Unit-1

WHAT IS THE BUSINESS –GOVERNMENT –SOCIETY

 In the universe of human endeavor, we can distinguish subdivisions of economic,
political, and social activity - that is, business, government, and society – in every
civilization throughout time.
 Interplay among these activities creates an environment in which business operate, the
business-government-society (BGS) filed is the study of this environment and its
importance for managers.
 Business: It is a Profit-making activity that provides products and services to satisfy
human needs.
 Government: Structures and processes in society that authoritatively make and apply
policies and rules.
 Society: A network of human relations composed of ideas, institutions, and material
things.
o Ideas: An intangible object of thought.
o Value: An enduring belief about which fundamental life choices are correct.
o Institution: A formal pattern of relations that links people together to accomplish a
goal.
o Material things: Tangible artifacts of a society that shapes and is shaped by ideas
and institutions.
IMPORTANCE OF BGS TO MANAGERS
 To understand the role of Business in society
 To understand the business power in society
 It becomes criteria for managerial decisions
 To understand the extent of corporate responsibility
 To know the ethical duties of managers and the need for regulations
 To succeed in meeting business objectives
 To excel in managerial performance
 To monitor the non-economic environment by taking stock of the situation before
anything happens.
 By recognizing that a company operates not only within markets but within a society is
critical.
 To think beyond profit, to understand the forces governing social responsibility
NATURE OF BUSINESS
Society cannot do without business as much as business needs society. The Purpose of Business
goes beyond earning of profit;
 Business is an important institution in society
 Be it for the supply of goods and services
  Creation of Job opportunities
 Offer better quality of life
 Contributing to economic growth of the country.
BUSINESS TODAY
 Modern business is dynamic
 Today’s business is characterized by diversification
BUSINESS IN THE NEAR FUTURE
 Large organizations are replaced by mini organization
 File pushing and paper shuffling will be done by information technology
 Flat organization
 Authority structure will flow downward
 No definite job – jobs change for 5 years
 Remuneration will depend on one’s contribution to organization.
BUSINESS GOALS
 Profit
 Growth
 Power-economic and political power.
 Employees satisfaction and development
 Quality products and Services
 Market leadership
 Challenging
 Joy of creation
 Service to society.
BUSINESS ENVIRONMENT
 Business environment refers to all external forces, which have a bearing on functioning
of business.
 Environmental factors “are largely if not totally , external and beyond the control of
individual industrial enterprises and their management.
 Business environment poses threats to a firm or offers immense opportunities for
potential market exploitation.
TYPES OF ENVIRONMENT
1. Technological environment
2. Economic environment
3. Political environment
4. Natural environment
5. Global or International environment
6. Socio-cultural environment
Top 10 Responsibilities of Government towards business
1. Enacting and Enforcing Laws
Enacting and enforcing laws is the prime responsibility of the Government of each country. This
is because laws and regulations only enable the businesses to function smoothly. Further,
Government provides a system of court for adjudicating differences between firms, individual or
Government agencies.
2. Maintaining Law and Order
Maintaining law and order and protecting persons and property is another responsibility of the
Government of the country. It would be impossible to carry on business in the absence of a
peaceful atmosphere.
3. Providing Monetary System
The Government has to provide monetary system so that business transactions can be effected.
Further, it is also the responsibility of the Government to regulate money and credit, and protect
the money value of the currency in terms of other currencies.
4. Balanced Regional Development and Growth
It is the responsibility of the Government to make sure that there are balanced regional
developments and growth.
5. Provision of Basic Infrastructure
Government should provide basic infrastructural facilities such as transportation, power, finance,
trained personnel and civic amenities, which are indispensable for the effective functioning of
business concerns.
6. Supply of Information
It is the responsibility of the Governments to provide information, which is useful to
businessmen in carrying out their business activities. Government agencies publish and provide a
large volume of information, which is used extensively by business firms. This information
normally relates to economic and business activity, specific lines of business, scientific and
technological developments, and many other things of interest to business houses or business
leaders.
7. Assistance to Small-scale Industries
It the responsibility of the Government to provide the required facilities and encourage the
development of small-scale industries to overcome the problem faced by them.
8. Transfer of Technology
It is the responsibility of the Government to transfer to private industries whatever discoveries
are made by the Government – owned Research Institutions so that they can be used for
commercial production.
9. Conducting Inspections
It is the responsibility of the Government to inspect the private business concerns in order to
make sure that they produce quality products, and also to prevent the production and sale of sub-
standard goods.

