Roles of Business, Government and

Society

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Meaning of Business
 Business can be defined as an association involved in the trading of goods and
services to customers with the intention of earning profits.
 Business is a broad term encompassing a range of actions and institutions.
 It covers activities like management, manufacturing, finance, trade, service, investment
etc.
 The fundamental purpose of every business is to make a profit by providing products
and services that satisfy human needs.
 Business is planned approach that aims to satisfy customer’s needs and wants by
serving them with their desired goods and services.
 A Business can be regarded as an economic process dealing with the production and
circulation of production & services with the main objective of making profits.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Definition of Business
 Arthur M Weimer – Business is that complex field of commerce & industry in
which goods & services are created & distributed in the hope of profit within the
framework of laws and regulations.
 Lewis H. Haney – Business may be defined as human activity directed towards
producing or acquiring wealth through buying and selling goods.
 Musselman & Hughes – Business represents the organised efforts of enterprises
to supply customers with goods & services.
 The activities like insurance, warehousing, banking, advertising, production,
marketing etc. may be directly or indirectly related with the process like
production, sales, purchase of goods and services.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Characteristics/Nature of Business
1. Business is Social Institution: Business can be characterised as a social institution like
religion, government, college, agriculture, family etc.
2. Dealing in Goods & Services: Business entities are involved in offering goods and
services to the end customer.
3. Sale, Transfer or Exchange: The main characteristic of business is buying and
selling(exchange) of goods and services. Example :Tea
4. Regularity in Dealings: An economic activity done on regular basis is considered as
business. Example : Newspaper
5. Organization and management: These are pillars of business. Different elements of
business are united with each other in an organised form.
6. Capital, Investment and Finance: These are essential components of business without
which a business cycle will have no existence.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Characteristics/Nature of Business
7. Risk taking: It is essential in business to take risks and face uncertain conditions.
Profits come as reward for business in such conditions.
8. Involves forecasting: Business will be more successful if it can forecast with more
perfection.
9. Generation of Values and Utilities: Utilities result in adding values to the
products offered and generate revenue.
10. Recurring activities: Business is a continuous process of repetitive activities.
11. Profit motive: Success of a business is measured in terms of its ability of profit
generation.
12. Creativity: Bringing new innovations or copying the already existing by bringing
some creative changes can be termed as creativity for business.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Scope of Business
 Business activities grouped into two categories:
Industry Commerce
(extraction, processing, production, (process of buying & selling goods
construction etc.) assisted by few supporting activities)

Consumer Goods – consumed Through export, import,

by final consumer.
Eg. Car,Cloths,Jam, Television, oven, Soft retail, wholesale etc.
drinks

Capital Goods – used as raw Supporting activities like banking, sorting,

material in production.
Eg. Steel acts as capital good in production of grading, insuring, packing, transporting,
various parts of ships, scooter, motor engines, warehousing etc.
motor cycles

Intermediate Goods – end

product which used as intermediate by other
industries.
Eg.Paper is used to produce products like
notebook, textbook, diary etc.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Objectives of Business

Economic Human Social

Objectives Objectives Objectives

National Global
Objectives Objectives

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Objectives of Business – Economic objectives
1. To earn profit:When revenue exceeds expenses, then the balance is known as profit.
2. To create customers: Customer help in establishing market. They help in the growth,
expansion and survival of business.
3. To promote innovation: Changes made in products, their pattern of distribution or
production processes, for their improvement is known as innovation.
4. To use resources optimally: Efficient use of personnel, optimum utilisation of machinery,
preventing the raw material from being wasted.
5. To produce Good and Services: Goods and services should be able to meet the customers
needs and satisfy them.
6. To focus on Growth and Expansion: Without growth and expansion, business will unable to
reach its potential customer.
7. To improve productivity and cost efficiency: Enhancing the productivity generate profit.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Objectives of Business – Human objectives
Human Objectives aim at achieving employee’s satisfaction. It ensure well-being and
fulfilment of employee’s expectations.
1. To Facilitate Economic Well-being of Employees: Facilities like incentives, pension,
Provident Fund, compensations for medical, performance pay etc.
2. To Provide Social & Psychological Satisfaction to Employees: Suitable employees are
placed at respective position, promotions, increments, suggestions are accepted in
decision making activity.
3. To Develop Manpower: Provide proper training and development
programmes to polish their skills and abilities and make them more competent.
4. To Facilitate well-being of Socially & Economically backward People: Designing
vocational programs, giving preference in organisational recruitment process,
scholarships for higher studies etc.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
 Objectives of Business – Social objectives
1. Social welfare and well-being society: Social objectives of a business are related with
social welfare and well-being of the society.
2. Use of scarce resources (Person, machine, material) : Use of scarce resources of
the society, this becomes its responsibility to return the favour in terms of social
welfare of its people.
3. Avoid such activities which can cause harm to the people: In case of such happenings,
business will have to face hard public reactions. The various social objectives
which a business aims to achieve involves:
i. Implementation of fair trade practices
ii. Producing and supplying standard products and services
iii. Setting provisions regarding welfare amenities

