Business Law

what is the contribution of Lobbying in India in shaping Public Policy

what is the contribution of Lobbying in India in shaping Public Policy

Public policy refers to the deliberate actions taken to address issues of wider public concern. Governments formulate public policies across various fields, shaped by a complex interplay of political and economic factors, including lobbying in India. This dynamic process responds to evolving goals, changing environments, and shifting circumstances, with government bodies crafting and implementing policies recognized as legitimate and lawful. Those responsible for shaping these policies, often called “policy-makers,” may operate under different political structures, be it autocratic or democratic, depending on the nation or society.

Lobbying in India Shaping Public Policy

Lobbying in India plays a significant role in influencing the policy-making process, as various interest groups and stakeholders engage in advocacy efforts to sway government decisions and shape public policies in the country.

Transformation of Indian Public Policy

During the era of British colonial rule, public policies primarily served the interests of the imperial government, with little room for lobbying in India. However, following India’s independence, this approach proved insufficient in meeting the needs of the general population. India’s adoption of economic planning within a democratic political framework marked a significant shift in policy formulation, opening up opportunities for lobbying in India.

The Role of Lobbying in Shaping India’s Industrial Policies

This transformation led to the establishment of the Planning Commission at the national level and Planning Boards at the state level. To reform industrial policy, India enacted the Industries Development and Regulation Act, establishing an institutional body to guide private entities in the industrial sector, thus creating avenues for lobbying in India. The industrial licensing policy became a critical tool for directing private industrial capital toward activities aligned with the broader socio-economic objectives outlined by the Planning Commission. This shift allowed various interest groups and stakeholders to engage in lobbying activities to influence and shape industrial policies in the country to better serve their interests.

Financial Reforms and Specialized Institutions in India

Lobbying in India Shaping Economic and Development Policies Through Influence The Reserve Bank of India reassessed the financial requirements of the developing economy and set up specialised institutions like the Industrial Finance Corporation of India, the EXIM Bank of India, and the National Housing Board, among others, often influenced by lobbying in India. Numerous institutions and influential actors have had a significant impact on the development of new economic and development policies in India through lobbying efforts. They have addressed perceived gaps in the country’s economic infrastructure through specific policies and strategies, often guided by lobbying in India. A “free press” has played a pivotal role in highlighting the challenges faced by different segments of society and has also contributed to the discourse on lobbying activities in the country.

Influences on Public Policy in India

Meanwhile, various pressure groups and lobbying organisations tirelessly advocate for policies aligned with their respective interests. The government, in collaboration with its numerous agencies, actively gathers information and feedback. They consult with experts from various departments and agencies, taking into account the perspectives of state governments and Members of Parliament as expressed in their presentations. The resulting policies represent a synthesis of these diverse inputs, illustrating the manifold ways these institutions influence public policies in India.

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Transfer of property : Importance & Its Rules

The object of the contract of sale is to transfer the ownership (property) of the goods to the buyer. Transfer of property is different from the transfer of possession of goods. Goods may still belong to seller though the possession may be with the buyer. The seller may still hold the goods, though buyer has become the owner.

Importance

It is important to know the point of time when the property in the goods passes to the buyer because of the following reasons

(1) Risk prima facie passes with the ownership

If the goods are damaged or destroyed, after the contract of sale is made, the loss would fall on the owner, if there is nothing in the contract to the contrary.

(ii) Suit against third party

If the goods are damaged by a third party, only the owner of the goods can sue the third party.

(iii) Suit for price

Seller can sue the buyer for price when property in the goods has been transferred to the buyer.

(iv) Insolvency of seller or buyer

In case of insolvency of a person, all the property of insolvent comes in the possession of the official receiver. If seller or buyer becomes insolvent, it is essential to decide whether he is owner of particular goods or not.

Rules regarding the transfer of ownership of goods:

Rules for this purpose are divided into two heads

  • Transfer of property in specific or ascertained goods.
  • Transfer of property in unascertained goodsgoods. 