10. Incentives to Home Industries

It is the responsibility of the Government to encourage the development of home industries by
providing them various incentives and subsidies.
Government Role And Influence On Business And Society
The role of government in business and social actions today is broad in scope. George Steiner
has compiled a list of varied roles the federal government plays in its relationships with business
and the public.
Government:
1. Prescribes the rules of the game for business
2. Is a major purchaser of business' products and services
3. Uses its contracting power to get business to do things it wants
4. Is a major promoter and subsidizer of business
5. Is the owner of vast quantities of productive equipment and wealth
6. Is the architect of economic growth
7. Is a financer of business
8. Is the protector of various interests in society against business exploitation
9. Directly manages large areas of private business
10. Is the repository of the social conscience and redistributes resources to meet social
objectives.

 With the growth and expansion of towns and cities the local government and state
governments have generated a proliferation of new rules, laws, and regulations of their
own. All of this must be taken into consideration when choosing a plant or business
location.
 When a business moves across international boundaries, the cultural, educational,
economic, political, legal, ethical and moral, and social differences are compounded
manyfold.
Meaning and Functions of the State
‘The state is a distinct set of institutions that has the authority to make rules which govern
society.’
Characteristics of the modern state:

1. The state is a recognizably separate institution or set of institutions, so differentiated from the

rest of its society as to create identifiable public and private spheres.

2. The State is sovereign, or the supreme power, within its territory, and by definition the

ultimate authority for all law.

3. The state’s sovereignty extends to all the individuals within a given territory, irrespective of

formal positions held in the government or rule-making institutions.

4. The modern state’s personnel are mostly recruited and trained for management in a

bureaucratic manner.

5. The state has the capacity to extract monetary revenues (taxation) to finance its activities from

its subject—population.

Functions of State:
Governance
 Governance requires uniform rules to create decision-making rights and guidelines that
define relationships between individuals and organizations and provide opportunities for
feedback, accountability, and revision.
Market Engagement
 It is crucial to create an enabling legal environment so that citizens may participate in the
market and a state can capitalize on its economic advantages.
 A state aids the creation and expansion of the market through setting rules for
commercial policy, supporting private sector development, and intervening at times of
failure or crisis.
 A state’s relationship with a market is highly context specific, with institutional structures
changing with time and circumstance. It is in this tense but creative middle ground where
a state must balance regulation while promoting competitiveness, legitimacy, and access.
Security
 The legitimacy of a state’s monopoly on the use of force determines the stability of the
state and its social compact.
 A state’s security institutions, such as police and the military, and the type of force they
use must fall under legitimate guidelines and laws.
 Institutional checks and balances on the state’s monopoly on the use of force are a
critical demonstration of the state’s accountability to the rule of law.
 State security is a balancing act, where on one end extreme centralization of power may
lead to authoritarian uses of violence outside of the law, while losing a monopoly on
 force greatly delegitimizes the state and often leads to violent struggles between non-state
actors and parallel institutions.
Infrastructure
 Infrastructure serves as the backbone of a state and often is citizens’ primary daily
interaction with state services through public utilities such as water, electricity and roads.
 Robust state infrastructure contributes to a decrease in inequalities, particularly between
urban and rural communities, and helps better facilitate security, administrative control,
human capital development, and disaster response.
 Laying a foundation for the market, infrastructure also creates avenues for participation
in regional and global economies.
Rule of Law
 The rule of law is the “glue” that binds all aspects of the state, the economy and society.
 Each state function is defined by a set of rules that create governance arrangements.
 The state’s adherence to these arrangements can be seen in the alignment of formal and
informal rule sets, the predictability and stability of how the rules are enforced, and the
degree to which successive administrations and leaders adhere to the constitution and
other laws.
Human Capital
 The state must invest in all citizens—and all groups of citizens—for the future
development and capacity of the state.
 Human capital development has changed the very definition of education in a globalized
economy, where new methods of problem-solving and technical skills are critical for a
society’s success. Investments in higher education and public health are invaluable tools
for a state to address poverty and social immobility, promote competitive industries, and
drive innovation.
Public Financial Management
 States have historically played a critical role in the creation of public lending institutions,
which can be utilized to pay for their operations and obligations.
 Effective public borrowing and fiscal management enables states to develop predictable
payment mechanisms, increase credibility among citizens and contracted service
providers, and build resilience against market shocks.
 Sound public financial management is perhaps most important in fragile and conflict-
afflicted states, where large sums of external funding lead to risks of corruption,
mismanagement, and further debt.
 It is therefore crucial that states not only effectively manage public finances, but also
build transparency and accountability mechanisms to better serve citizens.
Citizen Engagement
 The creation of citizenship rights that cut across gender, race, ethnicity, religion, class,
and location is critical to a society’s prosperity.
 Using policy and laws to establish equal opportunities strengthens the social fabric and
helps shift the dynamic of the state from a formal organization into a community of
common sentiment with mutual rights and obligations.
Asset Management
  A country’s wealth is made not just of money but also vast arrays of assets from land,
water, the environment, extractives like minerals and oil, and other natural resources to
“intangible” benefits such as licenses and permits.
 The way these assets are used sustainably and equitably for the collective good by a state
is a measure of its effectiveness.
 It is imperative that states mobilize all their assets and are prepared for conversations on
what defines a public good and how that good is being used.
Disaster Resilience
 The ability both to prepare for natural disasters and respond to them is a key measure of
state resilience.
 It is imperative that states not only prepare for natural disasters within their geographic
context, but also develop resiliency measures for crises such as drought, famine, and
catastrophic weather.
 Clear frameworks and rules for how states respond to disasters, especially in the
immediate aftermath, eases the costs and time for reconstruction and opens opportunities
for reforms.