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Objectives of Business – National objectives
1. To create employment: Business expands its distribution channels and markets and
establishes different new units to achieve employment objective.
2. To Promote Social Justice: Equal job opportunities are offered by the business to different
sectors of society. Economical weaker and backward societies are given special
attention.
3. To Follow the Production & Supply Policy of the Nation: Following production and supply
policy of the nation as per Government rules and regulations is important.
4. To Contribute to the Revenue of the Country: Business aims to pay all the taxes regularly
to the government to improve the government revenues.
5. To Make the Country Self-sufficient & To Promote Exports: Reduce the import of goods
from other countries to make the nation self-reliant. Promote export of different goods and
services from the country to improve foreign capital of the nation.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Objectives of Business – Global objectives
In the new era of globalisation and increasing competitions in global markets, every business
has come up with certain global objectives. Whole world has emerged as one single market due to
globalisation.
1. To Raise General Standard of Living: Set an appropriate standard of living for its people by
making them available with global quality products and services at reasonable prices.
2. To Reduce Disparities among Nations: Reduce differences like rich and poor between
different nations. It is achieved by expanding the business operations to different
countries of the world.
3. To Offer Globally Competitive Goods & Services: Offering desired as well as globally
competitive products to different nations. In this way, business aims to improve the image
of the home country and earn more foreign capital.

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 Role of Business
1. Development of Economy : Business plays a major role in the development of economy.
2. Promotion of Capital Formation: The inactive savings of the customers are mobilised in the
market so as to generate capital. Borrowed or own capital is used by business for setting
the enterprises.
3. Promotion of Balanced Regional Development: Set-up different industries or enterprises in
different backward and underdeveloped areas so as to eliminate the regional
imbalances among them.
4. Concentration of Economic Power: Due to limited industrial activities in few region,
the economic development of the country remains dependent on limited business, so the
economic power remains concentrated to these industries or business.
5. Wealth Creation and Distribution: Business is responsible for wealth creation and
distribution through incorporating different activities and processes.

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 Role of Business
6. Increasing Gross National Product and per Capita Income: Businesses increase Gross National Product
and Per Capita Income of the country by developing different types of products in the market and
by creating income and wealth for different Stakeholders.
Gross National Product (GNP) is the total value of all finished goods and services produced by a
country's citizens in a given financial year, irrespective of their location.
Per capita income is a measure of the amount of money earned per person in a nation or
geographic region.
7. Promotion of Country’s Export Trade: The goods produced by business entities are exported to other
countries which brings large amount of foreign exchange in the home country.
8. Induction of Backward and forward Linkages: The way raw materials and other inputs of a
business are obtained from other businesses or industries, represents backward linkage, whereas
offering final products of the business to different business or industries for their use represents
forward linkage.
9. Facilitation of Overall Development: The increasing demands and setting up of new entities to fulfil
demands leads to the overall development of a region as a whole. Overall development of different
region leads to an enthusiastic environment in the country.
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 Importance of Business
 Production of goods : types of goods
 Distribution Aspect of Business : On time, at appropriate place and price
 Business Supplies Services : banking, finance, insurance, health and medical services etc.
 Raising Standard of living: source of income, tax paid for overall development of the nation.
 Creation of markets: New products, new distribution channels
 Optimum Utilisation of Resources: Bulk production with minimum wastage of resources.
 Better Quality and largeVariety of Goods and Services
 Creates Utilities: Utilities of place, time, form are added to products so that it satisfy the
customer’s need
 Creation of large scale employment Opportunities
 Workers’Welfare : Provide employee with safe and healthy work environment.
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 Government
 Government refers to structures and processes in society that authoritatively
make and apply policies and rules.
 Like business, it contains a wide range of activities and institutions at many levels,
from international to local.
 Government can be defined as a legislative unit with the authority and power to
formulate and enforce laws within academic, civil, corporate, religious group or
organizations.
 “To govern” is to control, supervise or administer a particular group of individuals, set
of assets or a religion.
 Government has three basic powers
1. Legislative power:The power to formulate public laws and regulatory policies
2. Executive power: The power to enforce, administer and execute laws
3. Judicial power: The power to determine the meaning of laws and to settle down societal
disputes, to review and pass bills which are passed by the parliament.
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 Society
 A society is a cooperative network of human relations, organized by flow of
power and relatively distinct in its boundaries from other.
 A Society can be defined as a set of people with similar interest and distinctive
culture.
 It is a group of individuals interacting with each other in order to share and
develop a common culture.
 Every society includes three interacting elements:
Ideas : Intangible objects of thought
Institutions : Formal patterns of relations that link people to accomplish a goal.
Material things: Includes land, natural resources, infrastructure, and manufactured
goods.

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 Characteristics of Society
 Network or web of Social Relationship : Social Relationship forms the base of
society.
 Cooperation and Conflict: Existence of society without cooperation is unimaginable. A
strong and powerful society is the one which shelters both conflict and
cooperation. The interplay of these two general processes, lead to the formulation of
the society.
 Permanency: Society is permanent in nature. It does not refer to a temporary
arrangement of the people. Even when the individuals die, the society exists.
 Abstract: Society is an intangible idea. Society is comprised of traditions, values, culture
etc. all of which are also intangible.Thus, the basic nature of society is abstract.
 Dynamic: Society keeps changing, and therefore it is dynamic in nature. The new
customs, ideas, values etc. replace the old customs, traditions, institutions, values etc.
The society shifts from the traditional to the modern one.