(A) Transfer of property in specific or ascertained goods

Where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case [Section 19(1)(2)]. Thus, in the case of specific goods, the transfer of property takes place when the parties intend to pass it. Unless a different intention appears, the rule of ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer, are as follows: [Section 19(3)]

1. When goods are in a deliverable state

The contract of sale is considered to be an unconditional one. The property in the goods passes from the seller to the buyer immediately at the completion of the contract. It is immaterial whether the price has been paid or the goods have been delivered, or one of these, or both are to be done at some future date.
The goods are said to be in a deliverable state when they are in such a state that the buyer would under the contract be bound to take delivery of them.

Example. A buys a bicycle for $1,400 on a month’s credit and asks the shopkeeper to send it to his house. The shopkeeper agrees to do so. The bicyd immediately becomes the property of A.

2. When goods are to be put into a deliverable state

the contract of sale is conditional one. The seller has to do something to the goods for the purpose of making them into a deliverable state. Therefore, the property is to pass only when that something has been done by the seller and the notice has been given by him to the buyer.

3. When seller has to do something to fix its price

the property is to pass only when something is done and price is fixed. If suppose the seller is to weigh, measure, test or do some such other act, then the property in goods will pass only when such thing has been done by the seller and the notice to this effect has been given by him to the buyer.

Example. A stock of bark was sold at an agreed price per ton. The bark was to be sold weighed by the agents of the seller as also of the buyer for ascertainment of price. A part of the bark was weighed and carried away by the buyer’s agent and servant, but the remaining was swept away by the flood. Held, the loss of the remainder should be borne by the seller, since the property in remainder had not passed because the required weighing was not done.

4. When goods are sent on approval or on sale or return basis

When goods are sent on approval or on sale or return basis, the property passes to the buyer
– when he signifies his approval or acceptance to the seller or does any other act adopting the transaction.
– if he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiry of such time, and if no time has been fixed, on the expiry of a reasonable time.

Example. A delivered a horse to B on the terms of ‘Sale or return, days’. The horse died on the third day without any fault of B. Held, A was within 8 to bear the loss as the horse was still his property when it perished. [Elphick vs. Barnes]

(B) Transfer of property in unascertained goods. If the goods are unascertained, the ownership shall pass to the buyer

– when the goods are unconditionally appropriated to the contract,
– when the appropriation may be made by the buyer with the seller’s assent or by the seller with the buyer’s assent.

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How is the price fixed in a contract of sale If the price is not decided between the parties,what price the buyer has to pay?

Sale of Goods Act, 1930

As per Section 2(10) of the Sale of Goods Act, 1930,

The money consideration for a sale of goods is known as ‘price’. As per Section 9, the price may be fixed
by one or the other of the following modes.

  • It may be expressly fixed by the contract itself.
  • It may be fixed in accordance with an agreed manner provided by the contract.
  • It may be determined by the course of dealings between the parties.
  • If the price is not capable of being determined in accordance with any of the above
    modes, the buyer is bound to pay the seller a ‘reasonable price’. Ordinarily the market price
    of the goods prevailing on the date of supply is taken as reasonable price.

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Define the term ‘Goods’ and ‘Price’ under the Sale of Goods Act ?

Goods. The subject matter of the contract of sale must be ‘goods’. Section 2(7) of the Sale of Goods Act
defines goods as “every kind of moveable property other agrees to t than actionable claim
money, and includes stock and shares, growing crops, grass, and transferred things attached
to or forming part of the land which are agreed to be severed before sale passes in under the
contract of sale”.

