Page 108 - DMGT401Business Environment

Unit 4: Political Environment

Notes

Notes Many industries are still reserved for the small scale sector. Because of this policy
we have seen a boom in many industries over the last fifteen years. As of now, along with
telecom services, Reliance has established one of the largest grassroots refineries of the
world. Other big telecom players like Bharti Telecom and TATA have also invested heavily
in telecommunication.

New power projects have been established by the private sector. Aviation is no more a
government monopoly as dozen of private players as Sahara Airlines, Kingfisher Airlines,
SpiceJet, Air Deccan have entered this field. Hosts of new players have entered the finance
sector, especially the insurance, with business houses like TATAs, AVBirla, Bajaj, ICICI,
etc., making the most of new opportunities.
(b) Licensing: Licensing is an effective tool in the hands of the government to regulate
business. Earlier, for almost every new venture a licence was required from the
government, which used to keep a tight control on production in the private sector.
But now only investment in a few industries requires licences. Though in some cases
industry may have to acquire license from other authorities like pollution control,
ISI, Ministry of Environment & Forests, Food, Drug, Administration, etc.
(c) Expansion: The govt. can both provide business house, the opportunity to expand as
well as restrict their expansion activities. Earlier, through the MRTP Act the
government restricted the expansion of big houses, besides which various restrictions
were imposed on increasing production capacity or launching new variants.
Restriction existed even on the advertisement budget of big business houses or on
their investments abroad.
This is the prime reason that we were still driving the same car in 1980 which we
drove in 1950; even as late as 1990, we had just one new option in the form of the
Maruti car. But when this restriction was repealed the whole equation of business
underwent a change.

Example: Ranbaxy, AV Birla, Dr. Reddy’s Lab, ONGC, L&T are now multinational
companies, Asian Paints has operations in 28 nations of the world. Indian companies have
achieved amendable economies of scale and consumers have a wider choice available from big
product portfolios of companies. But even now the expansion of many companies continues to
remain at is on the mercy of the government.
(d) Foreign Direct Investment: It is the government that decides whether MNCs can invest
in a country or not. Because of these government policies there are very few MNCs
in India. Even companies like IBM and Coca Cola had to leave India in the past
because of government policies. Today MNCs are in present in sectors like insurance,
petroleum, banks and publication, but are they are still not present in the retail
sector as the government doesn't allow foreign participation in the retail sector.
(e) Import and Export Policy: With a small declaration the government can open and close
various avenues for export and import. As a matter of policy the government can
use various tools to impose restrictions on import such as quota, tariffs, cumbersome
import process, import licenses, etc. Till 1991 India followed a protectionist policy
to keep the industry from imports that were deemed harmful. But now the policy
has been amended and imports are easy. Due to this, the Indian toy industry was
very badly affected and many had to shut down operations. Thus it is the government
which decides what can be imported or exported and what cannot.

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