ECONOMIC FUNCTIONS OF GOVERNMENT

1. Maintain the Legal and Social Framework
2. Maintain Competition
3. Provide Public Goods and Services
4. Correct for Externalities
5. Stabilize the Economy
6. Redistribute Income
 Sector-wise GDP of India
 The services sector is the largest sector of India.
 Gross Value Added (GVA) at current prices for the services sector is estimated at 100.46
lakh crore INR in 2019-20.
 The services sector accounts for 54.77% of total India's GVA of 183.43 lakh crore Indian
rupees.
 With GVA of Rs. 50.40 lakh crore, the Industry sector contributes 27.48%. While
Agriculture and allied sector share 17.76%.
 At 2011-12 prices, the Agriculture & allied, Industry, and Services sector's composition
is 14.65%, 30.19%, and 55.17%, respectively.

 Share of primary (comprising agriculture, forestry, fishing, and mining & quarrying),
secondary (comprising manufacturing, electricity, gas, water supply & other utility
services, and construction), and tertiary (services) sectors have been estimated as 19.90
percent, 25.33 percent, and 54.77 percent.

 At previous methodology, the composition of Agriculture & allied, Industry, and Services
sector was 51.81%, 14.16%, and 33.25%, respectively at current prices in 1950-51.

 Share of Agriculture & allied sector has declined at 18.20% in 2013-14. Share of Services
sector has improved to 57.03%. Share of Industry sector has also increased to 24.77%.

 The Agriculture sector's contribution to the Indian economy is much higher than the
world's average (6.4%). The industry and services sector's contribution is lower than the
world's average 30% for the Industry sector and 63% for the Services sector.
Top Performing Sectors of Indian Economy
The adoption of the New Economic Policy in 1991 saw a landmark shift in the Indian economy,
as it ended the mixed economy model and license raj system - and opened the Indian economy to
the world. An overview of the top performing sectors of the Indian economy is given below - 
 
1.    Agricultural Sector:
One of the most important sectors of the Indian economy remains Agriculture. Its share in the
GDP of the country has declined and is currently at 14%. However, more than 50% of the total
population of the country is still dependent on agriculture. Keeping this in mind, the Union
Budget 2017 - 18 gave high priority to the agricultural sector and aimed to double farmers’
incomes by 2022.
•    Government subsidies to agriculture are at an all - time high.
•    Further, cropping patterns have shifted in favour of cash crops such as sugarcane and rubber.
•    Introduction of cooperative farming like – e - choupal etc.
•    Rise of SHGs such as Lijjat Papad.
•    Agricultural land is being brought under industrial and commercial use, thereby straining the
remaining agricultural land.
•    Many export sectors have been opened for agricultural goods.
•    Food processing is emerging as a ‘Sunrise Industry’
 
2.    Industry Sector:
Another important part of the Indian economy is the Industry sector. Changes such as the end of
the ‘Permit Raj’ and opening up of the economy were welcomed in the country with great
enthusiasm and optimism. As a result of these changes, the industrial potential of the economy
has increased since 1991. 
•    Proliferation of industries, from traditional iron and steel to jute and automobiles.
•    Autonomy in production, marketing and distribution.
•    Reduced red - tapism.
•    Encouragement to private investments, both domestic as well as FDI.
•    Transfer of technology and benefits of research and development to the advantage of the
economy.
•    Arrival of investment models such as joint ventures, public-private partnerships, MNCs.
•    Private players got an opportunity to enter new sectors, which were earlier under government
monopoly.
 