Thus goods include,

  • Every kind of moveable property and includes stock and shares, crops, and grass.
  • Things attached to land can be the subject matter of sale (e.g.. growing grass, trees, etc.)
    provided they are agreed to be separated from land under the contract of sale.
  • Money and actionable claims are not to be treated as goods, Money
    being the legal tender itself, cannot be a subject matter of a contract of sale. However,
    foreign currency or coins, which no more are legal tender, is included in ‘goods’.
    ‘Actionable Claims’ in simple words are the claims which rest on the readiness of courts to
    recognize them as enforceable under action by a party e.g., a book debt or bill of
    exchange. The actionable claims are transferable under other laws, such as the Transfer of
    Property Act or Negotiable Instrument Act.

Price

The money consideration for a sale of goods is known as ‘price’ [Section 2(10)]. Price
is an essential element in every contract of sale of goods, that is, no valid sale can take
place without a price. The price should be paid or promised to be paid in legal tender money.
Unless otherwise agreed, it may be paid in the form of a cheque, hundi, bank deposit, etc.
For, it is not the mode of payment of a price but the agreement to pay a price in money that
is requisite to constitute a valid contract of sale.

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Contract of Sale of Goods

Section 4 of the Indian Sale of Goods Act, 1930 defines the contract of sale of
goods as, “A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.”
The term ‘contract of sale of goods is a generic term and it includes:

  1. Sale
  2. An Agreement to Sell

Where under a contract of sale, the property (ownership) in the goods is transferred
from the seller to the buyer, it is called a sale. Thus, in a sale, the ownership passes immediately
to the buyer. Payment of the price is immaterial for the transfer of property in goods.
Agreement to sell. Where under a contract of sale, the transfer of property in conditions, it is
termed as an agreement to sell.

Difference between ‘Contract of Sale’

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  1. Sale is ‘an executed contract.
  2. In a ‘sale’ since the property has passed to the buyer, the seller can sue the buyer for the
    price of the goods
  3. Sale creates a “jus-in-rem’, ie, a right on the goods against the whole world.
  4. In case of loss to goods, in sale, the 4. The loss in this case shall be borne loss will be
    borne by the buyer. by the seller, even though the even if the possession of goods is goods
    are in the possession of the with the seller.
  5. Insolvency of buyer. In a sale, the seller must deliver the goods to official assignee or
    receiver and claim rateable dividend for the price of the goods.
  6. Insolvency of seller. In a sale, the buyer is entitled to receive the goods from the official
    assignee or receiver.

Agreement to Sell

  1. An agreement to sell is an ‘executory contract’.
  2. In an ‘agreement to sell’ ,the seller has the right only to sue for damages for non-performance of hte contract.
  3. An agreement to sell creates a ‘just in a personam ‘, i.e., a personal right only aganist the person for any default in fulfilling his part of the agreement.
  4. The loss in the case shall be borne by the seller, even though the goods are in the possession of the buyer.
  5. In an agreement to sell, the seller may refuse to deliver to buyer.
  6. In an agreement to sell, the buyer has to prove the amount he has paid to the seller and he can only claim a rateable dividend. He cannot compel the receiver to sell and the deliver the goods.

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Distinguish between condition and warranty

Distinguish between Condition and Warranty

A contract contains some stipulations or terms. Some stipulations may be essential to the contract while some may be collateral or incidental to the contract. A stipulation essential to the contract is called a ‘condition. That which is collateral or incidental to the contract is called a ‘warranty. Section 12 of the Sale of Goods Act defines conditions’ and ‘warranties as follows:

Condition

A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. [Section 12(2)]

Warranty

A warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated. [Section 12(3)]

Whether a stipulation in a contract of sale is a condition or warranty depends in each case on the construction of the contract. A stipulation may be a condition though called a warranty in the contract.

The distinction between Condition and Warranty

Condition Warranty
It is essential to the main purpose is of the contract. It is the only collateral or subsidiary to the main purpose of the contract.
Its breach gives the aggrieved party a right to terminate the contract and also claim damages. Its breach gives the aggrieved party the right to claim damages only.
A breach of condition may be treated as a breach of warranty. A breach of warranty cannot be treated as a breach of condition.

