Indian Business Environment

MB - 105
 INDIAN BUSINESS ENVIRONMENT

• “Business environment is the total of all things

external to business firms and industries which
affect their organization and operations”.
Wheeler

• “Business environment is the aggregate of all

conditions, events and influence that surround and
affect the business”.
Keith Davis
 Nature of Business Environment

1. Complex
2. Interdependence
3. Dynamic
4. Inter-relatedness
5. Impact
6. Uncertainty
Structure of Business Environment
 Internal Environment Factors
• Value System
• Mission and Objective
• Human Resources
• Unions
• Organisation Structure
• Physical Resource
• Corporate Culture
 External Environment Factors
• Micro Indicators
Customers, prospective investors, competitors,
suppliers

• Macro Indicators
Economical, political, technological, social, legal
and demographic
Significance of Business Environment

1. Customer Focus
2. Strategy Formulation
3. Public Image
4. Continuous learning
5. Giving Direction for Growth
6. Coping with Changes
Five Force Competitive Structure of Industry
 1. Threat of New Entrants
Common Barriers are:

• Government Policy
• Economies of Scale
• Product Differentiation
• Monopoly Elements
• Capital Requirements
 2. Rivalry among Existing Competitors
Factors influencing the intensity of rivalry
1. Number of Firms and their Relative Market Share,
Strengths etc.
2. State of Growth of Industry
3. Fixed or Storage Costs
4. Product Switching Costs
5. Exit Barriers
6. Diverse Competitors
 3. Threat of Substitutes
The threat of substitute products depends
on:

i. Buyers’ willingness to substitute.

ii. The relative price and performance of
substitutes.
iii. The cost of switching to substitutes.
 4. Bargaining Power of Buyers

1. The volume of purchase

2. The importance of the product to the buyer in
terms of the total cost.
3. Switching costs.
4. Profitability of the buyer (low profitability tends to
pressure costs down).
5. Potential for backward integration by buyer.
 5. Bargaining Power of Suppliers

1. Importance of the product to the buyer.

2. Importance of the buyer to the supplier
3. Extent of substitutability of the product
4. Switching costs.
5. Extent of differentiation or standardization of the
product.
 Emerging Sectors of Indian Economy

• Tourism
• Food Processing
• Health Care
• Manufacturing
• Technology
 Public Vs Private Sectors
BASIS FOR
PUBLIC SECTOR PRIVATE SECTOR
COMPARISON
1. Meaning The section of a nation's economy, The section of a nation's economy,
which is under the control of which owned and controlled by
government, whether it is central, private individuals or companies is
state or local, is known as the Public known as Private Sector.
Sector.
2. Basic To serve the citizens of the country. Earning Profit
objective
3. Raises money Public Revenue like tax, duty, penalty Issuing shares and debentures or by
From etc. taking loan
4. Areas Police, Army, Mining, Health, Finance, Information Technology,
Manufacturing, Electricity, Education, Mining, Transport, Education,
Transport, Telecommunication, Telecommunication, Manufacturing,
Banking, Insurance, etc. Banking, Construction,
Pharmaceuticals etc.
5. Benefits of Job security, Retirement benefits, Good salary package, Competitive
working Allowances etc. environment, Incentives etc.
6. Basis of Promotion Seniority Merit
7. Job Stability Yes No
 Economic Reforms

• This term refers to deregulation, or at times to

reduction in the size of government, to remove
distortions caused by regulations or the presence of
government, rather than new or increased
regulations or government programs to reduce
distortions caused by market failure.
 Major Highlights on the Economic Reforms in
India
• Growth in service sector, decline in agricultural
sector and fluctuations in Industrial sector.

• Increase in FDI and forex reserves.

• Successful exporters of engineering goods, auto

parts, IT software, textiles during the time of the
reforms.

• Price rise was under controlled.

 Objectives of Liberalization Policy
• To increase competition amongst domestic
industries.

• To encourage foreign trade with other countries

with regulated imports and exports.

• Enhancement of foreign capital and technology.

• To expand global market frontiers of the country.

• To diminish the debt burden of the country.

 Privatization

Forms of Privatization

• Denationalization or Strategic Sale

• Partial Privatization or Partial Sale

• Deficit Privatization or Token Privatization

 Objectives of Privatization
• Improve the financial situation of the government.
• Reduce the workload of public sector companies.
• Raise funds from disinvestment.
• Increase the efficiency of government
organizations.
• Provide better and improved goods and services to
the consumer.
• Create healthy competition in the society.
• Encouraging foreign direct investments (FDI) in
India.
 Globalization

• The main aim is to transform the world towards

independence and integration of the world as a
whole by setting various strategic policies.

• During Globalization the main focus is on foreign

trade and private and institutional foreign
investment.
 Current State of Growth
Markets Last Reference Previous Frequency

Currency 71.95 Sep/19 71.74 Daily

Stock Market (points) 37333 Aug/19 37069 Daily

Government Bond 10Y (%) 6.56 Aug/19 6.54 Daily

GDP Annual Growth 5 Jun/19 5.8 Quarterly

Rate (%)
Unemployment Rate (%) 6 Dec/18 5 Yearly
 Current State of Investment
Classification of Investment

•Foreign Direct Investment

•Foreign Institutional Investment

•Domestic Investments

•Indian Investments Abroad

 Interest Rate Structure
1. CRR: It is the amount of funds that banks have to
maintain with the Reserve Bank of India (RBI) at all
times.

2. Repo Rate: It is charged for repurchasing the

securities sold by the commercial banks to the
central bank.

