too Seyreunding ih busthasY extét - - Business Environment a ee ah a) 3.1 INTRODUCTION 3.2 MEANING OF BUSINESS ENVIRONMENT 3.3 FEATURES /CHARACTERISTICS OF BUSINESS ENVIRONMENT. 3.4 IMPORTANCE OF BUSINESS ENVIRONMENT 3.5 DIMENSIONS/ ELEMENTS OF BUSINESS ENVIRONMENT 3.6 NEWINDUSTRIAL POLICY (NEW ECONOMIC POLICY) 3.7 DEMONETISATION 3.8 IMPACT OF ECONOMIC REFORMS ON THE BUSINESS, 3.9 MANAGERIAL RESPONSE TO CHANGES IN BUSINESS ENVIRONMENT 3.1 INTRODUCTION ‘A business does not operate in a vacuum. Itis a partand parcel of the environment surrounding Success of business largely depends upon the suitability of environment around it. Hence, in order to survive and grow, an enterprise has to adapt itself as per business environment. In this chapter, we will study the impact of environment on business and the strategies employed by business to deal with environment challenges. 3.2 MEANING OF BUSINESS ENVIRONMENT Business Environment means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise, but that may affect its performance. Thus, the economic, social, political, technological and other forces which operate outside a business enterprise are part of its environment. Similarly, individual consumers, competing enterprises, government, consumer groups, competitors, courts, media and other institutions 3.1ate Business Studies for Clas, y, working outside an enterprise also constitute its environment. All these forces are likely to influen, the performance of a business enterprise although they happen to exist outside its boundaries Changes in government's economic policies, rapid technological develop ments, politics uncertainty, changes in fashions and tastes of consumers and increased competition influenc, the working of a business enterprise in important ways. Examples: * Increase in taxes by government can make things expensive to buy. * Technological improvements may render existing products obsolete. * Political uncertainty may create fear in the minds of investors. * Changes in fashions and tastes of consumers may shift demand in the market from existing products to new ones. + Increased competition in the market may reduce profit margins of firms. 3.3 FEATURES/CHARACTERISTICS OF BUSINESS ENVIRONMENT ____ Some of the important features of business environment are: ae oF pisiNeaal 1, Totality of External Forces: Business environment is ENVIRONMENT the sum total of all the external forces that directly or indirectly influences the working of a business system. | Totality of External Forces 2 Specific and General Forces: Business environment -— - includes both specific and general forces. (p> Specitic and General Forces * Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day- 5 today working J % Fe emamicnawre * General forces (such as social, political, legal and technological conditions) indirectly affect the business enterprises. 3, Inter-relatedness: The different elements of business environment are closely inter-related. be For example, increased awareness for health care has raised the demand for organic food and roasted snacks, 4. Dynamic Nature: The business environmentis dynamic in nature, i.e. it keeps on changing, whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market. For example, changes like invention of new techniques of production, a new minister in the Government, changes in industrial policy, etc. Due to dynamism of business environment, management is required to remain highly cautious, alert and adaptable. Inter-relatedness 5. Uncertainty: Business Environment is largely uncertain as it is very difficult to predict future happenings, especially when environment is changing too frequently like in case of information technology oF fashion industries,Business Environment For example, it is very difficult for a garment manufacturing company to predict the frequently changing fashion. 6. Complexity: Business environment consists of numerous interrelated and dynamic forces which arise from different sources. So, it becomes difficult to understand what exactly constitutes a given environment. Environment is a complex phenomenon which is relatively easier to understand in parts but difficult to grasp in its totality. For example, it may be difficult to determine the extent of relative influence of social, economic, political, technological or legal factors on change in demand of a product in the market. 7. Relativity: Business environment is a relative concept since it differs from country to country and even region to region. For instance, political conditions in USA differ from those in China or Pakistan. Similarly, demand for sarees is fairly high in India, while it is very low or almost non-existent in USA or France. So, business environment is different for different business firms. For example, a shift of preference from soft drinks to juices will be welcomed as an opportunity by the juice company, while soft drinks company takes it asa threat. 