Remedies are available to the buyer

In case of breach of condition:

  • Repudiate the contract reject the goods altogether, and – claim damages for breach of contract or just treat the breach of condition as a breach of warranty.
  • In case of breach of warranty, claim damages only.

Conditions and Warranties in a Contract of Sale of Goods

Conditions and warranties in a contract of sale of goods may be either expressed or implied. Expressed conditions and warranties are those which are expressly provided in a contract of sale, whereas implied conditions and warranties are those which the law implies in a contract.

Implied conditions

In a contract of sale, if the circumstances of the contract do not show a different intention or the parties do not provide contrary to them, the following are treated as implied conditions:

1. Condition as to title

In a contract of sale of goods, it is always an implied condition that the seller has a right to sell the goods in the case of a sale, and in the case of an agreement to sell, he will have such right when the property in goods is to pass to the buyer in future. [Section 14]

2. Condition as to description

In the case of the sale by description,  goods should correspond with the description given. The goods mu saleable in the market by that description. [Section 15]

 3. Condition as to quality or fitness of goods for a particular purpose

The goods shall be reasonably fit for the required purpose, provided: – the buyer makes known to the seller the particular purpose for which the goods are required, – the buyer relies on the seller’s skill or judgment, and -the goods are dealt in by the seller, whether he is the manufacture or not. [Section 16] However, in certain cases the purpose, for which the goods are required, can be known from the acts or the conduct of the parties as well as even from the nature of the articles being purchased. So the goods must be fit for the purpose for which they are meant i.e., a hot water bottle should be fit for the purpose of retaining hot boiling water in it. [Section 16]

 4. Condition as to merchantability

If the goods are bought or sold by description and the seller is one who deals in goods of that description, then there is another implied condition also and that is, that the goods are of merchantable quality. This means that the goods should be reasonably saleable. Thus, to be merchantable a watch should be able to keep time, a pen should be able to write, a radio set should be able to play, and so on. [Section 16]

5. Condition as to wholesomeness

Where there is a contract of sale of the eatables or provisions, there is an implied condition of their being wholesome in addition to that of their merchantability. Thus, when a person bought one cake containing a stone it and got one of his teeth broken, it was held that he could recover damages from the seller.

6. Sale by sample

Where there is a contract of sale of goods by sample, there is an implied condition to this effect also that:

– the goods shall correspond to it,

– the goods should be free from any defect that makes them unmerchantable. However, the defects should be such that cannot be discovered on a reasonable examination of the sample. [Section 17]

7. Sale by sample as well as description

Where there is a sale by sample as well as description, then there is this implied condition also that the goods supplied shall correspond with both. [Section 15]

 Implied warranties

1. Quiet Possession

According to this, the buyer has a right to enjoy quiet possession of the goods after their purchase, otherwise, he will be entitled to recover damages from the seller.

 2. Freedom from encumbrances

Goods should not be subject to any prior charge or mortgage in favor of some third party.

3. Warranty to disclose the dangerous nature of goods

When the goods sold are of a dangerous nature or require particular care in using or handling the goods and the buyer is ignorant about such risk, then it becomes the duty of the seller that he should warn the buyer about the danger. If the seller fails to warn the buyer, then the seller shall be liable for damages to the buyer.

 

 

 

 

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Discuss the validity of contracts by minors?

According to the Indian Majority Act, of 1875, a minor is a person who has not completed 18 years of his age on the date of the contract. But in the following two cases, the minority of a person would continue up to the completion of 21 years of age:

– where a guardian to the person or property of a minor is appointed by the court.

– when the minor is under the guardianship of the Court of Wards, i.e. minor’s property is looked after by the Court of Wards.