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 Characteristics of Society
 Comprehensive Cultures: Culture refers to the way of living of the people of the
society, and it consists of their beliefs, values, art, morals etc. Thus culture is a broad
term, as it meets the needs of the social life. Every society has a unique culture
which renders it a distinctive identity.
 Not just Group of individuals: It is sure that the society consists of people. However,
simply a group of people cannot be regarded as society. It’s a group of people with
common territory, interaction, and culture.
 Accommodation and Assimilation : Two associative processes, accommodation and
assimilation, play a vital role in ensuring hassle-free working of the society and its
sustainability. In assimilation, the new idea fits in with the already existing ideas while,
in accommodation, the new idea changes the already existing ideas.
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 Structure of Indian Society
 Tribes: Tribe refers to one of the recognised culture and social establishment of the
past. These tribes are grouped together, as per schedule of Indian constitution and
referred as the scheduled tribes.
 Caste System: The segregation of tribes is Caste system. It is divided into four main
categories : Brahmins, Kshatriyas,Vaishyas, Shudras.
Caste Type Role
Brahmins Teachers and intellectuals
Kshatriya warriors and princes
Vaishya Farmers, merchants, traders
Shudra servants and sharecroppers

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 Values in Indian Society
The Indian society is specially known for the moral values and high thoughts.
 Dharma: Dharma refers to the broad principles pertaining to the duties and rights of
the people dwelling in an ideal society.
 Vairagya: Vairagya refers to an internal state of mind rather than to external lifestyle
and can be practiced equally well by one engaged in family life and career as it can be by
a renunciate.
 Karma: The responsibilities of the individual regarding his conducts and actions are
specified by the Karma.
 Social Hierarchy: Social stratification is clearly visible from the instance of the caste
system.
 Tolerance: There is no need to force anyone to change his own way of living or
thinking according to that of someone else.
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 Values in Indian Society
 Ahimsa: It means give respect to all living things and avoidance of violence
towards others.
 Harmony(Union): In Indian Society harmony is visible in all phases of life and
in all places such as cities, villages.
 Familism: It is a social pattern in which the family assumes a position of
ascendance over individual interests.
 Respect to elders: Another Sadharma Dharams in Indian society is to give due
respect to the elders.
 Personality and Individuality: Personality of the individual is dependent upon his
caste position in social stratification.
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Business, Government and Society (BGS)
 BGS are interrelated and exist together within the same geographical boundaries.
 The economic values in a society are processed & developed by business, as they tend to
provide qualitative goods & services to the individuals of the society for earning profit.
This shown that society and business are interlinked.
 Objectives of Understanding BGS
1. To understand role of Business in Society
2. To understand Business Power in Society
3. To Support Managerial Decisions
4. To Practice Corporate Responsibility
5. To know duties of Managers & need for Regulations
6. To excel in Managerial Performance
7. To Effectively Operate Company within Society

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 Models of BGS Relationships
 There are four basic models that act as the fundamental alternatives for
understanding BGS relationships.
1. Market Capitalism Model
2. Dominance Model
3. Countervailing forces Model
4. Stakeholder Model

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Market Capitalism Model
 Market Capitalism Model is that a
Socio-Political Environment
business enterprise reacts primarily
to the influential economy powers by
functioning within the business
Market Environment environment. There are other various
social and political powers that also play
role in influencing.
Business  The model considers market is a
buffer between non-market power &
the business. Understanding the nature,
history and operations of business
markets is important for
understanding & approaching the
model.

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 Market Capitalism Model
 Adam Smith (1723—1790) was a philosopher gave the classic explanation about the
functioning of market economy.
 Adam Smith is often identified as the Father of modern capitalism.
 The Wealth of Nations is not a book on economics but it is political economy, a
much more expansive mixture of philosophy, political science, history, economics,
anthropology, and sociology.
 He explained the concept capitalism as commercial society.
 Later Karl Marrx adopted this term. The term lost its negativity over a period of time
and gained more and more positivity, whereby the managerial capitalism was
inculcated in industry.
 The managerial capitalism represents the market economy under which
powerful and dominant enterprises are recognized as large companies with paid
managers and not as small firms with owner-entrepreneurs.
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 Assumptions of Market Capitalism Model
 There is little government interference in economic life.
 People in the society are free to risk their investment and own private
properties. Owners are encouraged to earn profits in such conditions where
free market competition arrives.
 Customer take rational decisions after understanding prices and quality.
 The moral restriction plays a role in the self interested behaviour of business.
 To ease the trade & commerce the institutes like bank, law etc. play a role.
 In the competitive marketplace there are numerous customers &
manufacturers.