3.4 IMPORTANCE OF BUSINESS ENVIRONMENT To survive and grow in this competitive world, every business enterprise has to systematically analyse and diagnose the environment. A good understanding of business environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms. A study of business environment is very important due to following reasons: 1. Itenables the firm to identify opportunities and getting the first mover advantage: Opportunities refer to the abit ee positive external trends or changes that will help a firm to ‘Opportunity. improve its performance. The external environment oS provides numerous opportunities for business units. The Ss company, which is more conscious about the changes of . business environment can take better advantage of opportunities instead of losing them to competitors. For example, Maruti Udyog became the leader in small car market because it was the first to recognise the need for small car. ‘We will be the first company 2. Helps the firm to identify threats and early warning continous montoring of Business ji . : environment trends and Environment enables the management signals: Threats refer to external environment trends and nyfonment onbls te management changes that will hinder a firm’s performance, Environmental Ae eth dparek i awareness helps an organisation to identify threats to its business interests and acts as early warning signals. Timely understanding of environment helps to make suitable changes in the organisation.ed) business Studies or lass For example, if an Indian firm finds that a MNC is entering the Indian market with new substitutes, it should act as a warning signal and the firm must prepare to meet the threat by adopting measures like improving quality, reducing cost, engaging in aggressive advertising, and so on. T Bajaj Auto made considerable improvements in its two-wheelers when Honda and other Foreign | companies entered the auto industry. L Helps in tapping useful resources: Environmentis a source of various resources for running a business. A business enterprise gets various resources or inputs like finance, machines, raw material, power, etc., from its environment including financiers, government and suppliers. They provide these resources with their own expectations to get something in return from the enterprise. + In turn, business enterprise supplies the environment with its outputs such as goods and services for customers, payment of taxes to government, return on financial investment to investors and so on. * It means, the business enterprises depend on the environment as a source of inputs and as an outlet for outputs. * So, enterprise designs policies to arrange the required resources so that it can convert them into outputs that the environment desires. This can be done better by understanding what the environment has to offer. For example, with rise in demand for LED monitors, companies started arranging raw material for LED instead of CRT monitors. 4. Helps in coping with rapid changes: The business environment is getting increasingly dynamic where Go | eae ogle * Today’s business environment is characterised by turbulent market conditions, less brand loyalty, tesrt waa fre ce icoweicaey divisions and sub-divisions of markets, more " engineto remain ahead of changes made demanding customers, rapid changesin technology _»y other competing search engines. and intense global competition. * All sizes and all types of enterprises are facing increasingly dynamic environment. + Inorder to effectively cope up with these changes, managers must understand and examine the environment and develop suitable courses of action. 5. Helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis provide the base for planning (deciding the future course of action) and policy formulation (guidelines for decision making). For instance, entry of new firms in the market means more competition. It may make an enterprise think about how to deal with the situation. For example, ITC Hotels planned for new hotels in India after observing the increase in India’s share of world tourism.Business Environment ee 6. Helps in improving performance: Analysis and understanding of trends of the business environment helps the business to improve its performance. Future of an enterprise is closely linked with what is happening in the environment. It has been observed that enterprises, which continuously monitor and adjust themselves as per changing business environment, not only improve their present performance but also continue to succeed in the market for a longer period. Identity opportunities and getting ‘Coping with rapid changes _/ the first mover advantage IMPORTANCE \ Identity threats and early Assisting in planning and OF BUSINESS warning signals Policy formulation eo Improving pertormance _/ 7 ‘Tapping useful resources a erat Q.1. TwoBig Banner Movies were scheduled to be released on the same date, However, at the last moment, release of one movie had to be postponed due to opposition by a group of people because of some unethical content in the movie. The loss suffered by movie postponed, provided opportunity for the released movie, to earn huge revenues. Which feature of business environment is highlighted in the given case? i} Q.2. Inan environment of rising petroleum prices and a large middle class population in India, KV Motors Ltd. recognized the need for small carsin India. Itcreated