components of be: politico-legal environmentgate, vyapam scam(2015), adani & pulses scam;...

LOGOBusiness Environment

UNIT-IComponents of BE:

Politico-Legal Environment

Course Coordinator: Dr. Saboohi NasimFMS&R, AMU

Unit –I (Syllabus)

❖Nature, Characteristics & Objectives of

Business

❖Nature & Elements of Business

Environment

▪ Technological Environment

▪ Socio-cultural Environment

▪ Political-legal Environment

▪ Demographic & Natural Environment

▪ Economic Environment

Politico-Legal Environment

•The Government is a political

institution, but has a social purpose.

•It enacts and executes social policies,

exists with social consent, and provides

the ways and means of maximizing

social benefits and minimizing social

costs.

• Government itself has a social value

and culture.

Government as a Socio-Political Institution??

The Government has its own

form, structure, style and

philosophy which further

determines its policies,

programmes and legislations,

constituting the

political system of a country.

Government as a Socio-Political Institution…

•Business of any type and any size

is affected by Government’s

policies, programs and legislations.

•Business policy decisions are

designed in the realm of the

Government’s overall policy

environment.

Government and Business?

• The political system of a country

determines the overall context in which

business operates

• The system of governance, the

framework of laws and implementation

of policies play a critical role in business

environment

“There is today no country with a stable and honest

government that does not have or has not had a reasonably

satisfactory state of economic progress….In all these

countries, the early emphasis was not on capital investment

but on political and then on cultural development. In the

United States, Western Europe and recently in Japan, a

secure political context was stressed in both thought and

action for economic development; it was considered to be

the first requisite for economic progress”

John Kenneth Galbraith

A stable, honest, EFFICIENT and

DYNAMIC political system is essential

for economic growth

•The form of Government

•The ideology of the ruling party

•The strength of the opposition

•The role and responsibility of the

bureaucracy

• Political stability

•The velocity of Government policies,

plans and programmes

• Socio-economic legislations• Politico-legal institutions

Critical Elements of Politico-legal Environment?

•Form and structure of the

Government is a critical and decisive

factor for the business sector

•Two basic political philosophies are

in existence

•Democracy

•Totalitarianism

I. Form of Government

•Democracy: supreme power vested in the people•Pure Vs. Republican

I. Form of Government…

•Totalitarianism: individual freedom

completely subordinated by the

power of authority•Started emerging after the first

world war

•Became most common among

newly independent states

•Two-thirds of the nations ruled by

dictators/monarchies


Four types of Totalitarianism:

•Theocratic Totalitarianism: Political system under

the control of religious leaders who frame laws &

regulations according to the religious belief; Iran and

other Middle east countries.

•Secular Totalitarianism: Political system under the

control of leaders guided by military or bureaucracy;

Common in several Latin American and Asian

countries till early 1980s. (For eg. Korea, Taiwan,

Indonesia, Philippines..etc) Pakistan has been under

military rule till Gen. Musharraf stepped down to hold

elections.


Four types of Totalitarianism….

•Right-Wing Totalitarianism: Private property

endorsed by the govt., market forces allowed a

free play but political freedoms are rarely

granted. E.g. China a classic example

•Tribal Totalitarianism: Interests of a

particular tribe monopolizes power; exists in

African countries- Zimbabwe, Tanzania,

Uganda, and Kenya.


Which

political doctrine

is ideal for

business?

The Debate!

The Debate!

•Ideology of the ruling party influences ownership,

management structure and size of business??.

•A ruling party with a `rightist’ inclination may

formulate liberal pro-business policies; party with

‘leftist’ leanings emphasize measures like

nationalization and excessive centralization.

•The philosophy of the ruling party thus may

help or hurt the core of business activity (e.g.

exit of MNCs like coca cola and IBM during Janata partyregime…)

(II) The Ideology of the Ruling Party

•The nationalist movement provided a broad framework of

ideologies for political parties in India. Nationalism,

socialism, secularism and democracy became the main plank

of the Congress during the freedom.

•Some known economic ideologies of political parties in India

•Garibi hatao (eradicate poverty) has been a slogan of the Indian

National Congress for a long time. Favours both socialist as well as

neo-liberal policies such as LPG

•The Bharatiya Janata Party encourages a free market economy….

(sabka saath sabka vikaas sabka vishwas??—NDA III)

•The Communist Party of India (Marxist) vehemently supports left-

wing politics like land-for-all, right to work and strongly opposes neo-

liberal policies . ..Samajwadi Party??

(II)The Ideology of the Ruling Party…

•Opposition has a very significant role to play in a

democracy

•If the Opposition is fair, firm and consistent, it can

make constructive criticism of Governmentpolices…e.g. may help expose cases of corruption (BJP led

opposition activism highlighted the 2G scam, CWG scam}, …..Recently the Lalit

gate, Vyapam scam(2015), Adani & Pulses scam; Banking sector fiasco 2018

….AAP-crusader against corruption…Rafale Deal Controversy/Scam 2019??)

•On the other hand, opposition may also obstruct

reforms required for economic growth….. The Indo-US

civilian nuclear agreement (2008), case of the Tata Nano plant in Singur,

opposition to the FDI in multibrand retail (AAP) etc…tit for tat politics by current

oppn UPA in stalling key legislations..e.g. GST bill, Land Bill (2015, 2016);

BJP’s reluctance for JPC in Rafale (2019)??