Validity of Contracts by Minors

1. Minor’s contract is absolutely void

In Mohori Bibi vs. Dharmodas Ghose Privy Council held that a minor’s contract is void ab initio and not merely voidable. A minor’s agreement is absolutely void, neither the minor nor the other party acquires any right or incurs any liability under the agreement. So a minor is neither liable to perform what he has promised to do under an agreement, nor is he liable to repay money that he has received under it. The reason underlying this rule is that a minor is incapable of making a rational judgment of the effects of a contract in his own interest, i.e., he is not supposed to have the experience of judging what is good or bad for him.

However, Section 68 of the Contract Act states “If a person, incapable of entering into a contract or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person, who has furnished such supplies, is entitled to be reimbursed from the property of such incapable person.”

2. Minor can be promised

An agreement is void as against a minor but a minor can derive benefit under a contract. The privilege of the minority is available to the minor only. Other people cannot avoid the contract because the promisee is a minor.

3. A minor’s agreement cannot be ratified

Since an agreement with a minor is void ab initio, i.e., it does not exist in the eyes of the law, it cannot be ratified by a minor after completing the age of majority.

4. A minor can always plead his infancy

So even if a minor has induced the other party by misrepresenting his age, he cannot be sued either in contract or in tort i.e., common law for fraud. But where a loan etc. is obtained by a minor by fraudulent representation and is set aside, the court may ask the minor to restore the property purchased out of such money to the other party. This may be allowed by the court on equitable considerations.

5. Minor’s parents

Agreements made by a minor are not enforceable against his parents, even though they are for the necessities supplied to the minor. However, if the minor is acting as an agent for his/her parents, then the parents would be bound by the obligations agreed to by the minor.

The position of a minor as regards his agreements may be summed up as follows:

  • An agreement with or by a minor is void ab initio.
    Example. A minor executed a mortgage for 20,000 and received 8,000 from the mortgagee. Then he sued for setting aside the mortgage. The mortgagee claimed a refund of 8,000 which he had paid. Held, an agreement by the minor was void and the mortgagee could not recover the amount of 8,000.
  • An agreement with a minor cannot be ratified or approved by the minor on attaining the age of majority.
  • If a minor has received any benefit under a void agreement, he cannot be asked to compensate or pay for it, as it would be an indirect method to enforce an otherwise void agreement.
  • Estoppel does not apply to minors. A minor cannot be estopped to set up a minority even when he enters into a transaction by falsely misrepresenting his age.
  • There can be no specific performance of the agreements entered into by a minor as they are void ab-initio.
  • A minor is liable for “necessaries” supplied or necessary services rendered to him or anyone whom he is legally bound to support.

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A Simple Silence as to Case isn’t a Fraud

Section 17 of the Indian Contract Act, 1872 characterizes extortion as any act committed by a party to a contract with an expectation to betray another party there to or to actuate him to enter into the contract.
Fraud implies and incorporates any of the taking after acts committed by a party to a contract or with his conspiracy, or by his operators, with expectation to hoodwink another party or to initiate him to enter into the contract:

  • The recommendation, of that which isn’t genuine, by one who does not be true.
  • The active concealment of a reality by one having knowledge.
  • A guarantee made without any deliberate of performing it.
  • Any other exercises implied to deceive.
  • Any such act or exclusion as the law uncommonly pronounces to be false. The common run the show is that a individual require not unveil to the other party the fabric truths which he knows but he must abstain from dynamic mis-statements. This implies unimportant quiet isn’t a extortion. Clarification to Section 17 more over lays down that simple quiet as to the truths likely to influence the readiness of a individual to enter into a contract isn’t a fraud.

There are In any Case Two Exemptions to this Rule

1.Where the circumstances of the case are such that, respect being had to them, it is the obligation of the individual to keep silent to speak.

Example. A sells by auction to B. his girl, who has just gotten to be a major, a horse which A knows to be unsound. Here A’s quiet would sum to extortion, respect being had to the relationship between the parties.

2.Where the quiet is, in itself, identical to speech.