a product far superior than their competitors not only in terms of quality but also in terms of overall driving experience. Itsoon became the leader in the small car market. As the Indian government was encouraging foreign investment, MNCs having a big name in car manufacturing entered the Indian market. KV Motors further expanded its service network and quality, creating an entry barrier for the competitors. It depicted its strengths through various brand-building activities. As a result, the market share of KV Motors is refusing to go down in spite of all major automakers as its competitors. Quoting the lines, explain any two points of importance of Business Environment being highlighted in the above case. (Answers at the end of the Chapter} 3.5 DIMENSIONS/ELEMENTS OF BUSINESS ENVIRONMENT Business environment consists of the external forces, which directly or indirectly affect the functioning of a business enterprise. These external forces may be divided into two categories: 1. General Environment: It indirectly influences the working of a business firm. It includes economic, social, political, legal and technological environment.2. Specific Environment: It directly influences the working of a business: ttm, TEinehides customers ownersandiqvestors supplions, crevtitars employees, trade unions, competitors government, ete. Specific Environment is beyond the scope of syllabus of Class XI, So, present chapter deals with the General Environment only. ironment are The various dimension ‘of Business Bavironment, in terms of gen considered relevant for decision-making and improving the performance of an enterprise Management of every enterprise can benetit from being aware of these dimensions instead of being disinterested in them, A briet discussion of the various factors constituting the general environment of business is given below: OSS A MO Lh Economic Environment Economic Environment refers to all those forces that have econ ipact on the business activities * Interest rates, inflation rates, changes in disposable income of people, stock market indices and value of rupee are some of the economic factors that can affect management practices in a business enterprise. * Short and long-term interest rates significantly affect the demand for product and services. * Each economic factor can serve either as an opportunity or asa threat toa business enterprise. Examples: (i) Rise in the disposable income of people due to increase in gross domestic product of a country creates increasing demand for products, (ii) Easy finance schemes due to banking sector reforms have increased the demand for ears. ) Rise in inflation rates increases the production cost due to increase in price of raw materials and wages. (iv) Demonetisation of 8500 and & 1,000 notes had a great influence on the Indian Beonomtic Environment. (v) Introduction of GST will influence almost all the business enterprises.ee Business Studies for Class Xt 2, Specific Environment: It directly influences the working of a business firm. It includes customers, owners and investors, suppliers, creditors, employees, trade unions, competitors, government, etc. Specific Environment is beyond the scope of syllabus of Class XIl. So, present chapter deals with the General Environment only. The various dimensions of Business Environment, in terms of general environment are considered relevant for decision-making and improving the performance of an enterprise. Management of every enterprise can benefit from being aware of these dimensions instead of being disinterested in them. A brief discussion of the various factors constituting the general environment of business is given below: Enea coon as { 1 t 1 ) Economic Social Technological Political Legal Environment Environment Environment Environment Environment Describe forces Describe the Describe broad Describe political Describe framework | which have characteristics characteristics | | conditions & nature of laws and ‘economicimpact | | ofthe societyin | | oftechnology in ‘ofgovermment | | legislations within ‘on business. which business which business intervention in which business firms operate. firms operate. business. firms operate. Economic Environment Economic Environment refers to all those forces that have economic impact on the business activities. * Interest rates, inflation rates, changes in disposable income of people, stock market indices and value of rupee are some of the economic factors that can affect management practices ina business enterprise. * Short and long-term interest rates significantly affect the demand for product and services. * Each economic factor can serve either as an opportunity or asa threat to a business enterprise. Examples: (i) Rise in the disposable income of people due to increase in gross domestic product of a country creates increasing demand for products. (ii) Easy finance schemes due to banking sector reforms have increased the demand for cars. (iii) Rise in inflation rates increases the production cost due to increase in price of raw materials and wages. (iv) Demonetisation of 500 and 1,000 notes had a great influence on the Indian Economic Environment. (©) Introduction of GST will influence almost all the business enterprises.Business Environment Prion shat eet kadce ules 1. Relative role of private and public sectors. 