Business Environment Class 12 | Demonetisation | Economic Reform |

Business Environment Class 12 | Demonetisation | Economic Reform |

Meaning of Business Environment

Business Environment refers to all those factors which impact the business and business has no control over them.

Features and Characteristics of Business Environment

  1. Dynamic in Nature: Business Environment refers to the total of factors which keep on changing with the change in environment. Therefore, it is considered as dynamic in nature.
  2. Specific and General Forces: The business sector runs with both the general forces namely Specific Force and General Force. Specific Force is that force which affects the single firm in the industry such as customer, investor, Supplier etc. whereas General force us that force which affects all the firms in the industry such as social, political and technical changes.
  3. Inter-related: The business environment is the combination of different factors which are related with each other. Therefore, change in one factor leads to the change in other factors of the business environment.
  4. Uncertain: The business environment keeps on changing very fast. Therefore, the risk factor is very high which leads to uncertainty in the business activities.
  5. Totality of External Forces: Business environment is the total of all the external forces over which business has no control.

Significance of Business Environment

  1. Advantage to First Mover: With the study of business environment in the economy, an individual gets to know about the opportunities which are available in the environment. Opportunities refer to the change in the environment which impact the business and industry positively.
  2. Warning Signal: Along with the opportunities, an individual also gets to know about the threats which are available with the available opportunities. Threat refers to the change in the environment which impacts negatively on the business and industry.
  3. Cope up with Fluent Changes: As the business environment keeps on changing. Therefore, with the continuous study and analysis in the environment makes information available for an individual to cope up with them.
  4. Works as an Assistant: The business environment also helps in assisting while making plans and policies for the business to defeat the competitors in the market.
  5. Increase in Performance: With the help of business environment, one can easily make a futuristic strategy which is an important factor for the performance of an individual and with that new strategy the performance of organstation also increases.

Components and Types of Business Environment

  1. Internal Environment: It refers to the sum of all those factors which impact the business and are present within the business. Businesses have full control on them which can be corrected through policies, rules and regulations.

The Factors are as follow:

  • Objective of Business
  • Capacity to produce
  • Method to produce
  • Management Participation
  1. External Environment: It refers to the sum of all those factors which impact the business from outside and businesses have no control on them

This environment has further two more classifications which are as follow:

  • Micro Environment/Operating Environment: It refers to the environment with which business has a close relation and it influences each industry differently such as; customers, supplier, public etc.
  • Macro Environment/General Environment: It refers to the environment with which business does not have a close relation or distinct relation and it can influence all the units in the same way.

Dimensions of Business Environment (Macro)

  1. Economic Environment: It refers to all those conditions which are trending in an economy and affects the business activities such as; Per-capita income, national income, GDP etc. 
  2. Political Environment: It refers to all those political conditions in the country which is in trend and also includes attitude of the government towards the business such as; Tax Rate, Power etc.
  3. Legal Environment: It includes all the acts and decisions of the court in the country.
  4. Social Environment: It consists of all the factors from which business is influenced where it exists like place of Business, taste and preference of the locals etc.
  5. Technological Environment: It refers to the type of production manner adopted by the businesses such as; Labour Intesive and Capital Intensive.

Demonetisation – Concept, Features and Impact

The withdrawal of the legal status of the currency from the circulation in the country is known as demonetisation. On Nov 8, 2016 the Government of India announced that the notes of ₹ 500 and ₹ 1000 to be withdrawn from the legal status and would no longer be legal tender.

Features of Demonitasation are as follow:

  1. Creation of Cash-less Economy: Demonetisation helps in creating cash-less economy. 
  2. Control on Tax Evasion: Tax evasion is the process in which tax is avoided illegally. Mal-practice for tax evasion is controlled with the commencement of demonetisation. 
  3. Channelisation of Savings: Every body has to submit all the cash in their respective bank accounts to let them convert into new bills. Therefore savings are channelised in economy.
  4. Tax Administrative: Demonetisation is regarded as a measure of tax administration. With this, the entire black money comes into presence.

Impact of Demonetisation on Indian Economy/Residents

  • Decline in cash transactions increase in bank deposits.
  • Prices of real estate falls because of decrease in the cash flow in the economy.
  • Income tax collection rate rises.

Economic Reforms/New Economic Policy 1991

Three major reforms were brought in 1991 such as; Liberalisation, Privatisation and Globalisation famously known as LPG wherein all the barriers were broken to make the economy competitive. A detailed discussion is as follow:

  1. Liberalisation: Liberalisation means breaking the economy from the government web and to make it more competitive. The restrictions from trade are taken off and the economy is made more competitive for production and expansion of industries.
  2. Privatisation: Through the process of Disinvestment, partly or full ownership of some public sectors is given to the private sectors in order to manage them better and make them free to take decision.
  3. Globalisation: Under this, restrictions of the interaction with other countries are broken by allowing people to interact with other people of different countries, to do trade with them and to make foreign investors invest in our country by devaluing the value of rupee, signing long trade policies with other countries and allowing them to convert rupee in foreign currency etc.

Major Steps for Economic Reforms

  1. New Industrial Policy: Under this, the roles of public sector and private sector are clearly decided and industries are made free from licenses and to promote modernisation, role of public sector was reduced.
  2. New Trade Policy: Under this policy, foreign trade is controlled and regulated through different means. With the liberlisation in the country foreign trade is made free from unnecessary control.
  3. Fiscal Reform: The policy of income and expenditure of the government is called fiscal policy. Under this policy, government subsides and finances  Khadi and Village Industries and overcharges liquor and tobacco industries in the form of tax.
  4. Monetary Reform: The policies which are undertaken by the Central Bank (RBI) to control the supply of money in an economy. RBI uses different instrument to control the supply of money such as; CRR, SLR, Bank Rate etc.
  5. Capital Market Reform: The place where securities of different companies are sold and purchased is known as capital market. In order to regulate the capital market Security and Exchange Board of India (SEBI) was established in 1992 and allowed private sector to incorporate mutual fund agencies.

Impact of change in Government Policy on Business and Industries

  1. Increase in Competition: With the increase in import and export with other countries, the domestic industries cross the domestic territory and put themselves in the international competition.
  2. More Demanding Customer: With the rise in the flow of goods and services, the customers become more demanding and want different kind of products to satisfy the demands.
  3. Need for Change: From 1991, the market forces have become turbulent for which the enterprise have to modify their operation continuously.
  4. Orientation of Market: For the production of goods, now the firm have started researching for the wants of the consumer.
  5. Loss of Budgetary Support to Public Sector: To work properly and for development purpose, public sector enterprises have decreased their budgetary policy which results in the decline in the significance of public sector.

Impact of Privatisation on Business and Industries

  1. Reduction in Interference: With the privatization, the interference of government has decreased and more control has been given to private sector.
  2. Increase in Competition: The competition in the domestic market has comparatively increased for private sector is more conscious about the quality of products.
  3. Increase in efficiency: The efficiency with the privatisation has also increased since private sector focuses more on profit through cost reduction.
  4. Increase in Rate of Industrial Growth: The rate of industrial growth has also increased as private sector has been made liberal to grow and develop.

You may also read Nature and Significance of Management, Principles of Management, Business Environment, Planning, Organising, Staffing, Directing, Controlling, Financial Management, Financial Market, Marketing Management & Consumer Protection Act for better understanding of the chapter and scoring higher in upcoming examination.

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