3.    Services Sector:
The sector that benefited most from the New Economic Policy was the services sector. Banking,
Finance, Business Process Outsourcing - and most importantly Information Technology
services - have seen double - digit growth. 
•    Indian IT giants such as Infosys, WIPRO and TCS have made their mark on the global
platform. 
•    60 percent of the GDP contribution comes from the services sector. 
•    India, with its huge demographic dividend potential, has emerged as the IT hub of the world.
•    New employment opportunities are being created in this sector.
•    Opening of transportation, tourism and medical sectors have led to the growth of service
sector competencies.
•    RBI has transitioned from being a regulator to a facilitator.
•    Product diversity of financial investments.
•    Wider penetration of services such as insurance, banking, stock market etc.
•    Considerable improvement in forex reserves.
 
4.    Food Processing:
Food processing has emerged as a high - growth, high - profit sector and is one of the focus
sectors of the ‘Make in India’ initiative. The vast availability of raw materials, resources,
favourable policy measures and numerous incentives have led India to be considered as a key
attractive market for the sector. With a population of 1.3 bn and an average age of 29, as well as
a rapidly growing middle - class population that spends a high proportion of their disposable
income on food, India boasts of a large consumer base. The total consumption of the food and
beverage segment in India is expected to increase from $ 369 bn to $ 1.14 tn by 2025. The output
of the food processing sector (at market prices) is expected to increase to $ 958 bn during the
same period. India is the second largest producer of food grains in the world, second only to
China. This sector has huge potential in India due to increasing urbanization, income levels and a
high preference for packaged and processed food. Visit the sectors category to read more about
the food processing industry.
 
5.    Manufacturing Sector:
The manufacturing sector is the second largest contributor to India’s GDP after the Services
sector. Various government initiatives like Make in India, MUDRA, Sagarmala, Startup India,
Freight Corridors, along with a whole - hearted contribution from states, will raise the share of
the manufacturing sector in the foreseeable future.
However, if India aims to raise its share of manufacturing in GDP to around 25%, the industry
will have to significantly step up its research and development expenditure. The quantum of
value addition has to be increased at all levels and the government needs to offer attractive
remuneration to motivate people to join the manufacturing sector.
 
Recent Developments in the Economy of India
Besides these developments and reforms, it is imperative to bear in mind that in order to tap the
highest potential of the economy and ensure good governance, an optimal level of synergy is
required between the central and state government. This will not only add strength to our
cooperative federal structure but will also strengthen India’s economy. Initiatives such as – 
•    Goods and Services Tax (GST) 
•    Insolvency and Bankruptcy Code (IBC) 
•    Startup India 
•    Digital India
These, among others, have helped the Indian economy jump 65 ranks (in the last four years) in
the World Bank’s Ease of Doing Business Report. 
These measures cemented India’s reputation as one of the few bright spots in an otherwise grim
global economy. India is among the fastest growing major economies, underpinned by a stable
macro - economy with declining inflation and improving fiscal and external balances. Not only
that, it was also one of the few economies enacting major ‘structural reforms’, that have
positioned India as a competitive player in the international market.
 
Future of Indian Economy
To make India a $ 5 tn economy by 2030, and to achieve consistent 8% growth, NITI Aayog has
released a comprehensive document titled ‘Strategy for New India @75’. Its main objectives
are – 
1.    Doubling farmers’ incomes.
2.    Creating an all India talent pool for the entre and States together - such as the All India
Services.
3.    Providing a major boost to the ‘Make in India’ campaign.
4.    Achieving 22% tax to GDP ratio by 2023 - up from the current 17%.
5.    Achieving 36% of investment rate by 2023 - up from the current 29%.
Guided by unwavering democratic credentials and strong government leadership, India is an
emerging superpower with a vibrant economic climate. Under Prime Minister Narendra Modi,
India’s growth rate in the last quarter has been pegged at 7.7%. And with an ever - expanding
middle - class base and youth demographic, the opportunity for business has never been better.

Role of Foreign Direct Investment in Economic Growth

i. FDI provides Capital:
Foreign Direct Investment is expected to bring needed capital to developing countries. The
developing countries need higher investment to achieve increased targets of growth in national
income.
Since they cannot normally have adequate savings, there is a need to supplement savings of these
countries from foreign savings. This can be done either through external borrowings or through
permitting and encouraging Foreign Direct Investment. Foreign Direct Investment is an effective
source of this additional capital and comes with its own risks.
ii. FDI removes Balance of Payments Constraint:
FDI provides ‘ inflow of foreign exchange resource and removes the constraints on balance of
payment. It can be seen that a large number of developing countries suffer from balance of
payments deficits for their demand for foreign exchange which is normally far in excess of their
ability to earn. FDI inflows by providing foreign exchange resources remove the constraint of
developing countries seeking higher growth rates.

