Page 106 - DMGT401Business Environment

Unit 4: Political Environment

4.1 Political and Government Environment Notes

In India, the British came for business and did everything here for money; but all this changed
the whole political system of India. Not only this, the Indian freedom movement acquired
strength to fight against Britishers when the common man, including farmers and artisans
joined the movement. Gandhiji's first organized campaign in India was in Champaran for the
economic rights of the peasants of Champaran. Similarly, the second big campaign which earned
the title 'Sardar' for Sardar Vallabh Bhai Patel was 'Bardoli Satyagraha.' The results of political
movements like Swadeshi and Dandi March too, lay in economics.
Figure 4.1: Economics and Politics are Closely Related

Economics

Politics

After the Second World War many countries were devastated and had to begin their journey
towards development and growth afresh. Simultaneously, a few countries like India which won
freedom too, had to begin start their journey towards development. But these countries chose
different routes to reach their destination. While some chose the capitalist path, others followed
the communist way, and certain other countries choose a mixed economy. But selection of the
economic system was not on the basis of economic merits alone. It was the prevailing political
system and the political beliefs in the respective country which governed its fate.
So it is clear that economics and politics are closely related. It is the beliefs of political leaders
that decides the fate of economic policies and it is the economic condition of a country and
masses which influences the political fate of the country.
This unit throws light on this topic with the objective of demonstrating how a government can
influence business. It is the government that influences business and in some countries it even
decides the following things:
1. What to produce?
2. Where to produce?
3. When to produce?
4. How much to produce?
5. How to produce? (manufacturing process)
6. To whom to sell?
7. How to distribute?
8. What should be the price?

Answers to these questions lies with the government to a great extent. It is true that in India,
before liberalisation, license and permit raj was so deeply ingrained that before starting any
venture, an entrepreneur or industrial house needed not only to get registered with the
government authority, but also to obtain various licenses from the government.
Not only this, in India prior to 1991 it was the government that decided what the private sector
would produce, and where and how much it would produce. In fact, it was not the market forces
but the government that used to decide the interest rate and forex rate. Business was at the mercy

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