(II)The Strength of the Opposition

•The Government works through the bureaucracy- the

permanent machinery of the Government, it is meant to

keep up continuity in Government operating in relation to

both business and non-business sectors.

•Bureaucracy is very powerful in enforcing Government

rules and regulations, systems and procedures, licenses

and restrictions.

•Businessmen, therefore, tend to oblige the bureaucracy

in a number of ways…..gives rise to corruption.

(IV) The Role and Responsibility of the Bureaucracy

(V)Political Risks: Implications for Businesses (2017)

India ranking dipped from 78th -2018) to 80th rank (score-41) in 2019

(Transparency International, 24th Jan 2020)

(V)Political Risks: Corruption Index

India

41

(V)Political Risks: Corruption Index….(2016)

(V)Political Risk Index.. The Global Risks Report 2019 (World Economic Forum)

• The 14th edition of the Global Risks Report-2019 (prepared by the

World Economic Forum with the support of Marsh & McLennan and other partners),

last year examined the evolving macro-level risk landscape

and highlights major threats that may disrupt the world in

2019 and over the next decade.

• The most striking factor identified was the level of concern

about geopolitical issues. Of the top ten risks expected to

deteriorate in 2019, seven were connected to the political

environment.

• Over 90% of respondents expected economic

confrontations/frictions between major powers to

deteriorate in 2019, anticipating the erosion of multilateral

trading rules and agreements. (Indo China Trade War)

(V)Political Risk.. The Global Risks Report 2019 (World Economic Forum)…

(V)Political Risk & Instability

Global top 10 risks for doing business

World Economic Forum Report, 2018 (published in 2019)

(V)Political Risk & Instability Top risk for doing business across regions (World

Economic Forum Report, 2018) (published in 2019)

(V)Political Risk & Instability

Global top 10 risks for doing business

World Economic Forum Report, 2019 (published in 2020)

1 Fiscal crisis

2 Cyber attacks

3 Unemployment

4 Energy price shock

5 Failure of national governance

6 Profound social Instability

7 Data fraud or theft

8 Interstate Conflict

9 Failure of critical infrastructure

10 Asset Bubble

(V)Political Risk Index..

(V)Political Risk-Regulatory Risk

Caselet

Vodafone-IdeaEmbroglio

(VI)The velocity of Government policies,

plans and programmes

•When policies are formulated with tremendous

“speed”, they come one after another though the

“direction” may not be very clear. (Aadhar:

implementation suffered a big jolt….Demonetization

shock?....Recent controversial laws?)

•Sometimes, policies are formulated with a clear

“direction” but at a snail’s “speed”.(Women

Reservation Bill…..lack real political will)

•Velocity (both speed and direction) of Government

policies, plans and programmes is very critical for a

conducive business climate

(VII) Socio-Economic Legislations

•Policies are statutorily enforced through

laws.

•Various socio-economic legislations affecting

various business operation constitute the legal

environment (Company Law, Industries Act, MRTP &

Competition Act, FERA laws, SEBI Act, Labour laws,

Environment protection Act etc..…..)

•Laws not only protect business, they may

also create business. For example - Tax laws –

GST?? .

(VIII)Politico-Legal Institutions

•Three vital political Institutions??

•Legislature: policy making, law making, budget approval,

executive control…parliament, assembly.

•Executive/Government : implementation through

federal system of governance-state/centre relationship,

corporate involvement in executive

•Judiciary:. Provides us with the system of laws operating in

the country …..runs through the Supreme Court, the High

Courts and the Lower courts

Judicial activism Vs Judicial adventurism??

(Supreme Court Crisis: All not okay, democracy at stake,

say four senior-most judges, Jan 2018??)

Should the Corporate

donate to Political

Parties ??

Business donations to political

parties is a debatable issue.

Food For Thought!!

•In the past few years, Indian companies are

reported to have donated over Rs 4,400 crore to

six major political parties: Congress (Rs 1660cr) ,

BJP (852 cr), BSP(1226 cr), CPI-M (335 cr),

Samajwadi Party(200 cr) and the NCP (140 cr).

•A system where over 90 per cent of Rs 4,400

crore (Rs 44 billion) received from companies

over a period of five years comes without any

disclosure on the source of funds is a big

threat to governance.

Corporate Donations to Political Parties ??

•Govt. legitimized foreign poll

funding in March 2018 (https://financialexpress.com/india-news/modi-govt-

legitimizes-foreign -poll-finding-Subramaniam-swami-

calls-it-terrible-what-you must-know/1107290/)

•Electoral Bonds can now be bought

by Indian corporates to fund political

parties without disclosure


https://financialexpress.com/india-news/modi-govt-legitimizes-foreign%20-poll-finding-Subramaniam-swami-calls-it-terrible-what-you%20must-know/1107290/

•Corporate donations to political parties are

to be welcomed, but only after ensuring that

everybody knows which company has

contributed how much and to which political

party (full disclosure)

•AAP’s Strategy: Full Disclosure and transparency

•Recently, Atishi Marlena of AAP using online

crowdsourcing platform to generate funds for 2019

election.


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components of be: politico-legal environmentgate, vyapam scam(2015), adani & pulses scam;...

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