2, Growth rate of GNP and per capita income at current and constant prices, 3. Rates of savings and investments, 4. Volume of imports and exports of different items. 5. Balance of payments and changes in foreign exchange reserves. 6. Agricultural and industrial production trends. 7. Money supply in the economy. Social Environment Social Environment represents the customs and traditions, values, culture, social trends, beliefs, norms and ethics of a society in which business enterprises operate. Fashion Industry Eloctronics Industry * Traditions: Define social practices (shits towards Formal Wear) (increase in demand of gadgets) that have lasted for decades or even conten ¥: ee For example, celebration of festivals like Diwali Id, Christmas,GuruParv,etc.pro- vides significant financial opportunities for greetings card companies, sweet shops, gift shops, etc. * Values: Refer to concepts thata society holds in higher esteem. Individual freedom, social justice, equality of opportunity and national integration are some examples of values. For example, business enterprise must Cosmetie Industry Food industy give equal status and same wages to (increase in Demand) (shift towards Packed Food) male and female workers, working at a nena the same level. © Social Trends: Present various opportunities and threats to business enterprises. For example, increased awareness towards health has increased the demand for products like organic food, mineral water, gyms, etc. However, this trend has harmed business in other industries like dairy processing, tobacco and liquor. Analysis and understanding of social environment is important as it determines the products, services and standards of conduct that are acceptable to society. Examples: (i) McDonald’s made significant changes in its ingredients of finger chips after considering the trends and customs of social environment of India.Business Studies for Class Xi) oo) (ii) Demand for reservation in jobs for minorities and women. (iii) Equal pay to male and female workers for equal work. Petter an ern at ad 1, Attitudes towards product innovations, lifestyles, occupational distribution and consumer preferences. 2. Concern with quality of life, 3. Life expectancy, birth and death rates. 4, Expectations from the workforce. 5. Shifts in the presence of women in the workforce. 6. Educational system and literacy rates, 7. Consumption habits. 8 Composition of family. 5 qual ty + Seca June. 1a Ceaser Q.1. Attractive rate of interest on home loans have increased the demand for homes and has givena boost ‘tothe business of builders and property dealers. Which aspect of business environment is discussed in the given case? OR ‘The Reserve Bank of India (RBI) increased the Cash Reserve Ratio (CRR) by 0.25 Basis Points to overcome the inflationary trends in the economy. Identify the dimension of business environment highlighted ‘in the given statement. Q.2. Express enterprise is an international company engaged in the manufacturing of New Year and Christmas greeting cards. When the company started its business in India, it started producing Diwali, Holi and Raksha Bandhan Greeting cards also. Which component of environment has induced the company to diversify its range of greeting cards? Q.3. “With increase in birth rate and fallin death rate, the infants now have bigger share in composition ‘of population. Ithas increased the demand for baby products, ike milk bottles, toys, etc” Identify the ‘component of business environment. {Answers at the end of the Chapter} Technological Environment Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. © Change in technology is mostly associated with better service and cost efficiency. Technological advances create new products, new production techniques and new ways of managing andBusiness Environment | communicating. For instance, recent technological advances in computers and electronics have modified the ways in which companies advertise their products. * Continuous innovations in different scientific and engineering fields such as lasers, robotics, biotechnology, food preservatives, etc. have provided numerous opportunities and threats for many different enterprises. * Technological environment has resulted in shift in demand from vacuum tubes to transistors, from steam locomotives to diesel and electric engines, from fountain pens to ballpoint, from propeller airplanes to jets and from typewriters to computer based word processors. Today, technology is changing at a fast pace and technological environment is significantly affecting the business. A number of companies have failed due to delay in adopting new technological changes. Examples: (i) Colour TV with remote in place of Black and White TV. (ii) Electrostatic Copiers in place of manual photostate machines. (ii) Computers with multiple word processors in place of single language word processor. (iv) Online booking of Rail and Air tickets instead of going to Reservation Office. (v) Online Shopping (of almost anything) instead of going to the market. For example, Reliance Industries launched Online Grocery service, ‘JioMart’, during the covid-2019 to capture the grocery market. (vi) Electronic Payment service (launched for almost all utility bill payments) instead of going manually to the office of the concerned biller for payment. Pirie ea ees 1. Research and development activities. 