BUSINESS ENVIRONMENT & LAW

UNIT -II

UNIT – II: [12 Hrs]

Economic and Political Environment: Basic economic system –
Economic policies – New industrial policy – MRTP Act –Political Environment-
political system-Government and business relationship in India- Provisions of
Indian Constitution pertaining to business.

Economic and political environment

Basic Economic System

An economic system is a means by which societies or governments organize and

distribute available resources, services, and goods across a geographic region or
country. Economic systems regulate the factors of production, including land,
capital, labor, and physical resources. An economic system encompasses many
institutions, agencies, entities, decision-making processes, and patterns of
consumption that comprise the economic structure of a given community.

Types of Economic Systems

There are many types of economies around the world. Each has its own
distinguishing characteristics, although they all share some basic features. Each
economy functions based on a unique set of conditions and assumptions.
Economic systems can be categorized into four main types: traditional
economies, command economies, mixed economies, and market economies.

1. Traditional economic system

The traditional economic system is based on goods, services, and work, all of
which follow certain established trends. It relies a lot on people, and there is
very little division of labor or specialization. In essence, the traditional economy
is very basic and the most ancient of the four types.

Some parts of the world still function with a traditional economic system. It is
commonly found in rural settings in second and third world nations, where
economic activities are predominantly farming or other traditional income-
generating activities.
There are usually very few resources to share in communities with traditional
economic systems. Either few resources occur naturally in the region or access
to them is restricted in some way. Thus, the traditional system, unlike the other
three, lacks the potential to generate a surplus. Nevertheless, precisely because
of its primitive nature, the traditional economic system is highly sustainable. In
addition, due to its small output, there is very little wastage compared to the
other three systems.

2. Command economic system

In a command system, there is a dominant centralized authority – usually the

government – that controls a significant portion of the economic structure. Also
known as a planned system, the command economic system is common in
communist societies since production decisions are the preserve of the
government.

If an economy enjoys access to many resources, chances are that it may lean
towards a command economic structure. In such a case, the government comes
in and exercises control over the resources. Ideally, centralized control covers
valuable resources such as gold or oil. The people regulate other less important
sectors of the economy, such as agriculture.

In theory, the command system works very well as long as the central authority
exercises control with the general population’s best interests in mind. However,
that rarely seems to be the case. Command economies are rigid compared to
other systems. They react slowly to change because power is centralized. That
makes them vulnerable to economic crises or emergencies, as they cannot
quickly adjust to changing conditions.

3. Market economic system

Market economic systems are based on the concept of free markets. In other
words, there is very little government interference. The government exercises
little control over resources, and it does not interfere with important segments
of the economy. Instead, regulation comes from the people and the relationship
between supply and demand.

The market economic system is mostly theoretical. That is to say, a pure market
system doesn’t really exist. Why? Well, all economic systems are subject to
some kind of interference from a central authority. For instance, most
governments enact laws that regulate fair trade and monopolies.
From a theoretical point of view, a market economy facilitates substantial
growth. Arguably, growth is highest under a market economic system.

A market economy’s greatest downside is that it allows private entities to amass

a lot of economic power, particularly those who own resources of great value.
The distribution of resources is not nequitable because those who succeed
economically control most of them.

4. Mixed system

Mixed systems combine the characteristics of the market and command

economic systems. For this reason, mixed systems are also known as dual
systems. Sometimes the term is used to describe a market system under strict
regulatory control.

Many countries in the developed western hemisphere follow a mixed system.

Most industries are private, while the rest, composed primarily of public
services, are under the control of the government.

Mixed systems are the norm globally. Supposedly, a mixed system combines the
best features of market and command systems. However, practically speaking,
mixed economies face the challenge of finding the right balance between free
markets and government control. Governments tend to exert much more
control than is necessary.

Final Word

Economic systems are grouped into traditional, command, market, and mixed
systems. Traditional systems focus on the basics of goods, services, and work,
and they are influenced by traditions and beliefs. A centralized authority
influences command systems, while a market system is under the control of
forces of demand and supply. Lastly, ,mixed economies are a combination of
command and market systems.

