Page 111 - DMGT401Business Environment

Business Environment

Notes After independence the Indian Government heavily invested in capital intensive industry
where gestation period is high and private entrepreneurs are not interested-such as Steel
(SAIL), Aluminium (Indal), Railways, Power (NTPC), Heavy Machines, Earth Moving
Machines, Heavy Electrical Machinery (BHEL), Petroleum, Telecommunication etc. All
these investments promoted the private industry by making available raw material and
machines.

Investment by the government also changed the competitive environment as it became a
competitor to the private sector in alluring the consumer. Its investment in the Automobile
sector (MUL) changed the whole competitive environment of the automobile industry of
India. The government also invested in soft drinks and launched the brand 'Double Seven',
in Consumer Electronics (Jolly, Uptron), Two Wheelers (Scooter India), Cosmetic Soaps,
Bakery Products, Milk Products, Distribution network, etc. Though the new industry policy
is not in favour of any further investment, it follows a policy of disinvestment and
privatisation. But in total, in the past fifty years the government has played a critical role
in deciding the business environment of the country.
6. Planning Role: State is an architect of the industrial scenario in a country. It is truer for a
country like India where the state also performs the task of a planner. India has followed
a policy of five year planning system. It is the planning commission which plans the
direction of investment for the following five years. This significantly influences the
business environment. The planning commission declares the key areas where the state is
going to invest and support in the coming five years. All this even influences the investment
decision of the private sector, as they get support from the government when they invest
in a priority sector.

So we see that the State Government play a vital role in deciding and influencing business
environment. It in fact makes the rule of the game and also acts as an umpire and referee.
Besides all this, the political stability of a country also plays a critical role in generating a
conducive environment for business. Today, India is attracting foreign investment only
because most of the political parties have a consensus on foreign investment except some
issues like foreign investment in retail or more than 50% investment in the print media.
Even political parties like CPI/M are trying hard to attract foreign investment in states
ruled by them.

Whatever the degree of political differences, Chief Ministers of practically all states are
promoting foreign investments. Recently, Orissa Chief Minister Biju Patnaik signed a pact
with Korean Steel Major Pasco according to which Pasco will invest more than 50,000
crore in a steel plant in Orissa. Recent visits of foreign diplomats to India's IT hub Bangalore
shows increasing confidence of foreigners in the Indian political system. Hence, political
stability itself is a very positive statement for the industry.

4.3 The Indian Political System

Full Name of the Country: Republic of India

Type of Government: Multi-party parliamentary democracy, it is the largest democracy in the
world.
Head of State: President of India: Dr. A P J Abdul Kalam

Head of Government: Prime Minister: Dr. Manmohan Singh

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