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 BGS relationship and Market Capitalism
Following conclusions about BGS relationships are derived from market capitalism
model.
 Profit is the appropriate measure of corporate performance
 Limited Government regulations expected
 Private economic activities are disciplined by the market for promoting of welfare
of the society
 Promoting stakeholders’ interest is one of the responsibility of management.
Criticisms of Market Capitalism Model
 The progress through capitalism is generated by giving birth to inequality. Karl Marks
says “Owners use policies to gain and exploits labour”.
 The earth & the society is being polluted by the profit making motive of owners.
 The base values are self-love, brutality(great cruelty), greediness(selfish desire for
wealth) etc.
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 Dominance Model
 Dominance model is another fundamental method of understanding and
observing BGS relationships.
 Under this model Government & business greatly dominate the people in
the society.
 The model believes that strong elite & corporation are the major controllers
of an undemocratic system which enhances few people and degrades many.
 In this model autonomous leaders & self-regulatory government
represents the interest of people & society at large.

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Dominance Model
Environmental Forces Criticism of Dominance Model:
 The model fails to present the ideal
description of regulation. It does
Business
not describe how things should be
Government
regulated & controlled.
 The model does not understand the
needs & temperament of the nation.
Masses  According to Karl Marx this theory
implies that the economy & ruling
institutes are always dominated by an
owner.
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Countervailing Forces Model
 This model describes that the BGS relationships is a set of interactions between the
key components of Society.
 This model advocates that various societal elements influence each other in
interrelated manner without showing dominance to anyone.
 The strength & weakness of the multiple forces significantly affects the topic of the
issue / power of competing interests / leaders’ influence etc.
 BGS relationship in this model are understood & observed in various industrialized
countries having different democratic culture & traditions.
 This model is different from the capitalism model as it directly opens the business to get
affected by non-market forces and also from the dominance model as it implies &
evaluates several important interactions between societal elements (which are not
considered in dominance model)

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Conclusions from Countervailing Forces Model
 Business must respond to the economic and non-economic forces of the society as it is
integral part of it. It is neither dominant in nature nor is isolated from its social
environment
 A business with its marketing & production actions is one of the major initiators of
social change. (i.e. use of recent technology & interaction with Government)
 Social Contract at work signifies the wide public support of business (success depends
upon right adjustment of economic, political & social forces while failure is the result of
wrong adjustment)
 With the modifications in central ideas, processes & institutions, BGS relations
continuously tend to change.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Countervailing Forces Model
Environmental Catalysts
• Economic Conditions, Public
• Markets, • Values,
• Geopolitics, • Opinions,
• Ideologies, • Demands,
• Technology, • Supplies,
• Nature, • Non-government Organizations.
• Culture change.

Corporations Government
• Market operations, • Statutes,
• Influence efforts, • Regulations,
• Lobbying, • Political leadership,
• Leadership. • Partisan behaviour.

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Stakeholder Model
 Stakeholder Model represents the business enterprise as the centre of the set of mutual
relations which individuals, groups and other entities, known as “Stakeholders”.
 Stakeholders are those entities who affect positively or negatively on the operations of
the business.
 For a big organization there can be large number of Stakeholder divided in 2 groups
namely Primary Stakeholder & Secondary Stakeholder.
 Primary Stakeholder: includes the business owner, employees, customers,
communities, suppliers, creditors, government etc. They make direct, powerful &
consistent impact on the firm operations & its elements.
 Secondary Stakeholder: includes entities such as activist group, educational
institutes, trade associations etc. which create comparatively lesser burden, benefits,
power to influence firm operations & its elements.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Stakeholder Model

Corporation

Primary Stakeholders Secondary Stakeholders

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Criticisms of Stakeholder Model
 Model does not provide a realistic evaluation of power relationship among
enterprise and other units.
 Model tends to substitute force with moral responsibilities and thereby delegates
authority to the powerless.
 Unclear guidelines are formulated for replacing investors’ profit standards.
 Not proving a single, defined & objective method to assess the economic &
moral performance
 Creates conflicts & disputes among the shareholders due to varying interests of
stakeholders.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Interdependence of Business and Government
The following points reflect the government control over business in India:
1. Economic Planning: Economic planning enables the government to improve their
activities towards rural and underdeveloped regions of the society. Achieving social
justice is another important aim of Indian economic planning.
2. Industrial Policy: Indian industrial policy priorities the relative roles of big and small
industries as well as public and private enterprises, and guides the States towards the
development of different industrial sectors.
3. Industrial Licensing: The industrial policies of the government are successfully
implemented through industrial licensing. It is specifically formulated for ensuring
balanced regional development and overall economic development.
4. Labour Laws: Labour laws are formulated for monitoring and regulating labour
welfare, bonus, social security, working and living conditions of labour and workers.
5. Regulation of foreign Trade: Government has formulated certain Acts and regulatory
bodies for monitoring foreign trade of the nation.
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Interdependence of Business and Society
The following are the benefits of business to society:
1. Economic Growth: A business can successfully contribute towards the earnings, well being and
prosperity of the society only when it is well-structured, encouraged and accurately managed.
2. Standard of living of people: There are two main factors directly associated with the standard of living of
people-Amount of income available at their disposal and Quantities of products or services
they are capable to obtain and consume within their earnings.
3. Employment: The fundamental objective of economic policies of government is to provide full
employment.
4. Source of revenue to Government: A source of revenue is being offered by business to the Government.
These sources emerge out from streams viz. commercial revenue, taxes, administrative revenue,
donations and gifts.
5. Promote the Public Welfare: Nowadays, business units have withdrawn from their primary objective of
earning profits, in order to upgrade the investors and promoters to make them energetically engaged
in encouraging the well-being of the community.
6. Stakeholders’ interests: Both internal and external stakeholders of a business unit are catered with a lot
of services by the business enterprises.