ECONOMIC POLICIESx

The phrase economic policy refers to government initiatives to influence the

economy of a particular region, state, or country. The setting of interest rates,
tax rates and the allocation of government funds are examples of such activities.
Economic policy is the term used to describe government actions that are
intended to influence the economy of a city, state, or nation. Some examples of
these actions include setting tax rates, setting interest rates, and government
expenditures.
Broadly speaking, we can distinguish between two types of economic
policies, viz., (i) macro-economic policies (or aggregative policies), and (ii)
micro-economic policies (or sectoral policies).
1) Macro-economic Policies are designed to address the big aggregative
macro variables, like national output, employment, general price level,
investment, saving, rate of exchange, etc.
2) Micro-economic Policies are sectoral policies and are designed to direct
and contribute to the growth in the individual sectors of the economy,
like agriculture, industry, services, etc.
1) Macro-economic Policies
It is in the macro-economic arena that the state finds its full flow. It
encompasses the whole spectrum of economic activity. The state has to
employ different weapons to achieve the targeted goals. Before we
attempt to prepare a brief catalogue of these weapons, we need to
reiterate that these different weapons cannot be seen in isolation; these
have to be employed in anintegrated manner to achieve a balanced growth.
The principal instruments of macro-economic policy can be identified as
follows:
i) Fiscal Policy: The foremost among the instruments of macro-economic
policy is the fiscal policy, also called the budgetary policy. As the name
implies, the policy operates through the budgetary operations. A budget
is an annual financial statement of the Government’s transactions.
Public revenue and public expenditure form the core constituents of
budget. The principal sources of public revenue are taxes of different
kinds. Besides, governments can and do raise large sums of money by
way of borrowings, both internally and from external sources. On the
expenditure side, subsidies, economic and social sector, etc. constitute
the principal heads. Each of the items on the revenue side and the
expenditure side has the potential to affect the course of economic
activity, both in aggregative sense and in the sense of individual sectors.
ii) Monetary Policy: Monetary policy deals with the volume and price of
money in an economy. Volume of money refers to the amount of money
incirculation in the economy. While an inadequate quantity of money in
an economy may fail to provide the required liquidity for the growing
 volume of transactions in the economy, and may, thus, adversely affect
the process of economic growth, an excessive supply of money, on the
other hand, may prove inflationary, and, hence, in turn, may adversely
affect the process of economic growth. Therefore, the state (or the
monetary authority, i.e., the Central Bank of the country) would have
to exercise judicious control over the creation of money (both by the
Central Bank and Commercial Banks) in the economy.
Domestic price level also affects the external value of currency.
Fluctuations in the external value of currency, i.e., the rate of
exchange, may, in turn, have adverse effect on the domestic economic
activity. This becomes another important reason why too-little or too-
much of money cannot be created in an economy.
The total supply of money (along with its demand) also affects the rate
of interest, i.e., the price of money. Rate of interest, in turn, is an
important determinant of various macro variables, like consumption,
saving and investment.
iii) Commercial Policy: A third important component of macro-economic
policy is commercial policy. Commercial policy defines, broadly
speaking, the Government’s attitude towards the external sector of
the economy, i..e., policy towards investment by foreign capital in the
host country (both in the form of portfolio investment and direct
investment), policy towards inflows and outflows of foreign exchange,
goods and services. A state may opt for a total open-door policy;
another extreme could be when at every entry or exit, a call is to be
made to the state. A mild protection may be a middle way. Which of
the policies, absolute free trade or protection, or mild protection comes
to be selected is determined by obtaining economic environment, both
domestic and international.
2) Micro-economic Policies
The state need not be content with restricting itself to broad macro-
economic aggregates. The state can and does define its attitude towards
activity in different individual sectors of the economy, like agriculture,
industry, and services of different types. The state may permit and
promote certain lines of activity in agriculture, industry and services. On
the contrary, the state may prohibit and discourage certain lines of action.
The different instruments of micro-economic policies may be identified
as: (i) industrial licensing, (ii) quota-permit system, (iii) import control, (iv)
export control, (v) competition or anti-monopoly policy, (vi) procurement
 policy, (vii) policy of minimum support prices, (viii) policy of buffer stocks,
etc. These are only a few illustrations of micro-economic policy, by way of
examples.

New Industrial Policy (NIP), 1991:

In the economic reforms of India, this policy proved to be very effective and
brought significant changes in the economic regulation in the country. As the
name suggests the policy focused on developing and sustaining industries,
however, these industries were divided among various sectors.