2. Innovations in products and processes. _3. Import and Export of Technology. 4,_New Equipments. Political Environment Political Environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. * Political factors play a major role in shaping the environment, in which business firms operate. + The significance of political conditions in business success lies in the predictability of business activities under stable political conditions. There may be uncertainty of business activities due to political unrest and threats to law and order, + Astable government builds up confidence among the business people to investin the long term projects, whereas, political instability shakes that confidence. © The attitudes of government officials towards business may have either positive or negative impact upon business. For example, even after economic reforms of our economy in 1991, foreignae Business Studies for Class Xi companies found it extremely difficult to cut through the bureaucratic red tape to get permits for doing business in India. Examples: (i) In 1977, Janta Government followed a strict policy against MNC’s and forced companies like Coca-cola and IBM to move out of India. (ii) Change in government policies in 1991 allowed Pepsi and other MNCs to enter into Indian market. PE einen “1, Constitution of the country. 2. Prevailing political system, +3. Political ideology and practices of the ruling party. ‘4, Extent and nature of government intervention in business. HSN relationship of our country with foreign countries. _ 6. Nature and profile of political leadership and thinking of political personalities. Legal Environment Legal Environment includes various legislations passed by the administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government. * Inother words, legal environment refers to the framework of laws and various legislations within which business transactions are to take place. * It is crucial for every enterprise to obey the rules or laws prescribed by the legislations. An adequate knowledge of rules and regulations is a pre-requisite for better business performance. Their non-compliance can cause legal problems to the business enterprise. * To be successful in India, every business enterprises must have working knowledge about various laws like Companies Act, Industries (Development and Regulations) Act, FEMA, Factories Act, Trade Union Act, Industrial Disputes Act, Consumer Protection Act, Competition Act, etc. * Apart from these laws, there are a number of laws that regulate matters, such as standards of product, packaging, promotion, ethics, ete. For example, in India, packaging of cigarettes must carry the statutory warning: “Cigarette smoking is injurious to health”, Examples: (i) Alcohol beverages are prohibited to be advertised on Television. (ii) Companies producing hazardous goods have to comply with the provisions of Bureau of Indian Standards Act, 1986. (iii) Advertisement of baby food products must carry an information that mother’s milk is the best.Business Environment of CASE STUDIES Q.1. Rapid Tours Ltd. is a travel agency which books rail tickets on commission basis. It takes two days for the Rapid Tours to get the tickets from Railway Reservation Counter and deliver the tickets to the consumers. In the last one year, there has been drastic decrease in its business as most of the ‘consumers have shifted to Satya Tour and Travels (another Travel Agency), which provides the tickets within ¥2 hour through use of internet. (0 Which component of business environment is being overlooked by Rapid Tours Ltd.? GW) Why is it necessary for the business enterprises to lay emphasis to this dimension of business environment? (i) Identify the feature of business environment highlighted in the following statement:’Change of booking of ral tickets from Railway Reservation Counter to Internet: Q.2. “Release of a Bollywood movie is postponed due to opposition by one of the Minister” This is an ‘example of a key component of the business environment. (Name the component. (i) Why is it necessary for the business enterprises to systematically analyse and diagnose this environment? Q.3. Parliament of India has made certain amendments in the Consumer Protection Act, 1986. Asa result, business enterprises will have to spend more to maintain quality standards of their products. (i) Which key component of the business environment is discussed in the given case? (ii) Give one more example to show the effect of given environment on the working of bu: enterprise. {Answers at the end of the Chapter} 3.6 NEW INDUSTRIAL POLICY (NEW ECONOMIC POLICY) In 1991, the Indian Economy faced a serious foreign exchange crisis, high government deficit and a rising trend of prices despite bumper crops. As a part of economic reforms, the Indian Government announced a New Industrial Policy in July 1991. The main aim of the New Industrial Policy was to create a more competitive environment in the economy and to remove the barriers of entry and growth of firms. The broad features of this policy were as follows: 1. Delicensing: The new policy abolished industrial licensing for all projects, except for six industries. 