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UNIT 2

Political and Legal Environment of


Business
Three political institutions
Under a democratic set up, like in our country, the political
environment comprises three vital political institutions: 1.
Legislature 2. Executive 3. Judiciary.

1. Legislature:
Legislature is the most powerful institution. The main powers are
vested in the legislature are; in today’s economies, particularly of
developing countries like India, relevance of a protective legal
environment for Business assumes immense proportions as it is
the very foundation of every investment decision.

The business has to be within the law of the Land. Every aspect
of business from its birth till death is covered under the laws to
ensure that not only profit is earned in a justified and fair way but
also to ensure that in the attainment of business interests the
interest of each person is fully protected and the profits of
business are distributed in a manner beneficial to the society.

2. Executive:
Government is the executory body of the laws which are framed
by the legislature.

According to E. V. Schneider “Government is that institution by


which men everywhere, seek to order society, that is, to control
the structure and functioning of society.”
According to Musselman and Hughes “Government is the centre
of political authority having the power to govern those it serves.”

In simple words, the role of the Government is to shape, direct


and control the business activities. The translations of the
objective of any laws to the reality depend as much upon the law
itself as on its implementation. The implementation of the law in
its word and spirit only can ensure the realisation of its true
objectives.

Indian constitution provides for a federal setup with powers being


divided between central and the state governments. The powers
and functions of central and state government are described in
the constitution.

3. Judiciary:
The third political institution is judiciary. The judiciary sees to it
that the exercise of authority by the executives is according to the
general rules laid down by the legislature, it may declare that any
particular order issued is, infact, ultra vires (beyond the authority).
It is the power of the Judiciary to settle legal disputes that affect
business considerably.

Following are a few examples of the disputes which are often


referred to courts for settlement and the verdicts are sought:
(i) Disputes between employers and employees

(ii) Disputes between employer and employer

(iii) Disputes between employee and employee

(iv) Disputes between employers and the public

(v) Disputes between employers and the government


In some cases the courts of justice protect the citizens from
unlawful acts passed by the legislatures and arbitrary acts done
by the Government or the executive. The judicial verdicts have far
reaching consequences on business.

The consequences become more intense and severe


because:
(i) Judicial errors do occur, though infrequently

Judges may vary in the severity of punishment inflicted.

(iii) Possibility of wrong assessment of penalty

(iv) Conflicting verdicts may be pronounced by different judges on


the same or similar disputes

(v) There is a lot of confusion in the labor laws themselves.

Today’s requirement is that the Judicial System should be


overhauled by performance so that order and confidence of the
masses can be restored in it. The democracy of the country will
die soon if an alert, independent and quick to act judiciary does
not come alive in place of the existing functioning anarchy.

FOREIGN EXCHANGE MANAGEMENTACT


(FEMA)
The Foreign exchange management act, 1999 (FEMA)is
the act of the Parliament of INDIA “to consolidate and
amend the law relating to foreign exchange with the
objective of facilitating external trade and payments and
for promoting the orderly development and maintenance
of foreign exchange market in INDIA. It was passed in the
winter session of Parliament in 1999, replacing the
FOREIGN EXCHANGE REGULATION ACT (FERA). This act
makes offences related to foreign exchange civil
offenses. It extends to the whole of INDIA, replacing
FERA, which has become incompatible with the pro-
liberalization policies of the government of INDIA. It
enabled the new foreign exchange management regime
consistent with the emerging framework of the WORLD
TRADE ORGANIZATION (WTO). It also paved the way for
the introduction of the prevention of money laundering
act, 2002, which came into effect from 1 july 2005.
The main objective behind the FOREIGN EXCHANGE
MANAGEMENT ACT (FEMA) 1999, is to consolidate and
amend the law relating to foreign exchange with the
objective of facilitating external trade and payments. It
was also formulated to promote the orderly
development and maintenance of foreign exchange
market in INDIA.
FEMA is applicable to all parts of india. The act is also
applicable to all branches, offices and agencies outside
india owned or controlled by a person who is a resident
of india.

CONSUMER PROTECTION ACT


The Consumer protection act, 1986 (COPRA) is an act of
the parliament of india enacted in 1986 to protect the
interest of consumer of india. It is replaced by THE
CONSUMER PROTECTION ACT 2019. It is made for the
establishment of consumer councils and other
authorities for the settlement of consumer’s grievences
and matters connected therewith it. The act was passed
in the assembly on October 1986 and came into force on
December 24, 1986. The basic aim of this act,2019 to
save the rights of the consumers by establishing
authorities for timely and effective administration and
settlement of consumer’s disputes
RIGHTS OF THE CONSUMER
 Right to safety
 Right to be informed
 Right to choose
 Right to be heard
 Right to satisfaction of basic needs
 The right to redress
 Right to consumer education
 Right to healthy environment
RESPONSIBILITIES OF CONSUMER
 CRITICAL AWARENESS;
The consumer responsibility to be more alert and
questioning about the use, price and quality of
product and services.
 ACTION;
The consumer responsibility to assert yourselves
and act to ensure that you get a fair deal.
Remember as long as you remain passive
consumer, you will continuously be exploited.
 SOCIAL CONCERN;
The consumer responsibility is to be aware of the
imoact of our consumption to other citizens,
especially the less fortunate, exploited,
disadvantaged or groups whether in the local,
national or international community. In today’s
difficult times where resources are scarce, it is
your responsibility as consumer to think of what
will be the effect of your actions ans choices to
other people’s lives.

 ENVIRONMENTAL AWARENESS;
The consumer responsibility to understand the
environmental consequences of your consumption.
You should recognize your individual and social
responsibility to conserve natural resources, and
protect earth for the future generation.
 SOLIDARITY;
The consumer responsibility is to organize
together to develop the strength and influence to
promote and protect the rights, welfare and
interest of the consuming public.

INTRODUCTION TO LPG
LPG stands for Liberalization, privatization, and
globalization. India under its new economic policy
approached international banks for development of the
country. These agencies asked Indian government to
open its restrictions on trade done by the private sector
and between india and other countries.

 LIBERALIZATION;
The basic aim of liberalization was to put an end to
those restrictions which became hindrences in the
development and growth of the nation. The
loosening of government control in a country and
when private sector companies start working
without restrictions and government allow private
players to expand for the growth of the country
depicts liberalization in a country.

 PRIVATIZATION;
This is the second of the three policies of LPG. It is
the increment of the dominating role of private
sector companies and the reduced role of public
sector companies. In other words, it is the reduction
of ownership of the management of a government-
owned enterprise. Government companies can be
converted into private companies in two ways;
 By disinvestment
 By withdrawal of governmental ownership and
management of public sector companies.

GLOBALIZATION;
It means to integrate the economy of one country with
the global economy. During globalization the main focus
is on foreign trade and private and institutional foreign
investment. It is the last policy of LPG to be
implemented.
Globalization as a term has a very complex phenomenon.
The main aim is to transform the world towards
independence and integration of the world as a whole by
setting various strategic policies. Globalization is
attempting to create a borderless world, wherein the
need of one country can be driven from across the globe
and turning into one large economy.