• Under this policy, the government shifted its focus from PSUs (Public
Sector Undertakings), and thus its role has been redefined. Many
significant changes have been made in the public sector industries
under NIP 1991 and the disinvestment program was one among them.
Also, the private sector has been awarded more opportunities, even
providing some from the reserved public sector units.
• Additionally, the government focused on creating more foreign direct
investment (FDI). The biggest advantage of NIP, in 1991 was that it
ended industrial licensing, which turn into a great relief for investors.
However still in some hazardous industries, industrial licensing is
required for example tobacco and chemical industries. In comparison
with the last industrial policies, the NIP 1991 came with many significant
changes and thus proved to be more effective.
• The new industrial policy didn’t only focus on the economic reforms but
also on LPG(Liberalization, Privatization, and Globalization). Through
this policy, privatization started on a large scale and in almost every
industrial sector. In NIP, 1991 GOI’s main focus was to increase
investment and thus in this government liberal policy on foreign trade
and foreign investment.
• With the end of industrial licensing in 1991 after the launch of NIP, there
were only sectors left for which industrial licensing was required. This
resulted in rapid industrial growth and a rapid increase in the GDP of
India. The era of Red Tapism just ended after the end of industrial
licensing. The NIP, 1991 focused mainly on liberalization, privatization,
and globalization, and that bought significant changes in industrial
regulation.

Main Features of New Industrial Policy, 1991:

• The End of Red Tapism via Industrial Delicensing Policy:

The red Tapism just ended in India as the GOI launched the industrial delicensing
policy in 1991. Now anyone can easily start his/her industry without any license
if that industry doesn’t come under the 15 sectors for which a license is required.
With the ease of licensing the growth of industries begins at a rapid pace. At
present, there are only 13 sectors left for which industrial licensing is required.

• Reform in Foreign Investment Policy:

One of the most important features of NIP, in 1991 was the foreign investment
policy. Under which GOI has provided ease in foreign trade and investment. This
resulted in increased competition among industries and attracted more FDI in
India.

• Dereservation Policy:

Before the launch of NIP, 1991 the public sector held reservations in some of the
key industries and capital goods. However after the launch of NIP, in 1991 the
reservation policy was abolished that providing equal opportunity to the private
sector to invest in these key industries. However, still, three sectors are reserved
for the PSUs and they are mining, atomic energy, and railways.

• Abolition of MRTP Act:

In 1991 the MRTP (Monopoly and Restricted Trade) act was abolished under the
NIP. Thus from 2010, the competition commission jumped into the monitoring
and supervision of competitive practices.

• Reforms related to PSUs:

The NIP, 1991 aimed to enhance the productivity and efficiency of the PSUs.
Government identifies new strategies and priority areas for PSUs. Also, the
Public Sectors Undertaking that was in the loss were sold to private sectors.

Advantages of New Industrial Policy,1991:

The new industrial policy of 1991 provided to be quite advantageous for the
Indian economy and some of its major advantages are listed below.
 1. Liberalization of industrial regulations helped the industry grow at a
rapid pace as there were fewer restrictions on the industrial sector.
2. The rapid industrial growth due to NIP, in 1991 increased the GDP.
3. Industrial production capacity increased significantly and the industries
became more precise and efficient than ever before.
4. With the liberalization of foreign trade and investment, retail investors
got a chance to compete in the global market.
5. The revenue of the government increased by a significant percentage.

Drawbacks of New Industrial Policy, 1991:

As such there are not many drawbacks of the new industrial policy (NIP), 1991
but still, some of them are discussed below.

• The new industrial policy mainly focuses on the large-scale industries with
good capital, thus exploiting the small-scale industries.
• Liberalization of foreign trade allowed many multinational companies to
do business in India which exploited the local business of India.
• The privatization of PSUs was a major feature of NIP 1991, however, it’s
one of the main options for underprivileged people to earn a job, and
get good quality services at lower prices. Thus it can exploit the poor
and underprivileged section of society.
• With the end of licensing process, many industries got developed leading
to an increased level of pollution.
• The NIP, 1991 focused on cherishing industries but it didn’t have any
provision for employment generation and fixed labour wages.