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Conflict between Business and Government
 Business are intensely affected by policies and procedures formulated by the government.
Governments develop timely modifications in their policies, which certainly affect businesses
and their way of operations.
 Following are the major areas of government policies affecting business:
 The business costs are significantly affected by the taxation policies formulated by the
government.
 Interest rate is another area of economic policy which is determined by the Monetary Policy
Committee. High interest rates increase the business costs of borrowing money.
 Business always make legal changes in their political and civil policies.
 Formulating strict rules for ensuring fair competition between businesses.

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Conflict between Business and Society
The following are the problems created by businesses:
 Creation of Monopolies: To make big profits , business enterprises create monopolies in the
manufacturing of specific goods or services.
 Emergence of Oligopolies: Conditions of oligopoly emerge when the market is dominated by few
business competitors offering nearly same products.
 Exploitation of Workers: Due to the presence of uneven bargaining power between workers and
employees, exploitation of workers is considered as one of the most adverse business activities.
 Causing environmental degradation: The economy and society is adversely affected by
commercial and business activities of such industries as they impose large social costs on the
economy.
 Corporate Greed causingWorldwide Depression
 Unethical practices
 Unsustainable exploitation of natural resources
 Production of Hazardous Products

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Role of Business towards Government
 To Obey Laws
 Payment of Taxes
 Social Responsibility: Business provide training to individuals so that they can become self-
employed. In addition, business can build hospitals, educational institutes, playgrounds,
community centres etc. for showing their concern towards the society.
 Providing Inputs to the Government :To develop suitable policies.
 Government Contracts: Construction of airports, bridges, dams
 Government services: Business leaders possess practical knowledge & experience for a particular
business type, they offer their services to the government for working on distinct group.
 Active Participation in Politics : The government can be benefitted from Businessmen’s practical
knowledge and experience in the field of trade and commerce.

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Role of Government towards Business
 To Pass and Execute Proper Laws
 Maintenance of Law and Order
 Providing Money and credits
 Building Infrastructure
 Funds for Research
 Providing Information on various issues and topics of society
 Business Development programs
 Awarding Patent rights and copyrights
 Protections

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Role of Government towards Society
 Military Duties : Protecting people from foreign threads and aggression has been the aim of the
government.
 Civic Amenities : Providing civic amenities such as sanitisation, hygienic living environment etc.
 Education: Knowledge is the core essentiality for the development of every individual in the
society. Education is one of the profound requirements of human society.
 Justice and Administration : The government should effectively perform its judicial functions i.e.
enacting simple and rational laws. The government is also responsible for creating good laws for
the governance of increasing corporate and economic processes.

