components of be: politico-legal environmentgate, vyapam scam(2015), adani & pulses scam;...
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LOGOBusiness Environment
UNIT-IComponents of BE:
Politico-Legal Environment
Course Coordinator: Dr. Saboohi NasimFMS&R, AMU
Unit –I (Syllabus)
❖Nature, Characteristics & Objectives of
Business
❖Nature & Elements of Business
Environment
▪ Technological Environment
▪ Socio-cultural Environment
▪ Political-legal Environment
▪ Demographic & Natural Environment
▪ Economic Environment
Politico-Legal Environment
•The Government is a political
institution, but has a social purpose.
•It enacts and executes social policies,
exists with social consent, and provides
the ways and means of maximizing
social benefits and minimizing social
costs.
• Government itself has a social value
and culture.
Government as a Socio-Political Institution??
The Government has its own
form, structure, style and
philosophy which further
determines its policies,
programmes and legislations,
constituting the
political system of a country.
Government as a Socio-Political Institution…
•Business of any type and any size
is affected by Government’s
policies, programs and legislations.
•Business policy decisions are
designed in the realm of the
Government’s overall policy
environment.
Government and Business?
• The political system of a country
determines the overall context in which
business operates
• The system of governance, the
framework of laws and implementation
of policies play a critical role in business
environment
“There is today no country with a stable and honest
government that does not have or has not had a reasonably
satisfactory state of economic progress….In all these
countries, the early emphasis was not on capital investment
but on political and then on cultural development. In the
United States, Western Europe and recently in Japan, a
secure political context was stressed in both thought and
action for economic development; it was considered to be
the first requisite for economic progress”
John Kenneth Galbraith
A stable, honest, EFFICIENT and
DYNAMIC political system is essential
for economic growth
•The form of Government
•The ideology of the ruling party
•The strength of the opposition
•The role and responsibility of the
bureaucracy
• Political stability
•The velocity of Government policies,
plans and programmes
• Socio-economic legislations• Politico-legal institutions
Critical Elements of Politico-legal Environment?
•Form and structure of the
Government is a critical and decisive
factor for the business sector
•Two basic political philosophies are
in existence
•Democracy
•Totalitarianism
I. Form of Government
•Democracy: supreme power vested in the people•Pure Vs. Republican
I. Form of Government…
•Totalitarianism: individual freedom
completely subordinated by the
power of authority•Started emerging after the first
world war
•Became most common among
newly independent states
•Two-thirds of the nations ruled by
dictators/monarchies
I. Form of Government…
Four types of Totalitarianism:
•Theocratic Totalitarianism: Political system under
the control of religious leaders who frame laws &
regulations according to the religious belief; Iran and
other Middle east countries.
•Secular Totalitarianism: Political system under the
control of leaders guided by military or bureaucracy;
Common in several Latin American and Asian
countries till early 1980s. (For eg. Korea, Taiwan,
Indonesia, Philippines..etc) Pakistan has been under
military rule till Gen. Musharraf stepped down to hold
elections.
I. Form of Government…
Four types of Totalitarianism….
•Right-Wing Totalitarianism: Private property
endorsed by the govt., market forces allowed a
free play but political freedoms are rarely
granted. E.g. China a classic example
•Tribal Totalitarianism: Interests of a
particular tribe monopolizes power; exists in
African countries- Zimbabwe, Tanzania,
Uganda, and Kenya.
I. Form of Government…
I. Form of Government…
I. Form of Government…
Which
political doctrine
is ideal for
business?
The Debate!
The Debate!
The Debate!
•Ideology of the ruling party influences ownership,
management structure and size of business??.
•A ruling party with a `rightist’ inclination may
formulate liberal pro-business policies; party with
‘leftist’ leanings emphasize measures like
nationalization and excessive centralization.
•The philosophy of the ruling party thus may
help or hurt the core of business activity (e.g.
exit of MNCs like coca cola and IBM during Janata partyregime…)
(II) The Ideology of the Ruling Party
•The nationalist movement provided a broad framework of
ideologies for political parties in India. Nationalism,
socialism, secularism and democracy became the main plank
of the Congress during the freedom.
•Some known economic ideologies of political parties in India
•Garibi hatao (eradicate poverty) has been a slogan of the Indian
National Congress for a long time. Favours both socialist as well as
neo-liberal policies such as LPG
•The Bharatiya Janata Party encourages a free market economy….
(sabka saath sabka vikaas sabka vishwas??—NDA III)
•The Communist Party of India (Marxist) vehemently supports left-
wing politics like land-for-all, right to work and strongly opposes neo-
liberal policies . ..Samajwadi Party??
(II)The Ideology of the Ruling Party…
•Opposition has a very significant role to play in a
democracy
•If the Opposition is fair, firm and consistent, it can
make constructive criticism of Governmentpolices…e.g. may help expose cases of corruption (BJP led
opposition activism highlighted the 2G scam, CWG scam}, …..Recently the Lalit
gate, Vyapam scam(2015), Adani & Pulses scam; Banking sector fiasco 2018
….AAP-crusader against corruption…Rafale Deal Controversy/Scam 2019??)