MRTP ACT 1969

The MRTP Act was introduced to provide that the operation of the economic
system does not result in the concentration of economic power in hands of few.
Through this article, an overview of the MRTP Act has been done including the
salient features, the important provisions, the amendments which have been
made over the years It was later repealed and replaced by the Competition Act,
2002 but it still was the first legislation in India regulating the market.

The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted:

1. To ensure that the operation of the economic system does not result in
the concentration of economic power in hands of a few,
2. To provide for the control of monopolies, and
 3. To prohibit monopolistic and restrictive trade practices.

The MRTP Act extends to the whole of India except Jammu and Kashmir.

Unless the Central Government otherwise directs, this act shall not apply to:

1. Any undertaking owned or controlled by the Government Company,

2. Any undertaking owned or controlled by the Government,
3. Any undertaking owned or controlled by a corporation (not being a
company established by or under any Central, Provincial or State Act,
4. Any trade union or other association of workmen or employees formed
for their reasonable protection as such workmen or employees,
5. Any undertaking engaged in an industry, the management of which has
been taken over by any person or body of persons under powers by the
Central Government,
6. Any undertaking owned by a co-operative society formed and registered
under any Central, Provincial, or State Act,
7. Any financial institution.

On September 27,1991, the Government amended the MRTP Act, 1969 through
a Presidential Ordinance which substantially changed the entire character of the
original Act. The Ordinance removed all pre-entry restrictions on the setting up
of new undertakings and expansion of the existing ones.
Due to the inherent non-dynamic nature and vagueness of these provisions
coupled with the efflux of time and globalization, privatization, etc., the need
of the hour was a better, more suitable legislation so as to cater to ever-changing
economic and market scenario.
The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was
repealed and replaced by the Competition Act, 2002, on the recommendations
of Raghavan committee. Competition Commission of India aims to establish a
robust competitive environment.
Key Differences Between MRTP Act and Competition Act

The fundamental points of difference between MRTP Act and Competition Act
are given as follows:

1. MRTP Act is a competition law, that was created in India, in 1970 to

prevent concentration of economic power in few hands. On the other
hand, Competition Act emerged as an improvement over MRTP act to
 shift the focus from controlling monopoly to initiating competition in the
economy.
2. MRTP Act is reformatory in nature, whereas Competition Act is punitive.
3. In Monopolies and Restrictive Trade Practices (MRTP) Act, the dominance
of a firm is determined by its size. On the other hand, the dominance of a
firm in the market is determined by its structure in the case of
Competition Act.
4. MRTP Act focuses on the interest of consumers. Conversely, Competition
Act focuses on the interest of the public at large.
5. In MRTP Act, there are 14 offenses, which are against the rule of natural
justice. On the contrary, there are only four offenses listed out by the
competition act which violates the principle of natural justice.
6. MRTP Act does not specify any penalty for offenses but Competition Act
states penalty for the offence.
7. The basic motto of MRTP Act is to control monopolies. As against this, the
Competition Act intends to initiate and sustain competition.
8. Monopolies and Restrictive Trade Practices (MRTP) Act, requires that the
agreement to be registered. In contrast, the Competition Act is silent on
the registration of agreement.
9. In MRTP Act, the appointment of chairperson was done by Central
Government. On the contrary, in Competition Act the appointment of
chairperson was done by Committee that comprises of retired.

POLITICAL ENVIRONMENT

Indian Political System

India is a Sovereign, Secular,
Democratic Republic with a Parliamentary form of Government. The
Constitution was adopted by the Constituent Assembly on 26th November 1949
and came into force on 26th November 1950. The Constitution advocated the
trinity of justice, liberty and equality for all the citizens. The Constitution was
framed keeping in mind the socioeconomic progress of the country. India
follows a parliamentary form of democracy and the government is federal in
structure.

In Indian political system, the President is the constitutional head of the

executive of the Union of India. The real executive power is with the Prime
Minister and the Council of Ministers. According to the Article 74(1) of the
constitution, the Council of Ministers under the leadership of the Prime Minister
is responsible to aid and assist the President in exercising the Presidents
function. The Council of ministers is responsible to the Lok Sabha, the House of
People. In states the Governor is the representative of the President, though the
real executive power is with the Chief Minister along with his Council of
Ministers.

For a given state the Council of Ministers is collectively responsible for the
elected legislative assembly of the state. The Constitution administrates the
sharing of legislative power between Parliament and the State Legislatures. The
Parliament has the power to amend the Constitution.