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Role of Business towards Society
 Providing and supply of quality goods and services
 Adoption of fair trade practices
 Contribution to the GeneralWelfare of the Society : hospitals, schools, parks etc.
 Economic Well-being of the employees
 Social and Psychological Satisfaction of Employees
 Development of Human Resources : Upgrade Employee skills and knowledge.
 Well being of Socially and Economically Backward People
 Creating employment
 Promotion of Social Justice: A businessman being a responsible citizen of the society should
treat every person equally and provide equal opportunities to all individuals.
 Contribute towards Country’s Revenue
 Production According to National Priority
 Self-Sufficiency and Export Promotion
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Regulation of Business
 Regulation related to foreign currency: The allowances are permitted only for some sanctioned
areas of businesses. These include inflow of funds from equities, selling/transferring of shares to
the citizens, earning and saving funds, placing equities in foreign trade and attaining funds from or
funding in the foreign business.
 Industrial Regulations: Industrial Regulations include provisions regarding industrial licensing,
NOC from local bodies, water and electric connections, employment policies, contract labours,
safety and security of workers, their legal rights etc.
 Regulations related to Business Enterprises: Operations of Business enterprises, their accounting
procedures,Accounting standards, Companies Act. etc.
 Regulation related to Taxation: Different regulations are designed for controlling the taxes related
to sale of different goods and services as well as import and export of such products.
 Regulations related to Capital Market: SEBI(Securities and Exchange Board of India) regulates the
capital market.
 Regulation related to Trade:These regulations are focussed on export and import practices.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Problems in Government Regulation of Business
 Surplus Cost: Government regulation of business is generation of additional cost. Every
government regulation of business brings some additional costs to the business.
 Suspected Efficiency: Some regulations might be suitable for some trade and unsuitable for some
others.
 Deregulation: Deregulation refers to the process of removing or limiting the regulations of the
government. Eg. Financial Institutions were given permission to adopt more flexibility in terms
of the rate of interest and to compete across the states.
 Policy Confusion: The policy of the government is wrongly interpreted. Eg. A lot of chaos is
created through television and cable TV network.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Economic Role of Government
Achieving quick economic development by providing suitable atmosphere is one of the vital
responsibility of the Government.
This perspective gives rise to four major roles of the government: Regulatory Role,
Promotional Role, Entrepreneurial Role, Planning Role
Regulatory Role of Government
 Government may lay down the terms and conditions for people and organisation for entering
into trade through licensing, franchising etc.
 Government can give assistance for an economic project undertaken.
 The public control may be extended to the consequence of the trade such as imposing extra
profit taxes on trade.
 The government can regulate the association of different financial sectors, with an objective to
settle down the disputes regarding conflicting interest or authorisation.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Promotional Role of Government
 In developed and developing nations, the support by the government is very vital for the growth
of the industries.
 The government has a prominent role in promoting and developing the industrial and
agricultural sector, promoting labour welfare and in safeguarding the interests of the
end users.
 In developing countries like India, that have insufficient infrastructure for growth and fewer
entrepreneur activities, the encouragement by the government is very vital.
 The government is directly liable to establish and fortify the growth of infrastructure such as
energy, transportation, economics, sales, training and guiding institutes etc.
 The government promotional role also includes giving funds and incentives along with
covering the risk factors for the growth of the vital areas and activities.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Entrepreneurial Role of Government
 War efforts require Direct Government Participation: In democratic scenario, the emergency
conditions(such as war) certainly require the extension of the government activities along with
public possession of the ammunition producing industries.
 Direct role in economic stabilisation: Certain economic dislocations result in public
ownership of the market, in this situation it is crucial to stabilise the economy. Government is
responsible for designing efforts to stabilise the economy.
 Attaining and administering the losing firms: In case the services by the private enterprises are
essential but they fail to generate desired profit and decide to terminate it, the government has to
come to rescue by acquiring and administering the working of such loss-making firms.
 To avoid wastage of National Resources: The government has to curb the unnecessary use of
national resources, as it may spoil the ability of the nation to protect itself and can shake the
economical system of the country.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Planning Role of Government
 The government participates directly and has a planning role in economic development in mixed
as well as socialist economies.
 It is attained through a centralised planning authority called the planning commission.
 Economic planning refers to international endeavour of the government to accelerate
economic growth within a short span.
 The efforts of the government is to ensure gearing up the process of development of the
industries and to promote balance in economic development of various areas and segments.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Government and legal environment
 All business related activities are largely influenced by the Central Government, State
Government and other local bodies.
 All these regulatory bodies are concerned with formulating legislation on matters like
employment opportunities, health and safety of the workers, location of the workplace,
environmental impact etc.
 The routine business operations are directly affected by laws and regulation.
 The regular update and changes brought in the governmental policies may offer new business
ideas and opportunities to organisations.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Impact of Legal Environment on Business
 Deregulation: Often, it is observed that government withdraws some regulations from certain
sectors in the industry, and encourages new companies to enter the market. These changes in the
regulations can lead to increase in level of competition in that particular sector.
 Globalisation: Globalisation influences the legal environment of the country by creating need
to bring changes according to the prevailing international conditions. It creates a challenging
situation for the Indian companies by creating a pressure to stand hand in hand with different
global competitors.
 Environment Protection Norms: The operations and functions of various firms have been defined
by numerous acts and laws passed by the State and Central Government of India in order to
protect the natural environment. These laws and guidelines have an impact on the production and
marketing policies of various firms.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Components of Legal Environment
Different components of the legal environment which affect the business functioning are as follows:
 Companies Act, 1956: This Act was introduced by Parliament of India, which permitted
establishment of companies by following the process of registration and deployed the
responsibilities and duties of companies, their secretaries, directors etc.
 Foreign Exchange Management Act, 1999: This Act emphasises on promotion of external
trade and payments as well as organised growth and maintenance of the India’s foreign exchange
market.
 The Factories Act, 1948: This Act has been developed to safeguard the health and security of
labours as well as children.
 Industrial Dispute Act, 1972: This Act specifies the conditions under which a business unit can
be shut down, and other related issues concerning industrial employers and employees.
 Industries Act, 1951: The Central Government developed this Act for developing and
regulating industries in India.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Components of Legal Environment
 Monopolies and Restrictive Trade Practices Act, 1969 : This act is developed for controlling
and prohibiting the monopolistic and restrictive trade practices and other related matters.
 Bureau of Indian Standards Act 1986: The Government of India enacted this Act in order to
establish a bureau for making and quality certification.
 Consumer Protection Act, 1986: This Act was passed by Parliament of India to safeguard the
interests of consumers in India. It handles the matters related with the settlement of
consumer disputes.
 Environment Protection Act, 1986: This Act empowers Central Government of India to take
necessary steps in order to deal with environmental pollution and protect, maintain the
environment.
 Competition Act, 2002: According to this Act, Indian trader should not conduct any activity
which encourages monopoly. An activity related with production, distribution or pricing
will be considered void, if it is found that it promotes monopoly and is going against the Act.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Indian Experience with Sectoral Growth
Industrial Sector
 Industrialization refer to the process of transformation of society, whereby a traditional and
non-industrial society develop and transforms into an industrial one, this concept is referred to as
Industrial development.
 Numerous products have been developed in the industrial sectors such as aluminium, steel,
coal, engineering equipment, chemicals, fertilisers, medicines, aircraft, petrochemicals etc.
 The process of development in industrial sector has been brought by introducing innovative
technology and modern techniques of management.
 The Indian industrial sector has experienced growth mainly in following four aspects:
1. Production of new and innovative products
2. Growth and expansion of the public sector
3. Import substitution and less dependency on foreign products
4. Privatisation and globalization of various industries.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Indian Experience with Sectoral Growth
Agricultural Sector
 Agriculture is the primary source of livelihood.
 The Indian food industry is poised for huge growth, increasing its contribution to world food
trade every year due to its immense potential for value addition, particularly within the food
processing industry.
 The Indian food and grocery market is the world’s sixth largest, with retail contributing 70%
of the sales.
 Following are the trades in agriculture sector:
1. Food grain Production
2. Digitisation
3. Price Control
4. Agricultural export

