POLITICAL ENVIRONMENT

Political legal environment consists of : 1. Political environment :It is concerned with natural and direction of political forces related tomanagement of public affairs.The elements of political environment that influence organization are : A)Political system :It consists of ideologicalforces.Political,election procedures,and power center .A stable,efficient and honest political system is essential for the growth of organization.

B)Political industry :They consists of legislature,executive and judiciary. The legislature enacts laws that guide organizational activities. lays down

The executive implements the decisions of the legislature.It policies,regulations and procedures that influence the of organization.

The judiciary service as a watching.Its rulingsinfluence organizational practices.It settles disputes and carries out judicial review. C)Political philosophy :The political ideology can be democratic,totalitarian or a mix of both.Democracy vestspower in the hands of people.Totalitarian vests power in the hands of the state. Political philosophies influence organization's activities.Democracy provides greater role to private sector.Totalitarianism provides greater role to state.Mixed philosophies provide roles to both private sectors and state. 2. Legal environment :Legal environment refers to all the legal surrounding that affects organization's activities.It consists of an array of acts,rules,regulations,precedent,institutions and processes.It defines what organizations can be cannot do.

Legal environment is concerned with. Protecting the rights and interests of organizations,consumers,employees,and the society.Intellectual property rights are also produced. Providing grounds on which organizations activities can be carried out.It encourage of restrains activities by providing facilities to lowabide rs.It gives punishments to low breakers.

 Regulations activities through legal provisions relating to licencing,employment,monopoly,foreign investment,foreign exchange,environment protection,consumer protection,product safety,industrial location,imports,exports,pricing,and taxation etc. Organization must ensure that there activities conform to the low of the land.They must comply with legal provisions in force.Changes in lows affects strategy. The elements of legal environments that influenceorganization are: A) Laws :They consist of an array of lows enacted by the parliament.They also protect the rights and interests of consumers labour,business,and society .They affects business organizations. B) Courts of low :Courts are institutions established buy law solve legal.The supreme court is at the national leveland is the highest levels of district courts are at district level. C) Law administrators :Various law enforcement agenciesensure implementation of laws and the judgment of the courts of law.Governments agencies,lawyers,police and jail play important role in law administration

RUPEE DEVALUATION With the Indian rupee going on a free fall, hitting a level not seen in 20 years, there are concerns regarding the current economic situation of the country. In this context, Jasmine Kohli of InformationWeek spoke to few IT vendors, who share their perspectives on the impact of slump in the rupee. Excerpts:

Faisal

Husain, Founder

&

CEO,

Synechron

"Although, rupee depreciation is good for industries such as IT that bring in foreign currency, but in terms of local and global economy, depreciation in currency fuels inflation, affects market sentiments and is not favorable in the long run. I believe currency fluctuations would stabilize, and there will likely be appreciation in the Indian rupee over the next few months."

Alexander Varghese, Chief Administrative Officer, UST Global In my opinion, we need to keep our sense of perspective in place, when we speak about the current scenario in India, to avoid going into an overly negative and unproductive mode. There seems to be a general slowing down of investments in emerging markets, due to various global economic and political triggers most Asian currencies have fallen by 5-15 percent over the past few months. So, India, which is Asias third largest economy is not alone, although we are probably more vulnerable than most. We need to brace ourselves for the fact that given the slow economic growth and uncertain political climate, things will get worse before they get better. But the India growth story is real and very resilient. Overall, as a business person, I feel, it is important to retain the international trust in the India story, not by taking hasty short-term measures or by implementing sweeping changes, which we

cant afford to pay for. But by taking decisive and sensible action in the short term coupled with implementation of practical policies and reforms that can gain back the trust of both the domestic and foreign investors. UST Global is using the current climate to consolidate its growth and invest in critical areas like facilities expansion, training and innovation.

Mrityunjay Singh, COO Persistent Systems On the whole, a falling rupee increases the margins of export-oriented sectors such as ours, and thus contributes favorably to the business. Having said that, Persistent, has been taking a 50 percent forward cover since some years now, and this effectively hedges about half of our expected net forex income over a 1 year period. While this is usually a step towards reducing the risks from volatility in foreign exchange rates, what this also means is that the rupee decline will not directly flow into our bottom line. It will, however, help our topline and since it has a delayed impact of a few months, it is only then that we will begin to reap the real benefits of the rupee depreciation.

Amar Babu, Managing Director, Lenovo India and Vice President, MAIT We had increased the prices when the rupee was trading at around 58. Now, it has depreciated further by another 8-10 percent. So we will have to watch as there is a lot of volatility. But if the rupee stabilizes at this level also, we will have to effect an increase to absorb costs.