President of India
The President of India is the constitutional head of India and is the supreme
commander of the nation’s armed forces. The President is elected by members
of an Electoral College consisting of elected members of both the Houses of
Parliament and Legislative Assemblies of the states, with suitable weightage
given to each vote. His term of office is for five years. Among other powers, the
President can proclaim an emergency in the country if he is satisfied that the
security of the country or of any part of its territory is threatened by the
following situations. A war or external aggression, an armed rebellion within the
country and collapse of state machinery in terms of economic and political crisis.
Hence when there is a failure of the constitutional machinery in a state, the
President can assume all or any of the functions of the government of that state.

Vice-President
The Vice-President of India is elected by the members of an electoral college
consisting of members of both Houses of Parliament. The method of electing the
Vice President is the system of proportional representation by means of a single
transferable vote. He like the President holds office for five years. The Vice-
President also happens to be Ex-officio Chairman of the Rajya Sabha and
presides over its proceedings.

Council of Ministers
The Council Of Ministers is the supreme governing body in the country and is
selected from the elected members of the Union Government. The Council of
Ministers comprises of Cabinet Ministers, Minister of States and Deputy
Ministers. Prime Minister heads the Council of Ministers and communicates all
decisions of the Council of Ministers relating to administration of affairs of the
Union and proposals for legislation to the President. Generally, each department
has an officer designated as secretary to the Government of India to advise the
Ministers on policy matters and general administration. The Cabinet Secretariat
has an important harmonizing role in decision making at the highest level and
operates under the bearing of the Prime Minister.

Parliament
The Parliament is the legislative arm of the Union. It consists of the President,
Rajya Sabha or the Upper House and Lok Sabha or the Lower House. All bills to
be made into law require the consent of both the houses of parliament.
However, in case of money bills, the Lok Sabha is the supreme authority.

Rajya Sabha
The Rajya Sabha consists of not more than 250 members. Of these, 233
represent states and union territories and 12 members are nominated by the
President. Elections to the Rajya Sabha are indirect. Members to the Rajya Sabha
are elected by the elected members of Legislative Assemblies of the concerned
states. The members of the Upper House put forth the interests of their
respective state in the Parliament. The Rajya Sabha is not subject to dissolution
in contrast to the Lok Sabha and one third of its members retire every second
year.

Lok Sabha
The Lok Sabha is composed of representatives of the people chosen by direct
election on the basis of universal adult franchise. As of today, the Lok Sabha
consists of 545 members with two members nominated by the President to
stand for the Anglo-Indian Community. Unless dissolved under circumstances
like failure of the leading party to prove clear majority or a no-confidence
motion, the term of the Lok Sabha is for five years.

State Governments
The system of government in states closely resembles that of the Union. In the
states as well there are two major governing bodies - the legislative assembly
and the legislative council. For the Legislative assembly direct elections are held
and the political party receiving the majority votes forms the Government in the
state. There are 28 states and seven Union territories in the country. Union
Territories are administered by the President through a Governor or
administrator appointed by him. Till 1 February 1992, the Union Territory of
Delhi was governed by the Central government through an Administrator
appointed by the President of India. Through a Constitutional amendment in
Parliament, the Union Territory of Delhi is called the National Capital Territory
of Delhi from 1 February 1992 onwards. General elections to the Legislative
assembly of the National Capital Territory were held in November 1993. Since
then after every five years the state underwent general elections maintaining
the democratic process in Delhi.

Political Parties In India

In India a recognized political party is categorized either as a National Party or a
State Party. If a political party is recognized in four or more states and is either
the ruling party or is in the opposition in these states, it is considered as a
National Party. The Congress, Bharatiya Janata Party, Janata Dal, Communist
Party of India and Communist Party of India (Marxist) are the prominent
National Parties in the Country. Some of these parties have existed before the
independence of the country while few of these emerged after political
dynamism flourished in the country in post independent years.