2. Decrease in role of Public Sector: The role of public sector was limited only to four industries of strategic importance and remaining industries were opened for private sector. 3, Disinvestment: Disinvestment refers to selling a part or the whole of shares of public sector undertakings. Disinvestment was carried out in case of many public sector industrial enterprises. 4. Liberalisation of Foreign Capital: The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment was permitted.LPG. [xbeatl BUETen Pafvatty Liberal policy for technical collaboration: Automatic permission was granted for technology agreements with foreign companies. Setting up of Foreign Investment Promotion Board (FIPB): FIPB was set up to promote and channelise foreign investment in India. 7. De-reservation under small-scale industries: Many goods produced by small-scale industries were dereserved. In essence, New Industrial Policy has sought to liberate industry from the shackles of the licensing system (Liberalisation), drastically reduce the role of public sector (Privatisation) and encourage foreign private participation in India’s industrial development (Globalisation) So, the three main components of New Industrial Policy or New Economie Policy are: * Liberalisation * Privatisation * Globalisation 5. Let us discuss them one by one. Liberalisation Liberalisation means removal of unnecessary controls and restrictions on business. It involves removal of entry and growth restrictions on the private sector enterprises and end of licence, pemit and quota. The purpose was to unlock the economic potential of the country by encouraging private sector and MNCs to invest and expand The Indian industry has been liberalised in the following manner: 1. Abolition of licensing requirement in most of the industries. No restriction on expansion or contraction of business activities. Removal of restrictions on the movement of goods and services. . Freedom in fixing the prices of goods and services. Reduction in tax rates and lifting of unnecessary controls over the economy. simplifying procedures for imports and exports. Liberal process to attract foreign capital and technology to India. Nageen Privatisation Privatisation means giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was a reversal of the development strategy pursued so far by Indian planners. For privatisation, Government initiated the following measures: 1. Disinvestment: Disinvestment refers to selling a part or the whole of shares of public sector undertakings (PSUs), ie. transfer of public sector enterprise to private sector. It dilutes the stake of Government in the PSU. If private sector acquires more than 51 percent shares, then it would result in transfer of ‘ownership and management of PSU to the private sector. 2. Setting up of Board of Industrial and Financial Reconstruction (BIFR): BIFR was set up to revive or close loss making and sick PSUs. AHO — Cy ObaLPecp; puewdis Business Studies for Class xyBusiness Environment Globalisation Globalisation means integrating the various economies of the world leading towards the emergence of a cohesive (or well integrated) global economy. + It involves integrating the national economy with the world economy through removal of barriers on international trade and capital movements. * Till 1991, the Indian Government strictly regulated imports through licensing of imports, tariff restrictions and quantitative restrictions. * However, the New Economic Policy aimed to liberalise foreign trade (by import liberalisation and export promotion) through rationalisation of the tariff structure and storms i respet to foreign exchange, so that the country does not remain f6lated from the Festof the world. * Globalisation increased the level of interaction and interdependence among the various nations of global economy. Business enterprises can now easily serve customers ina distant geographical market. This has been made possible by the rapid advancement in technology and liberal trade policies by the Government Cita oe ‘An economy is truly global, when there is: 1. Free flow of goods and services across nations; 2. Free low of capital across nations; 3. Free flow of information and technology; ‘4, Free movement of people across borders; 5. Acommon acceptable mechanism for the settlement of disputes; 6. Aglobal governance perspective. tea: 3.7 DEMONETISATION Concept On the 8" of November, 2016, the Government orcentape Share’or Carrere of India made an announcement with profound (Denceaacione Ey implications for the Indian economy. It was Circulation (2015-16) decided to demonetise high value currency notes of denomination of & 500 and @ 1,000 with immediate effect, ceasing to be legal tender, except for a few specified purposes. Demonetisation is the act of removing a currency unit of its status as Legal Tender. (Legal Tender Money is the money which can be legally used to make payment of debts or other obligations). . 