Y Guru, CMD, CELKON Mobiles "We at Celkon are yet to experience the impact of the currency fluctuation. Since our budgets are closed in the beginning of the year, rupee depreciation is not playing a major role in how we function. However, keeping in view the market sentiments we are being cautious and working towards combining some of our dealer meets that are scheduled for year end with other big events, further adding to cost optimization"

http://www.caclubindia.com/articles/rupee-depreciation-and-its-impact-on-economy-anoverview-17954.asp#.Uno8FHBmiSp

o restrict the outflow of foreign currency, RBI had, however, on August 14 announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians. Strong demand of US currency from importers and banks, continuous capital outflows, widening current account deficit and dollar's strength against other currencies overseas amid expectation that the Federal Reserve will soon taper its bond-buying programme has put pressure on the rupee. Whether the currency would find its stable level or will continue to slide further remains a tricky question. But till the currency settles itself, lets have a look at how continuous depreciation of the Indian currency will affect the common man. Importers/Exporters Importers will strongly feel the pinch of falling rupee as they will be forced to pay more rupees on importing products. Conversely, a feeble rupee will bring delight to the exporters as goods exported abroad will fetch dollars which in return will translate into more rupees. Also, a weak rupee will make Indian produce more competitive in global markets which will be fruitful for India's exports. Imported goods: Buying imported stuff will become a very costly affair. You will have to shell out extra on imported goods. For instance if you bought a product valued USD 1, you paid around Rs 54 (weeks ago) but you will now have to shell out close to Rs 63 for the same product. Fuel price: A weak rupee will increase the burden of Oil Marketing Companies (OMCs) and this will surely be passed on to the consumers as the companies are allowed to do so following deregulation of petrol and partial deregulation of diesel. If the OMCs increase fuel prices, there will be a substantial increase in overall cost of transportation which will stoke up inflation. RBIs monetary policy: If the depreciation in rupee continues, it will further increase inflation. In such a situation RBI will have very less room to cut policy rates. No cut in policy rate will add to the borrowers woes who are eagerly waiting to get rid of the high loan regime. Students studying abroad: Students who are studying abroad will bear the brunt most owing to

depreciating rupee. Expenses incurred towards the university/college fee as well as that of living will shoot up, thereby spelling a huge burden on the students. Tourism: The depreciating rupee will surely be a dampener if you are planning your holiday abroad. Your travel charges as well as hotel charges will escalate drastically, let alone shopping and other miscellaneous spending activity. Overseas Indians: Money saved is money earned. Depreciation of rupee is certainly a good news for the overseas Indians. Those working abroad can gain more on remitting money to their homeland. Countrys fiscal health: A frail rupee will add fuel to the rising import bill of the country and thereby increasing its current account deficit (CAD). A widening CAD is bound to pose a threat to the growth of overall economy. We invented money and we use it, yet we cannot understand its laws or control its actions. It has a life of its own. - Lionel Trilling, American literary critic. The most concerning chapter for India during last two years and specifically last two months is the weakening of rupee against dollar. It is not only that rupee has lost its value in the global context but also dollar has improved its performance in the global trading markets. The outstanding performance of US equities and the improvement in the labor market has made Americans more optimistic about the US economy, thereby stimulating greater hopes of QE(Quantitative Easing) tapering. The government of India is still unable to generate heavy capital inflows.If US Federal Reserve withdraws its bond buying programme; there will be unexpected outward flow of money leaving India clambering for dollars. The slowdown in the Indian economy has made the situation more fickle. The government has a strong role in controlling currency in the form of policy regulation and reforms. The current UPA leadership has failed to strike with some heavy reform to generate more cash inflows. As a result the government has gradually lost its control over rupee depreciation. Investors sentiment plays a pivotal role over here. Oil and gold imports account for 35 per cent and 11 per cent of Indias trade bill respectively.There has been an uninterrupted demand for the dollar from the oil importers pushing the rupee lower. Likewise the falling gold prices have made the central bank to reduce imports, which increases CAD and hits the currency directly. Indian economy requires a strong structural reform to maintain a positive balance of payment.