Telugu Desam in Andhra Pradesh, Asom Gana Parishad in Assam, Jharkhand

Mukti Morcha in Bihar, Maharashtra Gomantak Party in Goa, National
Conference in Jammu and Kashmir, Muslim League in Kerala, Shiv Sena in
Maharashtra, Akali Dal in Punjab, All-India Anna Dravida Munnetra Kazhagam
and Dravida Munnetra Kazhagam in Tamil Nadu, Bahujan Samaj Party and
Samajwadi Party in Uttar Pradesh and All-India Forward Block in West Bengal
are the prominent state parties which are the major political players in their
respective states. In fact in most of the states where the regional parties have
come to the fore understanding the nuisance of their respective state better,
there the scope of National parties emerging victorious is barely present.

GOVERNMENT BUSINESS RELATIONSHIP IN INDIA

Government and businesses are the two most powerful institutions in any
society. The two together determine public policy, both domestic and foreign,
for a country. The policies, practices and regulations of the government
influence to a large extent the nature, growth and functioning of the business
system. In a situation of political stability business flourishes and businessmen
venture to take greater risks. In the same way the ideology of the ruling party
determines the nature and extent of economic development. If the ruling party
believes in socialism, government control and ownership of business will grow.
For example, public sector dominated development strategy in India until 1990.
Major economic policies of a nation such as industrial policy, fiscal policy,
monetary policy, and foreign trade policy are often based on political
considerations. Several political decisions have strategic implications for
business and industry. For example, the philosophy of Bhartiya Janta Party
government forced Coca Cola and IBM to leave India in 1977. Since then the
clock has turned a full circle. Now multinationals are welcome in almost all types
of industries in India.

Changes in the nature and extent of government intervention in business

matters lead to changes in the pattern of industrial growth. When public sector
was in a dominant position and industrial licensing was widely applicable, scale
of operations and the location of projects were decided by the government.
After liberalization in 1991 businessmen are free to take such decisions.

Business and industry in turn exercise a significant influence on the government

and on its policies and programmes. It was the Foreign Exchange crisis which
necessitated economic liberalization in 1991 in India.

The term responsibility, accountability, obligation or duty is all used

interchangeably in the context of relations between Government and business.

Responsibilities of Business towards Government:

The Government has certain definite expectation from business.

The business houses are expected to fulfill the following responsibilities:

1. Regular Payment of Taxes:
Taxes are a major source of revenue for the Government. It is the responsibility
of every businessman to pay regular taxes on sales, inputs and income.
Moreover, it is the duty of the businessman, as an employer, to deduct the
income tax from the salaries of the employees and remit the same to the
government treasury.

2. Voluntary Programmes:
Another expectation of the Government from the business is that the business
firms should cooperate with Government agencies on voluntary basis in
connection with various programmes.

Such as:
(i) Sponsoring social welfare programmes

(ii) Cultural growth

(iii) Environmental preservation

(iv) Promoting education

(v) Population control measures

(vi) Assistance in connection with drought relief etc.

Business does all this under the name of social responsibility.

3. Providing Information:
It is another responsibility of the business houses to give feedback information
to the Government on the decisions taken by the political leaders. Business has
necessary knowledge and experience. They can, therefore, place before the
decision makers the facts and problems and argue for the modification or
changes. This can be done by them individually or collectively.

4. Government Contracts:
Due to privatisation of the economy a number of Government contracts are
executed by private business houses. Many business houses submit the tenders.
It is the responsibility of the business houses to carry out the projects according
to required specifications and standards.

5. Providing Service to the Government:

Sometimes, some influential and competent businessmen are included in the
Advisory boards constituted by the Government. Some businessmen are
appointed as members of the delegations who go abroad for exploring trade and
industry prospectus.

6. Corporate Contributions to Political Activities:

The business houses are involved in the political activities in the following
ways:
(a) Making monetary contributions to political parties particularly at the time of
elections.

(b) To contest elections as independents or on party tickets.

(c) Through lobbying, which refers to the behaviour after the election and is
concerned with securing legislation in favour of business.

It is the responsibility of the business houses to make sure that their political
involvement provides an additional safeguard against the authoritarian
potential of a mass society.
Responsibilities of Government towards Business:
The business has its own expectations from the Government.

Specifically, the expectations of the business or the responsibilities of the

Government towards business are as follows:
1. Political Institutions:
(i) Government is responsible for preparing the laws which make the business
system function smoothly. In these we include various economic and business
laws.

(ii) It is the responsibility of the Government to provide for the implementation

of the laws.

