: 

Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms. 

1. Necessity for change: 

In a regulated environment of pre1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

1. Need for developing human resource: 

Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources. 

1. Market orientation: 

Earlier firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations. In a fast changing world, there is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly. 

1. Loss of budgetary support to the public sector: 

The central government’s budgetary support for financing the public sector outlays has declined over the years. The public sector undertakings have realised that, in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose. 

On the whole, the impact of Government policy changes particularly in respect of liberalisation, privatisation and globalisation has been positive as the Indian business and industry has shown great resilience in dealing with the new economic order. Indian enterprises have developed strategies and adopted business processes and procedures to meet the challenge of competition. They have become more customer-focused and adopted measures to improve customer relationship and satisfaction.