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Political environment refers to the influence exerted by the three political institutions:
The legislature decides on a particular course of action. Government is the executive and its job is to implement whatever was decided by parliament. The judiciary has to ensure that both the legislature and executive function in public interest and within the boundaries of constitution.
Legal and political environment provides a framework within which the business is to function and its existence depends on the success with which it can face the various challenges construed out of political and legal framework.
The overall success of the business will depend upon the political stability in the country. There are some factors which may cause political instability e.g.:
(i) Civil war
(ii) Declaration of emergency in the country
(iii) Changes in the form or Structure of Administration of Government etc.
Under the Democratic form of Political system, there are three major institutions viz Legislature, Executive and Judiciary.
1. Legislature: Legislature is the most powerful institution. The main powers vested in the legislature are as follows:
(f) Policy making
(ii) Law making
(iv) Executive control
(ii) Approval of budgets
(v) To act as a mirror of public opinion.
In today’s economies, particularly of developing countries like India relevance of a protective legal environment for business assumes immense proportions as it is the very foundation of every investment decision.
The business has to be within the law of the land. Every aspect of business from its birth till death is covered under the laws to ensure that not only profit is earned in a justified and fair way but also to ensure that in the attainment of business interests the interest of each person is fully protected and the profits of business are distributed in a manner beneficial to the society.
2. Executive:. Government is the executors body of the laws which are framed by the legislature.
According to E.V. Schneider, “Government is that institution by which men everywhere seek to order society, that is, to control the structure and functioning of society.”
In simple words, the role of the Government is to shape, direct and control the business activities. The translations of the objective of any laws to the reality depends as much upon the law itself as on its implementation.
The implementation of the law in its word and spirit only can ensure the realization of its true objectives.
3. Judiciary. The third political institution is judiciary. The judiciary sees to it that the exercise of authority by the executive is according to the general rules laid down by the legislature.
It is the power of Judiciary to settle legal disputes that affects business considerably. Following are a few examples of the disputes which are often referred to courts for settlement and their verdicts are sought:
(1) Disputes between employer and employee
(ii) Disputes between employer and employer
(iii) Disputes between employee and employee
(iv) Disputes between employer and public
(v) Disputes between employer and government.
In some cases the courts of Justice protect the citizens from unlawful acts passed by the legislature and arbitrary acts done by the Government or the executive.
The term responsibility, accountability, obligation or duty are all used interchangeably in the context of relations between Government and business. The relationship between these two can be explained with the help of the chart given on next page.
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The important points are as explained below:
Responsibilities of Business Towards Government
The Government has certain definite expectations from business. The business houses are expected to fulfill the following responsibilities:
1. Regular Payment Taxes: Taxes are a major source of revenue for the Government. It is the responsibility of every businessman to pay regular taxes on sales, inputs and income.
Moreover, it is the duty of the businessman, as an employer, to deduct the income tax from the salaries of the employees and remit the same to the government treasury.
2. Voluntary Programmes: Another expectation of the Government from the business is that the business firms should cooperate with Government agencies on voluntary basis in connection with various programmes like:
(1) Sponsoring social welfare programmes
(if) Cultural growth
(iii) Environmental preservation
(iv) Promoting education
(v) Population control measures
(vi) Assistance in connection with drought relief etc.
Business deals all this under the name of social responsibility.
3. Providing Information: It is another responsibility of the business houses to give feedback information to the Government on the decisions taken by the political leaders. Business have necessary knowledge and experience.
They can, therefore, place before the decision makes the facts and problems and argue for the modification or changes. This can be done by them individually or collectively.
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4. Government Contracts: Due to privatization of the economy a number of Government contracts are executed by private business houses. Many business houses submit the tenders. It is the responsibility of the business houses to carry out the projects according to required specifications and standards.
5. Providing Service to the Government: Sometimes, some influential and competent businessmen are included in the Advisory boards constituted by the Government. Some businessmen are appointed as members of the delegations who go abroad for exploring trade and industry prospectus.
6. Corporate Contributions To Political Activities: The business houses are involved in the political activities in the following ways:
(a) Making monetary contributions to political particularly at the time of elections.
(b) To contest elections as independents or on party tickets.
(c) Through lobbying which refers to the behavior after the election and is concerned with securing legislation in favour of business.
It is the responsibility of the business houses to make sure that their political involvement provides an additional safeguard against the authoritarian potential of a mass society.
Responsibilities of Government Towards Business
The business has its own expectation from the Government. Specially, the expectations of the business or the responsibilities of the Govt. towards business are as follows:
1. Political institutions:
(i) Government is responsible for preparing the laws which make the business system function smoothly. In these we include various economic and business laws
(ii) It is the responsibility of the Government to provide for the implementation of the laws.
(iii) Further, it is the responsibilities of the Government to provide a proper Judicial system settling the disputes between business firms, individuals or Government agencies.
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2. Provision of a peaceful atmosphere: Government has the responsibility of maintaining law and order in the country and to provide protection to persons and their property N successful business can be carried on the absence of a peaceful atmosphere.
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3. Provision of a system of money and credit: The Government has to provide for a system of money and credit by means of which business transactions can be effected. Further, it is the responsibilities of the Government to regulate money and credit and to protect the money value of the rupee in terms of other currencies.
4. Balanced development & growth: It is the responsibility of the Government to make sure that there is balanced regional development, fall employment and a stable economy, Governтоя has the resources and capabilities for all this, the only requirement is optimum utilization of resources.
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5. Provision of a basic infrastructure: It is the responsibility of the Government to provide a basic infrastructure to the business which includes provision of Banking, Finance, transportation Power, trained personnel, warehousing and the other civil amenities.
6. Provision of information: It is the responsibility of the central, state and local Governments to provide information, which is useful to the businessman in conducting their business activities.
This information may be about economic and business activity in general, specific lines of business, Scientific and technological developments and many other things of interest to business houses.
7. To assist small scale industries: The Government has special responsibility towards small scale industries because these industries generally face problems relating to finance, marketing, technical know how and infrastructure. It is the responsibility of the Government to provide these facilities and to encourage small scale sector.
8. Transfer of technology: Another responsibility of the Government is that whatever discoveries are made by the Government owned Research institutions should be transferred to private industry so that these can be used for commercial production.
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9. Competition with private sector: Government should compete with the private business firms for the purpose for ensuring healthy competition, improvement in the quality and regulating the prices.
10. Licensing and inspections: Government agencies should inspect the private business houses to ensure quality and prohibit the sale of substandard goods. Moreover the Government should issue licences to competent business establishments. So that they may carry on different and useful business activities.
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11. Protection from foreign competition: Government should encourage the development of home industries by providing them various subsidies and incentives. Moreover, measures like Tariffs and Quotas should be used by the Government to protect business from foreign competition.
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To summarize we can say that the business should have complete faith in the ideologies of the government. Similarly, the government should have no inherent distrust against business in the private sector.
The need of the hour is that the gap between the Government and business should be removed. There should be a spirit of partnership not one of association.
We should learn a lesson from Japan where the relationship Government and business is so close that the entire working of the Japanese economy sometimes called “Japan Incorporated.”
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