(iii) Further, it is the responsibilities of the Government to provide a proper

judicial system for settling the disputes between business firms, individuals or
Government agencies.

2. Provision of a Peaceful Atmosphere:

Government has the responsibility of maintaining law and order situation in the
country and to provide protection to persons and their property. No successful
business can be carried on in the absence of a peaceful atmosphere.

3. Provision of a System of Money and Credit:

The Government has to provide for a system of money and credit by means of
which business transactions can be effected. Further, it is the responsibilities of
the Government to regulate money and credit and to protect the money value
of the rupee in terms of other currencies.

4. Balanced Development & Growth:

It is the responsibility of the Government to make sure that there is balanced
regional development, full employment and a stable economy. Government has
the resources and capabilities for all this; the only requirement is optimum
utilisation of resources.

5. Provision of a Basic Infrastructure:

It is the responsibility of the Government to provide a basic infrastructure to the
business this includes provision of banking, finance, transportation, power,
trained personnel, warehousing and the other civil amenities.

6. Provision of Information:
It is the responsibility of the central, state and local Governments to provide
information, which is useful to the businessman in conducting their business
activities. This information may be about economic and business activity in
general, specific lines of business, scientific and technological developments and
many other things of interest to business houses.

7. To Assist Small Scale Industries:

The Government has special responsibility towards small scale industries
because these industries generally face problems relating to finance, marketing,
technical know-how and infrastructure. It is the responsibility of the
Government to provide these facilities and to encourage small scale sector.

8. Transfer of Technology:
Another responsibility of the Government is that whatever discoveries are made
by the Government owned research institutions should be transferred to private
industry so that these can be used for commercial production.

9. Competition with Private Sector:

Government should compete with the private business firms for the purpose of
ensuring healthy competition, improvement in the quality and regulating the
prices.

10. Licensing and Inspections:

Government agencies should inspect the private business houses to ensure
quality and to prohibit the sale of substandard goods. Moreover the
Government should issue licenses to competent business establishments, so
that they may carry on different and useful business activities.

11. Protection from Foreign Competition:

Government should encourage the development of home industries by
providing them various subsidies and incentives. Moreover, measures like
Tariffs and Quotas should be used by the Government to protect business from
foreign competition.

To summarise we can say that the business should have complete faith in the
ideologies of the Government. Similarly, the Government should have no
inherent distrust against business in the private sector. The need of the hour is
that the gap between the Government and business should be removed. There
should be a spirit of partnership not one of reluctant association. We should
learn a lesson from Japan where the relationship between Government and
business is so close that the entire working of the Japanese economy is
sometimes called “Japan Incorporated.”

Current Status of Govt and Business relationship

There have been irritants such as the Government indulging in what is known
as Tax Terrorism wherein it unleashes the Income Tax Department to conduct
raids on businesses and businesspersons, which while warranted in many cases,
have the industry up in arms against what they perceive as undue harassment.

Another potential flashpoint between Indian Industry and the Government has
been over the management of the Bad Loans in the Banks or the NPAs (Non
Performing Assets).

The Government contends that businesses have borrowed liberally and without
thought for the consequences during the previous two decades and as the
Chickens are coming Home to Roost now, India Inc. has to either cooperate or
face the music.

The Present Atmosphere of Fear is not Conducive to Businesses and

Entrepreneurs.
To conclude, the present frosty relationship between the Modi Government
and the India Inc. does not benefit either and hence, it is high time they make
amends and work together.

Article 19 (1) (g) of the Indian constitution confers fundamental right on every
citizen to practice any profession or to carry on any occupation, trade or
business. This is subject to reasonable restrictions. A citizen cannot carry on
business activity, if it is health hazards to the society or general public.04-Jun-
2014

PROVISIONS OF INDIAN CONSTITUTION PERTAINING TO BUSINESS

I.The preamble of the Indian Constitution guarantees to its every citizen:

(i) Economic Justice:

The Indian Constitution laid down social, economic and political
justice to every citizen in the country. It is, therefore, the duly of the
 business organisations to provide social, economic and political
justice to every citizen.
(ii) Liberty of Thought, Expression, Belief, Faith and
Worship:
According to this concept every business, organisation should have
liberty of thought, expression etc., with everyone.
(iii) Equality of Status and of Opportunity:
According to this concept every businessman should believe and
give equal opportunity to others
II. Fundamental Rights and Business
The six types of fundamental rights of the constitution are as follows:

(1) Right to Equality (Articles 14 to 18):

In the employment aspects, the appointment to offices under the state also
equal opportunity shall be provided to all the citizens, and no person shall be
denied employment on grounds of religion, race, caste, sex, descent, and
place of birth, residence or any of them

(2) Right to Freedom (Articles 19 to 22):

• The six Freedoms are as follows:

• (i) Freedom of speech and expression.