•On the other hand, opposition may also obstruct
reforms required for economic growth….. The Indo-US
civilian nuclear agreement (2008), case of the Tata Nano plant in Singur,
opposition to the FDI in multibrand retail (AAP) etc…tit for tat politics by current
oppn UPA in stalling key legislations..e.g. GST bill, Land Bill (2015, 2016);
BJP’s reluctance for JPC in Rafale (2019)??
(II)The Strength of the Opposition
•The Government works through the bureaucracy- the
permanent machinery of the Government, it is meant to
keep up continuity in Government operating in relation to
both business and non-business sectors.
•Bureaucracy is very powerful in enforcing Government
rules and regulations, systems and procedures, licenses
and restrictions.
•Businessmen, therefore, tend to oblige the bureaucracy
in a number of ways…..gives rise to corruption.
(IV) The Role and Responsibility of the Bureaucracy
(V)Political Risks: Implications for Businesses (2017)
India ranking dipped from 78th -2018) to 80th rank (score-41) in 2019
(Transparency International, 24th Jan 2020)
(V)Political Risks: Corruption Index
India
41
(V)Political Risks: Corruption Index….(2016)
(V)Political Risk Index.. The Global Risks Report 2019 (World Economic Forum)
• The 14th edition of the Global Risks Report-2019 (prepared by the
World Economic Forum with the support of Marsh & McLennan and other partners),
last year examined the evolving macro-level risk landscape
and highlights major threats that may disrupt the world in
2019 and over the next decade.
• The most striking factor identified was the level of concern
about geopolitical issues. Of the top ten risks expected to
deteriorate in 2019, seven were connected to the political
environment.
• Over 90% of respondents expected economic
confrontations/frictions between major powers to
deteriorate in 2019, anticipating the erosion of multilateral
trading rules and agreements. (Indo China Trade War)
(V)Political Risk.. The Global Risks Report 2019 (World Economic Forum)…
(V)Political Risk.. The Global Risks Report 2019 (World Economic Forum)…
(V)Political Risk & Instability
Global top 10 risks for doing business
World Economic Forum Report, 2018 (published in 2019)
(V)Political Risk & Instability Top risk for doing business across regions (World
Economic Forum Report, 2018) (published in 2019)
(V)Political Risk & Instability
Global top 10 risks for doing business
World Economic Forum Report, 2019 (published in 2020)
1 Fiscal crisis
2 Cyber attacks
3 Unemployment
4 Energy price shock
5 Failure of national governance
6 Profound social Instability
7 Data fraud or theft
8 Interstate Conflict
9 Failure of critical infrastructure
10 Asset Bubble
(V)Political Risk Index..
(V)Political Risk-Regulatory Risk
Caselet
Vodafone-IdeaEmbroglio
(VI)The velocity of Government policies,
plans and programmes
•When policies are formulated with tremendous
“speed”, they come one after another though the
“direction” may not be very clear. (Aadhar:
implementation suffered a big jolt….Demonetization
shock?....Recent controversial laws?)
•Sometimes, policies are formulated with a clear
“direction” but at a snail’s “speed”.(Women
Reservation Bill…..lack real political will)
•Velocity (both speed and direction) of Government
policies, plans and programmes is very critical for a
conducive business climate
(VII) Socio-Economic Legislations
•Policies are statutorily enforced through
laws.
•Various socio-economic legislations affecting
various business operation constitute the legal
environment (Company Law, Industries Act, MRTP &
Competition Act, FERA laws, SEBI Act, Labour laws,
Environment protection Act etc..…..)
•Laws not only protect business, they may
also create business. For example - Tax laws –
GST?? .
(VIII)Politico-Legal Institutions
•Three vital political Institutions??
•Legislature: policy making, law making, budget approval,
executive control…parliament, assembly.
•Executive/Government : implementation through
federal system of governance-state/centre relationship,
corporate involvement in executive
•Judiciary:. Provides us with the system of laws operating in
the country …..runs through the Supreme Court, the High
Courts and the Lower courts
Judicial activism Vs Judicial adventurism??
(Supreme Court Crisis: All not okay, democracy at stake,
say four senior-most judges, Jan 2018??)
Should the Corporate
donate to Political
Parties ??
Business donations to political
parties is a debatable issue.
Food For Thought!!
•In the past few years, Indian companies are
reported to have donated over Rs 4,400 crore to
six major political parties: Congress (Rs 1660cr) ,
BJP (852 cr), BSP(1226 cr), CPI-M (335 cr),
Samajwadi Party(200 cr) and the NCP (140 cr).
•A system where over 90 per cent of Rs 4,400
crore (Rs 44 billion) received from companies
over a period of five years comes without any
disclosure on the source of funds is a big
threat to governance.
Corporate Donations to Political Parties ??
•Govt. legitimized foreign poll
funding in March 2018 (https://financialexpress.com/india-news/modi-govt-
legitimizes-foreign -poll-finding-Subramaniam-swami-
calls-it-terrible-what-you must-know/1107290/)
•Electoral Bonds can now be bought
by Indian corporates to fund political
parties without disclosure
Corporate Donations to Political Parties ??
•Corporate donations to political parties are
to be welcomed, but only after ensuring that
everybody knows which company has
contributed how much and to which political
party (full disclosure)
•AAP’s Strategy: Full Disclosure and transparency
•Recently, Atishi Marlena of AAP using online
crowdsourcing platform to generate funds for 2019
election.
Corporate Donations to Political Parties ??
Any Query???...............Ask Google!!
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