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Indian Experience with Sectoral Growth
Infrastructural Sector
 Infrastructure can be defined as something which constitutes the basis of the functioning of any
nation.
 Economic and social infrastructure development together constitutes infrastructure
development.
 Economic infrastructure development includes finance, energy, transport, telecom, power
etc.
 Social infrastructure development comprises of education, health, well-being issues.
Service Sector
 India’s services sector covers a wide variety of activities such as trade, hotel and restaurant,
transport, storage and communication, financing, insurance, real estate, business services,
community social and personal services and services associate with construction.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Foreign Direct Investment(FDI) in Indian
 Foreign Direct Investment or FDI is a kind of investment which takes place when a company
or business entity which is incorporate in one nation, makes an investment in another company or
business entity which is located in a different nation.
 The motive behind FDI is developing long term interests in the economy in which the
investment is being made.
 FDI is allowed through joint venture, technical and financial association and stock market.
 Difference between FDI(Foreign Direct Investment) and FII(Foreign Institutional Investment)
FDI (Foreign Direct Investment) FII (Foreign Institutional Investors)
An investment made by a company or business entity in a The investment which an investor makes in another
foreign country is called FDI country’s markets is called FII
FDI is directed towards the primary market. FII is directed towards the secondary market.
These are investments made for long term. These investments are short-termed
FDI has entry and exit barriers. It is comparatively easy for FII to enter and exit a market.
FDI is relatively stable in nature. FII is less stable and can be volatile at times.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Determinants of FDI
 Following factors determine the size of FDI in an economy:
1. Rate of return on the underlying Project: Japan has low return rate whereas India has high.
2. Return and Risk
3. Natural Resources : raw material like cotton, water, crops, water purification, filtering of pollution
4. Availability of Cheap Labour : India and China is the presence of low cost labour
5. Market size
6. Socio-Economic Conditions : It includes level of income, infrastructure facilities, population
7. Political situation: Judicial system, legal structure, level of political stability, international relations of the
host country etc.
8. Need for internalisation : If a company has problems in purchasing oil products, then it will try to
acquire an oil refinery so that its supply chain has greater control.
9. International Immobility of Factors of Production: As per the location theory, limitations in the flow of
factors of production from one economy to another also cause FDI. Eg. If cheap labour cannot flow from
Bangladesh to the USA, the Walmart needs to invest in Bangladesh.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Types of FDI
1. Horizontal FDI: This is the type of FDI where the goods and services produced by the
company in the foreign country are very similar to those being manufactured in its own country.
 It is called horizontal because of the same set of activities undertaken by the company in
several economies.
2. Vertical FDI: When the multinational distributes its process across geographics and markets, then
it refers to vertical FDI.
 The production chain is fragmented in a vertical manner and some of the production processes
are outsource to a foreign country.
 This form of FDI recognises that there are many stages in a production process and those stages
have different requirements of inputs.
 The firm can earn profits by fragmentating the production process if the prices of inputs are
different in different countries.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

FDI Policy in India
 Procedure under Automatic route: Investors need to ensure that all relevant documents are filed
within 30 days of share issue of the foreign investors and inform the respective Regional office
of RBI within 30 days of receipt of inward remittance.
 Procedure under Government Approval
1. Filling of Application: Proposal for foreign investment, along with supporting documents to be
filed online, on the Foreign Investment Facilitation Portal www.fifp.gov.in
2. Internal Procedure for Approval: Department for Promotion of Industry and Internal Trade
(DPIIT) will identify the concerned Ministry/ Department and circulate the proposal to RBI
for approval.
3. Final Approval: Once the proposal is complete in all respects, the same gets approved within 8-
10 weeks.
 General permission of RBI under FEMA(Foreign Exchange Management Act): Any additional
approval from the RBI for granting of shares to foreign investors and the receipt of inward
remittance is not required by Indian firms which have been approved under the Foreign
Investment Promotion Board (FIPB).