• (ii) Freedom of peaceful assembly without arms.

• (iii) Freedom of association.

• (iv) Freedom of movement throughout the territory of India.

• (v) Freedom to reside or settle any part of the territory.

• (vi) Freedom to practise any profession, or to carry on any occupation, trade

or business.

• The right to freedom is also applied equally in business. The businessmen can
express their problems freely to the government and can get a solution to it.
Similarly, every citizen has the right to choose any business or profession and
can form unions, and conduct meetings.

(3) Right against Exploitation (Articles 23 to 24):

Articles 23 to 24 deal with the right against exploitation and seek to prevent
exploitation of weaker sections of society by unscrupulous persons as well as the state.
Article 23 prohibits traffic in human beings, involuntary work without payment and
other forms of forced labour. Article 24 prohibits the employment of children below
14 years of age in factories and hazardous occupations, employing women employees
in night shifts in factories etc.

(4) Right to Freedom of Religion (Articles 25 to 28):

(i) The government cannot spend tax money for the development of any religion.

(ii) Nobody can be compelled to pay tax for the welfare of any specific religion.

(iii) No one shall be forced to transfer of property or any agreement of a business

nature in the name of a particular religion.

(5) Cultural and Educational Rights (Articles 29 to 30):

Every business shall ensure that all employees have the freedom to follow their culture.

(6) Right to Constitutional Remedies (Article 32):

Every business shall have the right of seeking constitutional remedy for its fundamental rights.

III. Directive Principles of State Policy:

The economic importance of Directive Principles of State Policy is:

(i) To provide adequate means of livelihood for all the citizens.

(ii) To secure equal pay for work to both men and women.

(iii) To protect the workers, especially children.

(iv) To regulate the economic system of the country that it does not lead to
concentration of wealth and means of production.

(v) To make provision for securing right to work, to education and to public
assistance in cases of unemployment, old age, sickness and similar other cases.

(vi) To ensure a decent standard of living and facilities of leisure for all workers.

IV. Constitutional Provisions Regarding Trade,

Commerce and Intercourse within the Territory of
India:

Articles 301 to 305 of Constitution of India deals with the constitutional

provisions regarding Trade and Commerce.
The main object of Article 301 was obviously to encouraging the free-flow of
stream of trade and commerce throughout the territory of India. The word
‘trade’ means ‘buying’ or ‘selling’ of goods while the term ‘commerce includes
all forms of transportation such as by land, air or water.

The term ‘intercourse’ means movement of goods from one place to another.
Thus, the words ‘trade commerce and intercourse’ covers all kinds of activities
which are likely to come under the nature of commerce.

Article 302 of Indian Constitution explains the power of parliament to impose

restrictions on trade, commerce and intercourse. The Parliament may by law
impose it. Such restrictions on the freedom of trade, commerce or intercourse
between one state and another or within any part of the territory of India, as
may be required in the public interest

Article 303 deals with the restrictions on the legislative powers of the Union and
of the states with regard to trade and commerce. It provides that parliament
shall not have power to make any law giving any preference to any one state
over another by virtue of any entry relating to trade and commerce in any one
of the list in the VIIth Schedule.
Article 304 explains State’s power to regulate trade and commerce. The details,
(a) impose on goods imported from other states (or the Union Territories) any
tax to which similar goods manufactured or produced in that state are subject.
So, however as not to discriminate between goods so imported and goods so
manufactured or produced; and (b) impose such reasonable restrictions on the
freedom of trade, commerce or Intercourse with or within that state as my be
required in the public interest.

Article 305 saves existing laws and laws providing for state monopolies insofar
as the president may by order otherwise direct. Article 307 empowers
parliament to appoint such authority as it considers appropriate for carrying out
purposes of Articles 301, 302, 303 and 304. It can confer on such authorities
such powers and duties as it thinks necessary.