FDI has a distinct advantage over the external borrowings considered from the balance of
payments point of view. Loan creates fixed liability. The governments or corporations have to
repay. The resulting international debt of the government and the corporation parts a fixed
liability on balance of payments.

This means that they have to repay loans along with interest over a specific period. In the context
of FDI this fixed liability is not there. The foreign investor is expected to generate adequate
resources to finance outflows on account of the activity generated by the FDI. The foreign
investor will also bear the risk.

iii. FDI brings Technology, Management and Marketing Skills:

FDI brings along with it assets which are crucially either missing or scarce in developing
countries. These assets are technology and management and marketing skills without which
development cannot take place. This is the most important advantage of FDI. This advantage is
more important than bringing capital, which perhaps can be had from the international capital
markets and the governments.

iv. FDI promotes Exports of Host Developing Country:

Foreign direct investment promotes exports. Foreign enterprises with their global network of
marketing, possessing marketing information are in a unique position to exploit these strengths to
promote the exports of developing countries.

v. FDI provides Increased Employment:

Foreign enterprises by employing the nationals of developing countries provide employment. In
the absence of this investment, these employment opportunities would not have been available to
many developing countries.

Further, these employment opportunities are expected to be in relatively higher skill areas. FDI
not only creates direct employment opportunities but also through backward and forward
linkages, it is able generate indirect employment opportunities as well.

i. FDI results in Higher Wages:

FDI also promotes higher wages. Relatively higher skilled jobs would receive higher wages.

vii. FDI generates Competitive Environment in Host Country:

Entry of foreign enterprises in domestic market creates a competitive environment compelling
national enterprises to compete with the foreign enterprises operating in the domestic market.
This leads to higher efficiency and better products and services. The Consumer may have a wider
choice.

Methods of Foreign Direct Investment

As mentioned above, an investor can make a foreign direct investment by expanding their
business in a foreign country. Amazon opening a new headquarters in Vancouver, Canada would
be an example of this.
Reinvesting profits from overseas operations, as well as intra-company loans to overseas
subsidiaries, are also considered foreign direct investments.
Finally, there are multiple methods for a domestic investor to acquire voting power in a foreign
company. Below are some examples:

 Acquiring voting stock in a foreign company

 Mergers and acquisitions
 Joint ventures with foreign corporations
 Starting a subsidiary of a domestic firm in a foreign country
Benefits of Foreign Direct Investment
Foreign direct investment offers advantages to both the investor and the foreign host country.
These incentives encourage both parties to engage in and allow FDI.
Below are some of the benefits for businesses:

 Market diversification
 Tax incentives
 Lower labor costs
 Preferential tariffs
 Subsidies
The following are some of the benefits for the host country:

 Economic stimulation
 Development of human capital
 Increase in employment
 Access to management expertise, skills, and technology
For businesses, most of these benefits are based on cost-cutting and lowering risk. For host
countries, the benefits are mainly economic.
Disadvantages of Foreign Direct Investment
Despite many benefits, there are still two main disadvantages to FDI, such as:

 Displacement of local businesses

 Profit repatriation
The entry of large firms, such as Walmart, may displace local businesses. Walmart is often
criticized for driving out local businesses that cannot compete with its lower prices.
In the case of profit repatriation, the primary concern is that firms will not reinvest profits back
into the host country. This leads to large capital outflows from the host country.
As a result, many countries have regulations limiting foreign direct investment.
Types and Examples of Foreign Direct Investment
Typically, there are two main types of FDI: horizontal and vertical FDI.
Horizontal: a business expands its domestic operations to a foreign country. In this case, the
business conducts the same activities but in a foreign country. For example, McDonald’s
opening restaurants in Japan would be considered horizontal FDI.

Vertical: a business expands into a foreign country by moving to a different level of the supply
chain. In other words, a firm conducts different activities abroad but these activities are still
related to the main business. Using the same example, McDonald’s could purchase a large-scale
farm in Canada to produce meat for their restaurants.
1991 Indian economic crisis
https://en.wikipedia.org/wiki/1991_Indian_economic_crisis

Financial crisis of 2007–2008

https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008

Economic impact of the COVID-19 pandemic

https://en.wikipedia.org/wiki/Economic_impact_of_the_COVID-19_pandemic