Prepared By Deepali Sonawane, Assistant Professor, SIOM

FDI Policy in India
 Industrial Licensing : Under Industries (Development and regulation) Act 1951, industrial
licenses are required in the following cases:
1. Industries which are still under mandatory licensing
2. Items which are under the reservation list by larger units for the small scale sector
3. If the required location is a restricted location.
Industrial licenses are required compulsorily for the following categories:
1. Alcoholic drinks
2. Cigarettes and product of tobacco
3. Defence, aerospace and electronic equipment
4. Hazardous chemicals like phosgene, hydrocyanic acid, isocynates etc.
 Procedure for obtaining an industrial Licence: The secretariat for Industrial Assistance in
Department of Industrial Policy and Promotion, Government of India, issues the industrial
license. The application in Form FC-1L has to be made to the Department of Industrial Policy and
Promotion for getting a license.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
FDI Policy in India
 Small-Scale Sector : In India, an industrial organisation is considered a small scale
organisation if its capital investment is less than Rs. 10 million. The Government
kept certain items exclusively for manufacture by the small scale sector(Choclates, Candle
Making, Disposable Cups And Plates). Non small scale sector undertakings can
manufacture these products only if they give an undertaking that 50% of the
manufactured product will be for the export market.
 Locational Restrictions: Industrial license is required by the industrial undertakings if
setup within 25kms of the standard urban limit. If the unit is setup in an industrial area as
defined before 1991 or if the industries are of non-polluting nature like printing,
computer software, electronics etc. then there is no requirement of industrial licence.
 Environmental Clearances: The necessary clearance regarding pollution control and
environment are mandatory to obtain by entrepreneurs to setup industries in India.
This applies to 31 industrial categories related to a notification issued by the Ministry of
Environment and forests underThe Environment (Protection) Act of 1986.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Constitutional Environment
 The Constitution of India was adopted by ‘The Constituent Assembly’ on 26th November
1949 and come into effect from 26th January, 1950.
 Our constitution is the world’s lengthiest one containing 395 articles and 8 schedules.
 The preamble reflects the intention, views and objectives of the constitution makers as well
as the basic values of the country.
 Characteristics of Indian Constitution
1. Longest Written Constitution: It consists of 395 articles and 8 schedules. At present it contains
448 Articles and 12 schedules.
2. Sovereignty: India is a sovereign (independent) republic. The people of India run their own
government through their elected representatives. The government of India is free to take its
own decisions in both domestic and foreign affairs.
3. Partly Rigid and Partly Flexible: The Constitution of India is neither purely rigid nor purely
flexible. Some parts of the Constitution can be amended by the ordinary law-making process by
Parliament.
4. Democratic Republic: India govern themselves through their representatives elected.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Characteristics of Indian Constitution
5. Secularism: The state gives equal treatment to all religions. No discrimination is done on the
basis of religion.
6. Socialism: Special facilities are given to the backward and downtrodden people to reduce
economic and social disparities.
7. Parliamentary System: The Ministers in the central government are members of the parliament.
These ministers and Prime minister are answerable to the parliament for their decision and
actions.
8. Separation of Power: The constitution is supreme and all the authorities created by it function
under the supreme law of the country.
9. Fundamental duties: The purpose of incorporating duties in the Constitution is just to remind
the people that while enjoying their right as citizens, they should also perform their duties, for
rights and duties are corelative.
10. Single Citizenship: The Constitution of India recognises only single citizenship. The provision
would help in promoting unity and integrity of the nation.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Fundamental rights
1. Rights to Equality(Articles 14 to 18) : The constitution clearly provides that the state shall not
deny to any person equality before law or the equal protection of law within the territory of
India. Every citizen has access to shop, restaurants, hotels etc. According to this article the
business should provide equality before law, social equality and economic equality.
2. Right of freedom(Articles 19 to 22): Six fundamental rights in the nature of freedom are
guaranteed to the citizens in the article.The six freedoms are as follows:
i. Freedom of speech and expression
ii. Freedom of peaceful assembly without arms
iii. Freedom to form associations or unions
iv. Freedom of movement throughout the territory of India
v. Freedom to reside or settle any part of the territory
vi. Freedom to practice any profession or to carry on any occupation, trade or business
3. Right against Exploitation(Articles 23 to 24): The economic importance of right against
exploitation is the government takes necessary steps to remove boned labour. The factories Act
helps to prevent exploitation of women and children employees. The owner of the factories are
guided to make provision for safety and welfare of the workers.
Prepared By Deepali Sonawane, Assistant Professor, SIOM
Fundamental rights
4. Right to Freedom of religion (Articles 25 to 28): The economic importance of the right to
freedom of religion is the government can not spend tax money for the development of any
religion. Nobody can be compelled to pay tax for the welfare of any specific religion.
5. Cultural and Educational rights(Articles 29 to 30): The economic importance of culture and
educational rights are the state does not discriminate to give economic assistance to the
minority institutions. The aided institution cannot refuse admission to any of the citizens on the
ground that he belongs to a particular caste, religion, language or region.

Prepared By Deepali Sonawane, Assistant Professor, SIOM

Macroeconomic crisis
 Macroeconomics is the study of aggregates or averages covering the entire economy such as
total employment, national income, national output, total investment, total consumption, total
savings, aggregate supply, aggregate demand and general price level.
 Macroeconomics is also known as the theory of income and employment.
 It is concerned with the problem of unemployment, economic fluctuations, international trade
and economic growth.
 U.S Economic Crisis : 2007
 European Debt Crisis : 2009
 Russian Financial Crisis : 2014-2015

Prepared By Deepali Sonawane, Assistant Professor, SIOM

 Thank you

Prepared By Deepali Sonawane, Assistant Professor, SIOM