Business Environment DM (209) Political and Legal Environment

Sanchit Sharma Swetank chaturvedi PGDM (2011-13)

Political Environment
This includes the political system, the government policies and attitude towards the businesscommunity and the unionism. All these aspects have a bearing on the strategies adoptedby the business firms. The stability of the government also influences business and relatedactivities to a great extent. It sends a signal of strength, confidence to various interestgroups and investors. Further, ideology of the political party also influences the businessorganisation and its operations.

Legal Environment
This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: (i) Companies Act, 1956 (ii) Foreign Exchange Management Act, 1999 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972

 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Essential Commodities Act, 2002 (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969 (xi) Trade Marks Act, 1999 (xii) Bureau of Indian Standards Act, 1986 (xiii) Consumer Protection Act, 1986 (xiv) Environment Protection Act (xv) Competition Act, 2002

 Besides, the above legislations, the following are also form part of the legal environment of Business. (i) Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises. (ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities.

Functions of the states MINIMAL FUNCTIONS

Providing pure public goods, Protecting the poor, Anti poverty programmes, Disaster relief, Law and order property rights,

 INTERMEDIATE FUNCTIONS Basic educational and environment protection, Insurance, financial regulations & consumer protection, Providing social insurance ,family allowances ,unemployment schemes,

Economic roles of Goverment

Regulatory role Entrepreneurial role Planning role

The Role of Government in the Economy

INDUSTRIAL LICENSING POLICY Industrial Licensing is governed by the Industries (Development & Regulation) Act, 1951. The Industrial Policy Resolution of 1956 identified the following three categories of industries: those that would be reserved for development in public sector, those that would be permitted for development through private enterprise with or without State participation, and those in which investment initiatives would ordinarily emanate from private entrepreneurs

 Industrial licensing will be abolished for all projects except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons, and items of elitist consumption (list attached as Annex II). Industries reserved for the small scale sector will continue to be so reserved. Areas where security and strategic concerns predominate, will continue to be reserved for the public sector (list attached as Annex I). In projects where imported capital goods are required, automatic clearance will be given a. in cases where foreign exchange availability is ensured through foreign equity or b. if the CIF value of imported capital goods required is less than 25% of total value (net of taxes) of plant and equipment, upto a maximum value of Rs. 2 crore. In view of the current difficult foreign exchange situation, this scheme (i.e. (iii) b) will come into force from April, 1992.

. Foreign Investment
Approval will be given for direct foreign investment upto 51 percent foreign equity in high priority industries (Annex III). There shall be no bottlenecks of any kind in this process. Such clearance will be available if foreign equity covers the foreign exchange requirement for imported capital goods. Consequential amendments to the Foreign Exchange Regulation Act (1973) shall be carried out. While the import of components, raw materials and intermediate goods, and payment of knowhow fees and royalties will be governed by the general policy applicable to other domestic units, the payment of dividends would be monitored through the Reserve Bank of India so as to ensure that outflows on account of dividend payments are balanced by export earnings over a period of time.

Foreign Technology Agreements

Automatic permission will be given for foreign technology agreements in high priority industries (Annex III) upto a lumpsum payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for exports, subject to total payment of 8% of sales over a 10 year period from date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and will be calculated according to standard procedures. In respect of industries other than those in Annex III, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments. All other proposals will need specific approval under the general procedures in force

Public Sector
Portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, high-tech and essential infrastructure. Whereas some reservation for the public sector is being retained there would be no bar for areas of exclusivity to be opened up to the private sector selectively. Similarly the public sector will also be allowed entry in areas not reserved for it. Public enterprises which are chronically sick and which are unlikely to be turned around will, for the formulation of revival/rehabilitation schemes, be referred to the Board for Industrial and Financial Reconstruction (BIFR), or other similar high level institutions created for the purpose. A social security mechanism will be created to protect the interests of workers likely to be affected by such rehabilitation packages.

MONOPOLIES AND RESTRICTIVE TRADE PRACTICES ACT (MRTP ACT)

Prevention of concentration of economic power to the common detriment, control of monopolies, and Prohibition of monopolistic and restrictive and unfair trade practices. The MRTP Act became effective in June 1970. With the emphasis placed on productivity in the Sixth Plan, major amendments to the MRTP Act were carried out in 1982 and 1984 in order to remove impediments to industrial growth and expansion. This process of change was given a new momentum in 1985 by an increase of threshold limit of assets.

LIST OF INDUSTRIES IN RESPECT OF WHICH INDUSTRIAL LICENSING WILL BE COMPULSORY

Coal and Lignite. Petroleum (other than crude) and its distillation products. Distillation and brewing of alcoholic drinks. Sugar. Animal fats and oils

 Cigars and cigarettes of tobacco and manufactured tobacco substitutes. Asbestos and asbestos-based products. Plywood, decorative veneers, and other wood based products such as particle board, medium density fibre board, block board. Raw hides and skins, leather, chamois leather and patent leather. Tanned or dressed furskins. Motor cars. Paper and Newsprint except bagasse-based units.

 Electronic aerospace and defence equipment; All types. Industrial explosives, including detonating fuse, safety fuse, gun powder, nitrocellulose and matches. Hazardous chemicals. Drugs and Pharmaceuticals (according to Drug Policy). Entertainment electronics (VCRs, colour TVs, C.D. Players, Tape Recorders). White Goods (Domestic Refrigerators, Domestic Dishwashing machines, Programmable Domestic Washing Machines, Microwave ovens, Airconditioners

The Constitutional and Legal Context

India has a large body of legislative measures relating to environmental issues. The backbone of these are relevant provisions in India s Constitution. The Constitution of India, 1950, did not include any specific provision relating to environment protection or nature conservation.

Schedule of the Constitution.

Part IV- Directive Principles of the State Policy and List III The Concurrent List of the Seventh Schedule of the Constitution. As a result, the Constitution has now the following provisions specifically relating to environment protection and nature conservation: Part IV: Directive Principles of State Policy (Article 48A): Protection and improvement and safeguarding of forests and wild life: The State shall endeavour to protect and improve the environment and to safeguard the forests and wild life of the country.

 Part IV-A:Fundamental Duties (Article 51-A): It shall be the duty of every citizen of India (g) to protect and improve the natural environment including forests, lakes, rivers and wild life, and to have compassion for living creatures. SEVENTH SCHEDULE (Article 246) List III - Concurrent List Item no. 17 Prevention of cruelty to animals Item no. 17A Forests Item no. 17B Protection of wild animals and birds

Environment and Related Laws and Policies in India

The Indian Forest Act, 1927 The Prevention of Cruelty to Animals Act, 1960 The Water (Prevention and Control of Pollution) Act, 1974, amended 1988: Forest (Conservation) Act, 1980, amended 1988

 The Air (Prevention and Control of Pollution) Act 1981, amended 1987 The Environment (Protection) Act, 1986, amended 1991 The Wild Life (Protection) Amendment Act, 2002 The Biological Diversity Act, 2002 The Right to Information Act 2005

THANKS