2.00% (8160 As per RBI report, demonetised currency on, 8 0.60% (20) 0.30% (82.85) November, 2016 was valued at® 15.41 lakh crore, 1.90% (@10) 47.80% (500) 38.60% (€ 1,000) 1.20% (® 50)eae Business Studies for Class x which accounted for almost 86% of the country’s total currency in circulation. As per the scheme, people had to deposit the invalid currency in the banks and restrictions were also placed on cash withdrawals. In other words, restrictions were placed on the convertibility of domestic money and bank deposits. The aim of demonetisation was to curb corruption, counterfeiting the use of high denomination notes for illegal activities and especially the accumulation of ‘black money’ generated by income that has not been declared to the tax authorities. Features of Demonetisation 1, Demonetisation is viewed as a ‘Tax Administration Measure’. Cash holdings arising from declared income was readily deposited in banks and exchanged for new notes. However, people holding black money had to declare their unaccounted wealth and pay taxes ata penalty rate. 2. Demonetisation is also interpreted as a shift on the part of government indicating that Tax Evasion will no longer be tolerated or accepted. 3. Demonetisation also led to channelizing savings into the formal financial system. Though, much of the cash deposited in the banking system is bound to be withdrawn. But, some of the new deposits schemes offered by the banks will continue to provide a base loans, at lower interest rates. 4. Demonetisation also aims to create a less-cash or cash-lite economy, i.e., channeling more savings through the formal financial system and improving tax compliance. + However, digital transactions require internet connectivity as they need cell phones for customers and Point-of-Sale (PoS) machines for merchants. * Onthe contrary, these disadvantages are counterbalanced by an understanding that it helps people into the formal economy, thereby increasing financial saving and reducing tax evasion. Impact of Demonetisation 1. | Money/Interest rates i, Decline in cash transactions, ii, Bank deposits increased. iii, Increase in financial savings. 2. | Private wealth Declined since some high demonetised notes were Not returned and real estate prices fell. 3. | Public sector wealth _| Noeffect. 4. | Digitisation Digital transactions amongst new users and use ‘of RuPay Cards and Aadhar Enabled Payment System (AEPS) increased, 5. | Realestate Prices declined 6. | Tax collection Rise in income tax collection because of increased disclosureBusiness Environment 3.8 IMPACT OF ECONOMIC REFORMS ON THE BUSINESS The policy of liberalisation, privatisation and globalisation (LPG policy) made a significant impact on the working of enterprises in business and industry. The impact of changes in government policy may be analysed as follows: 1. Increasing Competition: After the economic reforms, delicensing and liberalised entry of foreign firms have increased the competition for Indian firms, especially in service industries, ike telecommunications, airlines, banking insurance, et, which were earlier reserved for the f 3 public sector. Forexample, banking reforms increased the competition for nationalised banks like SBI from domestic banks like ICICI and MNCs banks like HSBC. 2. More Demanding Customers: Today, customers have become more demanding because they are well-informed and manufacturers take pains in satisfying their ex- pectations. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services. This has created buyer's market in the country. “Lie pitas 3. Rapidly changing Technological Environment: Increased competition made it compulsory for Indian firms to develop new ways to survive and grow in the market. Use of advanced technology provides a competitive edge and helps to improve machines, process, products and services. However, rapidly changing technology creates tough challenges for smaller firms due to shortage of funds. For example, Tata spent huge amount on research and development of ‘Nano’ car, so that it can withstand ever changing technological environment. 4. Necessity for Change: Before the economic reforms, the business environment was quite stable and business plans and policies used to continue for a long period of time. However, after reforms, the market forces have become turbulent and enterprises have to continuously modify their operations and policies. For example, firms like LG, Samsung, Bajaj, keep on making changes in thelr products, so that their products can face competition. 5. Need for developing human resource: Indian firms have suffered a lot due to shortage of trained personnel. The new market conditions require people with higher competence and greater commitment. Hence, the firms have realised the need to develop human resources.Business Studies for Clas xy For example, firms regularly arrange on-the-job and off-the-job training for their employees, so a5 to update their knowledge. 