3.Reverse Rapo Rate: It is the rate at which

the RBI borrows money from commercial banks.
 Interest Rate Structure
4. SLR: It is the percentage of funds banks need to
maintain in the form of liquid assets at any point in
time.

5. Marginal Standing Facility Rate: A rate at which the

scheduled banks can borrow funds overnight from
RBI against government securities.

6. Bank Rate: It is charged against loans offered by

the central bank to commercial banks. It directly
affects the lending rates offered to the customer.
 Concept of Monetary Policy
• Formulated by RBI.

• Relates to monetary matters of the country.

• The policy involves measures taken to regulate the

supply of money, availability, and cost of credit in
the economy.

• The policy also oversees distribution of credit

among users as well as the borrowing and lending
rates of interest.
 Key Indicators
Indicator Current rate
• CRR 4%
• SLR 19.50%
• Repo rate 5.40%
• Reverse repo rate 5.15%
• Marginal Standing facility rate 5.65%
• Bank Rate 5.65%
 Concept of Fiscal Policy
• It is concerned with the determination of state
income and expenditure policy.

• It is the use of government spending and tax policy

to influence the path of the economy over time.

• But with the passage of time, the importance of

fiscal policy has been increasing continuously for
attaining rapid economic growth.
 Objective of Fiscal Policy
1. To mobilise adequate resources for financing various
programmes and projects.

2. To raise the rate of savings and investment for increasing

the rate of capital formation.

3. To arrange an optimum utilisation of resources.

4. To control the inflationary pressures in economy in order to

attain economic stability.

5. To remove poverty and unemployment

 Types of Fiscal Policy

1. Expansionary: To stimulate economic growth by

increasing spending/ lowering taxes/ both.

2. Contractionary: To slow the economic growth.

 Primary Tools of Fiscal Policy

• Taxes: Direct Tax and Indirect Tax.

• Government Spending: Expenditure in form of

subsidy, paying the unemployed, pursuing projects
that are halted in between etc.
Current Inflationary Position
 Concept of Inflation
• It is the rise in prices of goods and services with
time. It is measured by CPI and WPI.

Causes:
• Increase in Government Spending
• Increase in money supply in the economy
• Population growth
• Price rise in the international market
Impact of Inflation on Business Sector

1. Decline in purchasing power

2. Raises the cost of borrowing
3. High wage demand
4. Raise in cost of production
5. Critical competition
6. Cause of higher unemployment
Legislation for Anti Competitive Trade Practices
 Anti-competitive Agreements
under the Competition Act

• Competition laws are introduced to regulate the

manner in which businesses are conducted in India,
so as to create a level playing field with effective
competition in the market.

• The underlying intent for this statute is for

businesses to compete on merit, and not with the
aid of anti- competitive agreements or conduct.
 Coverage of Competition Act
• The Competition Act is not intended to prohibit
competition in the market. What the Act primarily
seeks to regulate, are the practices that have an
adverse effect on competition in the market in
India.

• In addition, the Act intends to promote and sustain

competition in markets, protect consumer interests,
and ensure freedom of trade in India. At the heart
of the Act are various activities that will be
prohibited as being anti- competitive.
 The activities comprise:

(a) Anti-competitive arrangements;

(b) Abuse of dominant position; and

(c) Mergers and acquisitions that have an appreciable

adverse effect on competition in India.
 Anti-Competitive Arrangements

• Anti-competitive arrangements are those that have

as their object to, or actually effect in preventing,
restricting or distorting competition in any market
in India.

• Such arrangements cover not only agreements, but

also decisions made by association of persons /
enterprises, as well as the conduct of parties acting
in collusion.
Legislation for Unfair Trade Practices
 Definition of Unfair Trade Practice Under
Consumer Protection Act, 1986
• Section 2(1) (r) of Consumer Protection Act, 1986
also defines the term ‘unfair trade practice’.It reads:

"unfair trade practice" means a trade practice

which, for the purpose of promoting the sale, use or
supply of any goods or for the provision of any
service, adopts any unfair method or unfair or
deceptive practice including any of the following
practices, namely:—
(1) The practice of making any statement, whether orally
or in writing or by visible representation which—
(i) Falsely represents that the goods are of a particular
standard, quality, quantity, grade, composition, style
or model;
(ii) Falsely represents that the services are of a particular
standard, quality or grade;
(iii) Falsely represents any re-built, second-hand,
reno-vated, reconditioned or old goods as new goods;
(iv) Represents that the goods or services have
sponsorship, approval, performance, characteristics,
accessories, uses or benefits which such goods or
services do not have;
(v) represents that the seller or the supplier has a
spon-sorship or approval or affiliation which such
seller or supplier does not have;

(vi) makes a false or misleading representation

concerning the need for, or the usefulness of, any
goods or services;

(vii) gives to the public any warranty or guarantee of

the performance, efficacy or length of life of a
product or of any goods that is not based on an
adequate or proper test.
(2) permits the publication of any advertisement
whether in any news-paper or otherwise, for the
sale or supply at a bargain price, of goods or
services that are not intended to be offered for sale
or supply at the bargain price, or for a period that
is, and in quantities that are, reasonable, having
regard to the nature of the market in which the
business is carried on, the nature and size of
business, and the nature of the advertisement.
(3) permits the sale or supply of goods intended to be
used, or are of a kind likely to be used, by
consumers, knowing or having reason to believe
that the goods do not comply with the standards
prescribed by competent authority relating to
performance, composition, contents, design,
constructions, fin-ishing or packaging as are
necessary to prevent or reduce the risk of injury to
the person using the goods;

(4) manufacture of spurious goods or offering such

goods for sale or adopts deceptive practices in the
provision of services.