[2021] Business Environment Definition - Characteristics, Relationship

Describe the characteristics of the present Indian business environment. What is the relationship between business and environment?

Business Environment Definition

The new economic policy in India was announced in 1991. In the economic policy, more emphasis was given on liberalization, privatization and globalization. After July 1991, the government took several policy measures for the rapid economic development of the country and to bring the country out of the economic crisis. The following are the characteristics of the present Indian business environment.

Business Environment Definition
Business Environment Definition


Liberalization Definition Economic liberalization refers to those efforts by which the economic policies, rules and rules and administrative controls and procedures of a country are made in accordance with the needs of the country's rapid economic development. So that by providing international direction to the country's economy, it can be made able to compete on the world level.

Need/justification of liberalization or why liberalization? (Need or Rationale of Liberalization or Why Liberalization?) The following arguments can be given regarding

Adequate technical and human resources are available in India to accelerate industrial development. Therefore, liberalization has been considered necessary to give impetus to industrial development in the country.

  1. For the best use of resources - There are many types of resources available in the country. The policy of liberalization is followed in the country for the use of those resources.
  2. For Competitive Industrial Environment – ​​Regulation and control have put restrictions on the entry and exit of firms and due to that less competitive industrial environment has been created in the country. Therefore, the policy of liberalization will create a competitive industrial environment.
  3. To encourage foreign investment- Liberalization of industrial sector will encourage more investment in the country.
  4. To increase employment opportunities - Due to the trend of liberalization, when there will be industrial development in the country, then employment opportunities will increase. As a result unemployment will be curbed.
  5. To control the spread of money - Due to the trend of liberalization, there will be an increase in the production of capital and consumer goods in the country, which will help in controlling the spread of money.
  6. Availability of cheap and best goods - Due to liberalization, new industries will be established in the country and cheap and best goods will be produced.

Rcent Trend in Liberalization in India - The modern trends of liberalization in India can be explained through the following points.

1. The number of industries requiring license has been reduced.

2. The number of industries safe for the public sector has also been reduced.

3. The limit for foreign capital investment was increased.

4. Assets limit of monopoly houses abolished

5. FEMA Act replaced by FERA

6. Exemption granted in foreign technology agreements

7. Liberally exempted from import of gold and silver

8. Exempted in import of capital goods, raw materials etc.

9. The rates of import duty were also reduced.

10. The tax structure was reformed.

11. Liberalization of capital market.


Privatization Definition - The concept of privatization was adopted in the new policy. Therefore, more importance was given to the private sector industries. Instead of 17 industries in the public sector, only 4 industries have been kept. All other industries have been opened to the private sector. The transfer of public sector industries to the private sector is called privatization. Presently the government is giving more importance to privatization. The private sector in India is growing rapidly. Employees in the private sector work hard and efficiently.


(III) Globalization – Globalization was promoted in the new policy.

Globalization Definition – Globalization is the process related to the external sector of the economy by which efforts are made to integrate the Indian economy with the world economy. Today no country can remain isolated from other countries of the world, due to this India is also increasing its economic relations with other countries of the world.

Note:- Under globalization, India is increasing its economic relations with other countries in three ways, which are as follows:

1. By increasing foreign trade - India is taking measures to increase its exports and imports.

2. Through the exchange of foreign technology - India is developing its industries and infrastructure sectors by importing advanced technology according to its requirement from developed countries.

3. Increase in Foreign Investment - Since 1991, both forms of foreign-private investment have given a lot of impetus to foreign direct investment and foreign institutional investment.

Various steps towards globalization – The various steps towards globalization are as follows:-

  • Liberalizing Foreign Trade Policy
  • Moving towards a free market,
  • To make efforts to increase the use of technology of developed countries in various economic fields by making agreements with foreign technology.
  • To encourage foreign investment.

4. Increase in Competition - The environment of competition has increased in the Indian markets. Domestic industries are facing more competition from multinational corporations. Nowadays big shopping malls are also seen in India.

5. Increase in Foreign Trade - Being a member of the World Trade Organization, tariff barriers to foreign trade were reduced. This gave a big boost to foreign trade

6. Reduction in Foreign Debts- The Government of India is not taking new foreign loans at present, but is repaying the old foreign loans. Hence the growth in the foreign exchange markets in India

7. Increase in Foreign Investment - Due to the liberal approach of the Government of India towards foreign investment, foreign investment increased significantly. 74% foreign investment was allowed in many industries. India's capital formation and balance of payments situation also improved due to more inflow of foreign investment.

8. Increase in Service Sector - India's service sector has developed a lot. Banks, insurance, telecommunications, tourism education etc. are included in the service sector. The contribution of the service sector to the national income is more than half. The image of India has also improved a lot as a result of the development of the service sector.

9. Improvement in standard of living - The standard of living of the people in India has improved a lot since the last few years. T.V., Fridge, Air-conditioner and Cars are being demanded more by the people in India. Many foreign companies are also involved in the production of these items.

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Relationship Between Business & Business Environment

Relation Between Business and Environment - There is a deep relationship between business and environment. When the environment is favorable then the business can be increased. Due to adverse changes in the environment, business may have to face many difficulties. The relationship between business and environment is revealed by

1. Environment makes business dynamic – Many elements of the environment like economic, socio-cultural and technological etc. are constantly changing, due to which the policies of the business have to be changed. In this way the manager adapts his business according to the change in the environment.

2. Interrelationship - Business is affected by the environment and the environment is also affected by business, as in the days of recession, industries have to reduce their production. Thus the environment affects the business. Similarly, when groups of business organizations pressurize the government to change the economic policy, then in such a situation the business affects the environment.

3. Opportunities and Threats - If the prevailing environment in the country is conducive to the development of business, then in such a situation the management of the business will feel right, because they will take advantage of the environment and develop their business more. On the other hand, adverse changes will discourage managers. It becomes clear from the above things that there is a deep relationship between business and environment, because both depend on each other because environment affects business and business affects the environment.

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