Q1)

The government of India announced a new industrial policy in july1991. Highlights of the policy
are as follow:

1. The Government reduced the number of industries under compulsory licensing to six and that
industries are liquor, cigarette, defence equipment, dangerous chemicals, industrial explosives,
and drugs and pharmaceuticals.
2. It provided a greater role to the private sector and reduced the role of the public sector.
The role of the public sector was limited to only industries of strategic importance.
3. Disinvestment was carried out in the case of many public sector industrial enterprises.
4. Policy towards foreign capital was liberalised. The share of foreign equity participation was
increased and in many activities 100 percent foreign direct investment (FDI) was permitted.
5. Automatic permission was now granted for technology agreements with foreign companies.
6. Foreign investment promotion board (FIPB) was set up to promote and channelize foreign
investment in India.

The impact have these changes made on business and industry are:

1. Increasing competition: Changes in the rules of industrial licensing and entry of foreign
firms, has increased the competition for Indian firms especially in service industries such as
banking, communication, health, etc.

2. More demanding customers: Due to increase in competition, wider choices of products are
available in the market. As a result, customers are becoming more chossy.

3. Rapidly changing technological Environment: The increased competition in the market forces
the firms to develop new ways to survive and grow in the market. And due to this the small
firms’ faces face tough challenges for transformations in processes, technology, machines and
products.

4. Necessity for change: Frequent changes in the market, forces the enterprises to
continuously modify their operations.

5. Need for developing human resources: The new market conditions need people with required
skills and greater commitment. So, the need for developing human resources is increasing.

6. Market orientation: Earlier firms were production oriented; they produce first and then sell
goods in the market. But now in the changing world production oriented technique is changed to
market oriented where firms study and analyse the market first and produce goods accordingly.
7. Loss of budgetary support to the public sector: The budgetary support for financing the
public sector has declined over the years. So the public sector undertakings have to realise
that in order to survive, they will have to develop their own resources and be more efficient.

Q2)

Liberalisation: Liberalisation refers to the removal of unnecessary controls and restrictions of

the government in the form of licences, permits and quotas. India initiated liberalisation of
industries in 1991. Liberalisation of industries in India took the following form.

(i) Abolition of licences: Licences required for the establishment of industries were abolished.
The system of licensing was retained only for six industries namely, liquor, cigarette, defence
equipment, dangerous chemicals, industrial explosives, and drugs and pharmaceuticals

(ii) Augmentation of Production: Enterprises became free in deciding the scale and size of
production and the price of the products. The MRTP companies (companies having assets worth
more than Rs 100 crore) were free to expand the scale of their business according to the
market conditions

(iii) Removal of Trade Restrictions: Various restrictions regarding trade such as quantitative
restrictions, customs, duties, tariff, etc. were removed to ease the movement of goods and
services

(iv) Encouragement to Foreign Direct Investment (FDI): Emphasis was laid to encourage
competition in the market and to attract Foreign Direct Investment (FDI) from other
countries.

Privatisation: Privatisation refers to the gradual transfer of ownership or management of state

owned enterprises from the public sector to the private sector enterprises. It implies assigning
a greater role to the private sector undertakings. In India, privatisation was followed in the
following manner.

(i) Disinvestment: For disinvestment, the government adopted two methods. First, selling off a
part of the equity of the PSU's and second, strategic sale of PSUs. Under privatisation, a large
portion of the equity of the PSU's was sold to the private sector. Also, strategic sale of a
number of companies such as Modern Foods India, Bharat Aluminium Company (BALCO), Maruti
Udyog Ltd., etc. was undertaken.

(ii) Establishing Board of Industrial and Financial Reconstruction: This board was established
for the revival of the sick and loss making enterprises.
(iii) Reducing the Role of the Public Sector: Under privatisation, the number of industries that
were exclusively reserved for the public sector was reduced considerably from 17 to 8. At
present, only 3 industries are exclusively reserved for the public sector namely, railways,
atomic mineral and atomic energy.

(iv) Navratna Policy: To improve efficiency, infuse professionalism and to enable PSUs to
compete effectively in the market, the government awarded the status of ‘Navaratnas’ to nine
high performing PSUs.

Globalisation: Globalisation refers to the process of integration of various economies of the

world. It is the process associated with increasing openness, growing economic independence
and promoting economic integration in the world economy. In India, the following policies were
followed with regard to globalisation.

(i) Removal on Trade Restriction: Various barriers on trade such as tariffs, custom duties,
quotas, etc. were reduced considerably.

(ii) Reducing the Export Duty and Import Duty: Various duties and taxes on import and export
were removed to promote free trade.

(iii) Encouragement to Foreign Capital Investment: With the aim of encouraging foreign capital
investment various steps were taken such as increasing the equity limit of foreign capital,
setting up of special economic zones, introduction of Foreign Exchange Management Act
(FEMA).

Q3)

Significance of business environment for enterprise is marked by the following reasons :

1.It enables the business firms to identify opportunities and get the first mover advantage :

Opportunities are the positive trends that help firms to grow. A good knowledge of the
business environment helps the manager to identify opportunities earlier to take its benefit
rather than losing it to other competing enterprises.

2. It helps business firms to identify threats and get warning signals :

The businessmen who are able to scan and understand the business environment on time get a
warning signal to deal with such negative changes.

3. It helps in coping with rapid changes :

In order to cope up with such changes and derive benefit from them ,managers must examine
the environment and develop suitable action.
 4. It helps in planning and policy formulation :

Business environment is a source of identifying both opportunities and threats, its proper
analysis and understanding provides the base for planning and guides in framing policies.

5. It helps in tapping useful resources :

Environment is a source of various resources for business like finance , machinery, raw
materials e.t.c. A good understanding of the environment helps the firm to convert resources
into output required by the environment and society.

Q4)

1)Political environment;it comprises political conditions such as peace & stability,law &
order.Example,a situation of political unrest such as frequent change in the ruling government
implies a change in the rules & policies of the government regarding production &
manufacturing.

2)Technological environment; which comprises technological changes & improvements.i.e

introduction of computers,internet have changed the way organisation works today.

3)Legal environment;It refers to the legislation of rules passed by the government such as
Companies act,trade unions act.

4)Economic environment;comprises of economic variables such as interest rates,income,stock

market indices that affect the functioning of the enterprises.

5)Social environment;refers to social forces such as customs,traditions,social values & social

trends.

Q5)
Features of business environment (i) Totality of External Forces Business environment is
aggregative in nature as it is the sum total of all things external to business firms. (ii)
Inter-relatedness Different elements of the business environment are closely related to each
other, e.g., increased awareness of health care has increased the demand for many health
products. (iii) Dynamic Nature The business environment is highly dynamic and keeps on
changing. Sometimes there is a change in technology tastes and preference of consumer etc.
(iv) Uncertainty The environment cannot be predicted. It is highly uncertain and unpredictable.
(v) Complexity Since there are many elements of the business Environment and they are
interrelated and dynamic in nature Therefore, it becomes very difficult to understand them as
a whole. Difference between Specific and General Environment There are two types of forces
operating in business environment specific and general Specific forces affect the individual
enterprises directly and immediately e.g., customers, suppliers. General forces affect the firms
and only indirectly e.g., social conditions in political conditions.