Revision: Principles and Functions of Management >> Business Environment Business Studies Commerce (English Medium) Class 12 CBSE

• Bayard O. Wheeler: “The total of all things external to a firm and industries that affect its organization and operations is called the Business Environment.”
• William F. Glueck: “Business Environment is the process by which strategists monitor economic, governmental, market, supplier, technological, geographic, and social settings to determine opportunities and threats to the firm.”
• Barry M. Richman & Melvyn Copen: “Environmental factors or constraints are largely, if not entirely, external and beyond the control of individual enterprises.”

Liberalisation means removing unnecessary government restrictions and controls on business activities so that trade and industries can grow freely and compete globally.

Integration of national economies and societies through cross-country flows of information, ideas, technologies, goods, services, capital, finance, and people.

• Business firms exist, survive and grow within their environment and must adapt to external forces.
• Interaction with environment strengthens the firm and improves use of resources.

• Observation of a real-world problem led to grassroots innovation.
• Innovation was affordable and targeted the unorganised sector.
• Multiple rounds of prototyping and external feedback shaped the final product.
• The innovation had a three-dimensional positive impact - social, economic, and technological.
• Collaboration with an external body (GIAN North) played a role in refining the product.
• Women workers in the unorganised sector were the primary beneficiaries.
• This case illustrates how entrepreneurship can arise from everyday observation rather than formal education or resources.

• Firms cannot control environment; they must understand and adapt to it.
• Environment offers opportunities and threats, and reveals strengths and weaknesses.
• It guides learning, image, competition strategy and growth direction.
• It is the source of resources and the destination for outputs.
• Regular environmental analysis supports planning, policy making and sustained performance.

• Business environment = internal (your control) + external (not your control)
• Internal = people, resources, organizational structure
• External = economy, law, society, technology, nature, global issues
• Companies must monitor and adapt to both internal and external changes to survive.
• Regular changes in technology, society, and laws can quickly impact any business.

• Economic environment consists of three elements: economic conditions, economic policies, and economic systems.
• Key economic conditions include GDP, per capita income, capital availability, and capital market strength.
• Government policies (industrial, monetary, trade, etc.) directly shape the business environment.
• Three types of economic systems: Capitalist (private), Socialist (government), and Mixed (both) - India follows a mixed economy.
• Interest rates and disposable income are critical economic factors that affect consumer demand and business activity.
• The structure of the economic environment covers GNP, savings, forex reserves, money supply, public debt, and planned expenditure.

• Social environment includes literacy, educational system, cultural heritage, standard of living, and mobility of labour.
• Social values (customs, ethics, beliefs) guide businesses - e.g., Home Budget System not accepted in rural areas.
• Social trends are changing fast - health consciousness is driving demand for gyms and fast food outlets in urban and semi-urban areas.
• Festivals like Diwali, Eid, and Christmas directly affect business activity.
• Elements: birth/death rates, population shifts, women's workforce participation, consumption habits, and family composition.

• Technological environment = methods, techniques, tools, and innovations used in production and delivery of goods/services.
• Technology changes rapidly - businesses must adapt or lose customers.
• New technology creates opportunities; outdated technology is a business risk.
• Digital India, UPI, e-commerce, and GST e-filing are key Indian examples of technological change impacting business.
• IRCTC's shift to online ticketing is a direct example of how technology transformed a traditional service.
• Technology encourages innovation and improves both production processes and service delivery.

• Political environment is shaped by government, legislature, and judiciary.
• It directly influences how businesses operate within a country.
• The attitudes of government officials towards business are a key determinant.
• Political stability, ideology, and leadership affect business decisions.
• Government intervention and foreign relations are important elements.
• Laws made by the legislature and enforced by the government frame business boundaries.
• The judiciary ensures legal interpretation and dispute resolution.

• Business can be started, regulated, controlled and expanded only within the legal framework of a country.
• The legal environment includes laws, administrative orders, court judgments, and decisions of government agencies.
• Business managers must have adequate knowledge of laws and regulations for effective decision-making and better business performance.
• Non-compliance with laws can lead to legal problems and penalties for business enterprises.
• Important business laws include the Indian Contract Act, Workmen's Compensation Act, Industrial Disputes Act, Consumer Protection Act, and Competition Act.
• Government regulations protect consumers' interests, and businesses must comply with all legal requirements.

• India follows a mixed economy model with both public and private sector participation.
• Key economic environment factors include government policies, planning, and infrastructure.
• At Independence, India had a predominantly agricultural, rural, low-productivity economy.
• Development plans focused on self-reliance, growth, reduced inequality, and socialist development.
• Role division: public sector → infrastructure/heavy industry; private sector → consumer goods.
• Private sector operated under strong government regulation and controls.
• Despite some progress, the economy faced a 1991 crisis - foreign exchange shortage, high deficits, rising prices.

• Post-independence excessive controls under the mixed economy model led to the 1991 crisis.
• Fiscal deficit hit 6.6% of GDP, inflation 13–14%, and forex reserves fell below 2 weeks of imports.
• Credit rating was downgraded from AAA to BB+, pushing India close to external default.
• India pledged 47 tonnes of gold to the Bank of England, raising ~$600 million as an emergency measure.
• New Industrial Policy (July 1991) delicensed most industries and established FIPB.
• Rupee devalued by ~18%; LERMS introduced for exchange rate management.
• Reforms launched the LPG framework — Liberalisation, Privatisation, and Globalisation.

• Liberalisation helps markets run freely with less government control.
• Boosts investment, competition, and technology use.
• Protects investor interests and makes trade easier.
• Liberalisation (from 1991) reduced government controls and licensing and opened more sectors to private competition.
• Industrial licensing removed for most industries; only a few areas reserved for public sector and small‑scale reservations reduced.
• Financial sector: private and foreign banks allowed; FIIs (foreign investors) permitted in markets; RBI became more of a facilitator.
• Tax reforms: income and corporate tax rates cut, procedures simplified; GST introduced to create one national market and reduce evasion.
• Foreign exchange: rupee devalued in 1991; exchange rate mostly determined by market demand and supply.
• Trade & investment: import licensing and quantitative restrictions removed, tariffs reduced, export duties scrapped to make Indian industry more competitive globally.

• Privatisation = reducing state ownership/management in favour of private sector.
• Key reasons: inefficiency, losses, political interference, mismanagement in PSUs.
• Main measures: disinvestment, dereservation, full sale, MoU system, BIFR, NRB.
• Disinvestment beyond 51% transfers both ownership and management to private sector.
• PSUs are classified as Maharatna, Navratna, and Miniratna (I & II) based on autonomy levels.
• Real examples include Air India, Maruti, Hindustan Zinc, BALCO, and IPCL.
• Privatisation is one of the three components of the New Economic Policy (along with Liberalisation and Globalisation).

• Demonetisation = withdrawal of legal tender status of certain currency notes.
• 8 Nov 2016: ₹500 and ₹1,000 notes demonetized; about 86% of cash invalid.
• Main aims: black money, corruption, fake notes, and terror funding.
• Seen as a tax administration step and move to a less-cash, digital economy.
• Effects: cash crunch at first, then higher deposits, more digital payments, higher tax collection, lower real estate prices.