Also, government spends excessively as election approaches just to woo electorate votes. This causes the rupee to depreciate. Then the government beats around the bush to control the currency behaviour. Most of the times these measures worsen the economic crisis to a great extent. The foreign institutional investors have been selling index futures and Indian equity market is weakening. As a result there is a heavy demand for dollar and Indian currency as well as economic situation is looking too gloomy. These worries, combined with a record high current account deficit and now uncertainty over the central banks monetary policy stance, have prompted foreign investors to sell more than $12 billion of Indian debt and equities since late May. Reserve Bank of India has taken certain steps and some more to be followed to have a control over rupee. But the big question comes here. what are the implications? And is it that bad overall?? The best business prototype anyone can have is to spend in rupees and earn in dollars, which is what the giants of India Inc, including the top IT companies, excel in. Basically the sector which is targeting exports for its industrial operations are the one wins the game. Dollar appreciation would be positive for sectors such as IT, pharmaceuticals, hotel, textiles and automobiles which have the total foreign exchange earnings of these firms are far greater than their forex spends. As much as the rupee weakens, the foreign exchange earners gain provided the other factors remains constant. A sharply declining rupee triggers inflation, broaden the current account deficit, hits investor sentiment and creates burdens for organization with high exposure to foreign debt. The government and the Reserve Bank of India have taken several reform initiatives to resist the downturn, but their success stories are looking gloomy. Buying imported materials will become very costly. A weak rupee will create extra stress on Oil Marketing Companies (OMC) and this will surely be passed on to the consumers as the companies are allowed to do so after the deregulation of petrol and partial deregulation of diesel. If the OMCs increase fuel prices, there will be a substantial increase in overall cost of transportation which will trigger inflation. If the depreciation is steep and without control, it will strike up inflation. As a result the Central bank would have very less room to impose further rate cut and thats the burden the borrower would have to bear.

Indians who have gone to abroad for tours or studies are highly affected in these times. The only smiling people in this context are the NRIs who gain more on sending money to their homeland. As a whole we can say that though weakening rupee is the reason for someones smile it is a real threat for the countrys overall fiscal health and increase the current account deficit heavily. But in my opinion this huge downgrade is a temporary phenomenon and the rupee is really oversold. Now the Central bank and Government should work hand in hand and find out the policy measures to stabilize the frightening scenario. I personally hope a further cut in SLR to ease the liquidity to save rupee and also import duty hike in gold and other related materials. RBI can buy bonds to ease liquidity in the market. Finally we can say that the situation is tight and challenging for us, but we can not only hope for the best but also should contribute the most to get back Indian economy in the driving seat.

While traditional thought about impact of fall of rupee has been confined to external front of the economy i.e. exports and imports; now in the globalised scenario, the falling rupee impacts our day-to-day life in a significant way.

The falling rupee potentially can hit our pockets directly and make management of our day-today expenses challenging. In order to understand this, let us look at how rupee impacts our savings and has the potential to derail financial planning:

Depreciating rupee can cause loan rates to go up The Reserve Bank of India (RBI) has left no stone unturned to control fall of rupee against dollar. The measures taken have been very harsh ranging from limiting access to liquidity adjustment facility, to increasing rates on marginal standing facility to higher average maintenance of cash reserve ratio (CRR). Banks have been made to feel the pinch of shortage of liquidity. The 10 year G-SEC yield has gone up to as high as 8.5 percent. Left with very limited options now, if rupee continues to slide due to a combination of internal and external conditions, RBI will have no option but to raise repo rate. Raising repo rate will tantamount to pressing panic button. If repo rate goes up, banks will not hesitate to pass it on the customers unlike what they do when rates fall. The situation seems to

have just reversed from what it used to be three months back when everybody was expecting interest rates to fall. This transition is purely because of fall in the value of rupee.

Rise in inflation Depreciating rupee increases the cost of imports which has a direct bearing on the inflation. Basically import of goods becomes costlier whenever rupee depreciates and no wonder it makes impact on our day to day life as we are consumer of imported products. We have already felt the pinch of it as petrol and crude prices have been increased in past few months. But the worst is yet to come. Cost of crude import is bound to go up with the fall in value of Indian currency. Every fall in rupee is an invitation to inflation, unless managed well by the regulator. Increased inflation means more expenses which in turn has potential to impact the financial planning process. Increase in the cost of education Increasing cost of education is not just going to impact those who go out of India to acquire post graduation qualification or specialized education, but also to those Indians who want to be in India and acquire higher education. Today many students in India write examinations like CFA, CPA, CAIA, ACAMS etc. to acquire educational qualifications. Many certifications in information technology are also acquired through distance learning and online mode in India which requires payment of money in dollar terms. So the falling rupee may hurt plans of many India based students who wish to acquire international qualifications based in India. Slowdown and job loss Falling rupee is a recipe for slowdown in economic growth. If the fall of rupee continues, the foreign investment will dry in India thereby creating a gap between investment required for growth and the actual investment made. This may not happen in immediate future, but this cannot be ruled out altogether. Consistent fall in rupee may also take hot money i.e. FII out of India. While the domestic investment in slowing down at a fast pace, slowdown of foreign investment at this juncture will strongly impact economic growth. Slowdown does not just impact the creation of jobs it also has potential to create job losses. The most worrying aspect of fall of rupee is that it has been purely caused by fundamental factors and hence curbing of speculative activities alone cannot arrest depreciation of rupee. High inflation and high rate of inflation have caused rupee to reach this stage. The demand for dollar has been strong because of higher imports as well. The middle class Indians need to be ready to face the music if positive policy measures are not initiated by the government in India.