6. Market Orientation: Earlier, firms used to follow production oriented approach, ie produce first and then go to market for sale. However, with increase in competition ang consumerism, the firms have shifted to market oriented approach, i.e. study and analyse the needs of the market first and then produce goods to satisfy buyers in an effective manner. 7. Loss of Budgetary Support to the public sector: After the economic reforms, the role of public sector has declined. As a result, Government has also reduced the financial support to the public sector undertakings (PSU’s). PSU’s have realised that in order to survive and grow in the competitive world, they will have to improve their performance and generate their own resources. Finally, it can be concluded that economic reforms have positively affected the Indian business and industry. Indian enterprises have developed strategies and adopted business processes and procedures to meet the challenge of competition. Indian enterprises have become more customer oriented and have adopted measures to improve customer relationship and satisfaction. For*Positive and Negative impacts of globalisation and liberalisation on business and industry in India’, Refer HOTS. & CASE STUDIES 3. Q.1. The Government of india, in an effort to eliminate plastic waste, imposed a nationwide ban on plastic single-use plastic. The ban would most likely target plastic cutlery, straws, cups and glasses. As a result ofthis ban, the businesses have been forced to change their practices.’Viman Airlines’ decided to stop giving small water bottles on its flights. Various firms have come up in the country that are making biodegradable plastic out of starch, wheat hay or petrochemicals. Thus competition in upcoming industry is immense. Businesses are also focusing on developing techniques to produce alternatives for plastic bags.'Carlos Technologies Ltd; a leading engineering company, has plannedto ay eu aks. hi-tech machines that can scale up production of bags made from newspaper to replace pl }S. Many companies are placin« i i added: fe ete, a 5 ory Hae ae lacing orders for such machines. This has. challenges Invarious enterprises, employees are being trained to operate such hi-tech machines. This will provide human resource with higher competence. Customers have also become more demanding due to increased awareness and are forcing sellers to adopt bags which are not made of | plastic. Identify and {explain the impact ofthe above Government policy on Business and Industry. : (CBSE, Delhi & Al Compt. 2020) eee eek oe 3.9 MANAGERIAL RESPONSE TO CHANGES IN BUSINESS ENVIRONMENT A business enterprise can survive successfully only when it can cope up with the environmental uncertainties. Some of the means which indicate managerial response to changes in business environment are outlined below:Business Environment 1. Diversification: Many Indian Companies are going for diversification by introducing new range of products and services in which they have no prior experience. For example, Reliance Industries entered into mobile communication. Several other companies have also diversified into both related and unrelated fields of business. 2. Joint Ventures with MNCs: Many Indian Companies are adopting this sort of business combinations to make themselves stronger and to enable them to face environmental pressures and uncertainties with more strength and confidence. For example, Joint Venture between Jaguar and Tata Motors, Mahindra and Mahindra with Ford, etc. 3. Acquisitions and Mergers: There has been an increase in the acquisitions and mergers in the Indian industry since the economic reforms. Examples: (i) Vodafone India and Idea Cellular are merging operations in the country to create an entity that will be equally owned by UK’s Vodafone Group and India’s diversified Aditya Birla Group; (ii) Flipkart acquired its fashion-focused rival Myntra. 4. Use of Modern Technology: Most of the business firms are trying to adopt the latest technology to upgrade quality and reduce costs. Upgradation to the modern technology is very crucial for all the companies. For example, Cellular Companies are continuously developing new models of Mobiles with the latest processor. 5. Brand Building: Companies are now making substantial investment in building and popularising brands. For this, they are spending huge amount on various promotional activities. For example, companies engaged in consumer durable products, like Samsung and LG do lots of advertisement for brand building. 6. Customer Orientation: Companies now pay more attention towards the needs and convenience of customers. They have started manufacturing products as per customers’ needs and stresses on customers’ satisfaction. Toll free customer care numbers have been introduced by most of the companies to sort out queries and grievances of customers as early as possible. 7. Higher Level of Compensation: In order to compete with the salaries in MNCs, there is a considerable increase in the pay package offered by Indian Companies in managerial as well as technical jobs. The starting pay of engineering and management graduates have also increased significantly. 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