Example. B says to A, “In case you are doing not deny it, I might accept that the horse is sound.” A says nothing. Here A’s silence is equivalent to speech.

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Discuss the Agreements That are Against Public Policy?

An agreement is said to be opposed to Public Policy when it is harmful to the public welfare. Public Policy is that principle of law that holds that no subject can lawfully do that, which has a mischievous tendency to be injurious to the interests of the public, or which is against the public good or public welfare. Some of the agreements which are, or which have been held to be opposed to Public Policy and are unlawful are as follows:

1. Agreements of Trading With the Enemy

An agreement made with an alien enemy in times of war is illegal on the ground of public policy. Contracts that are entered into before the outbreak of war are either suspended or dissolved. According to the intention of the parties, these can or cannot be carried out by postponing performance till the end of hostilities.

2. Agreement to Commit a Crime

When the consideration in an agreement is to commit a crime, the agreement is opposed to public policy. Likewise, an agreement to indemnify a person against the consequences of his criminal act is opposed to public policy and hence unenforceable.

3. Agreements in Restraint of Legal Proceedings They include Agreements Restricting Enforcement of Rights

An agreement that wholly or partially prohibits any party from enforcing his rights under or in respect of any contract is void to that extent. Agreements curtailing the period of limitation. Agreements which curtail the period of limitation prescribed by the law of limitation are void because their object is to defeat the provisions of law.

4. Trafficking in Public Offices and Titles

Agreements for the sale or transfer of pubic offices and titles or for the procurement of a public recognition like Padma Vibhushan or Param Veer Chakra for monetary consideration are unlawful being opposed to public policy. Similarly, an agreement to pay money to a public servant to induce him to act corruptly or to retire is void on the ground of public policy.

  • Agreements Tend to Create Interest as Opposed to Duty
    If a person enters into an agreement whereby he is bound to do something which is against his public or professional duty, the agreement is void on the ground of public policy.
  • Agreements in Restraint of Parental Rights
    In the absence of the father, the mother is the legal guardian of her minor child. The right of guardianship cannot be bartered away by any agreement. Such an agreement shall be void on the ground of public policy.
  • An Agreement Restricting Personal Liberty
    Agreements which unduly restrict the personal freedom of the parties are void as being against public policy.
  • Agreements in Restraint of Trade
    An agreement that interferes with the liberty of a person to engage himself in any lawful trade, profession, or vocation is called an ‘Agreement in Restraint of Trade’. Such an agreement is void to that extent.
  • Agreement to Defraud Creditors or Revenue Authorities
    Such an agreement is not enforceable, being opposed to public policy.
  • Marriage Brokerage Agreements
    An agreement by which a person, for a monetary consideration, promises in return to procure the marriage of another is void, being opposed to public policy.

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BUSINESS ENVIRONMENT

WHAT IS THE BUSINESS ENVIRONMENT?

INTRODUCTION TO THE BUSINESS ENVIRONMENT

In modern times, where businesses are the central part of the economy, it is necessary to know their dependence and suitability. Business significant activity deals with the people and fulfils their needs and wants to earn a profit. For social welfare, these businesses cannot run or operate alone. Their activities are interlinked with the outside environment and surroundings, as the environment is the ultimate source that helps in the development process of the business. The success of every business intensively depends on the suitability of the domain. As the environment is the key to success, in the consciousness of business survival and growth, every organization has to adapt itself to the ‘Business Environment.’

After knowing about the business and its significant dependence on the surrounding environment, let’s discuss the term business environment.

BUSINESS ENVIRONMENT

Business environment refers to the total of all individuals, institutions, and other forces that belong outside the control of the business environment but that may directly affect the performance or operation of enterprises. All such external forces affect the business operation, and the firm must effectively cope with them for better survival growth and to get the optimum result of operations. Mainly, there are economic, social, political, technological, and other factors that operate outside a business firm.

There are generally two kinds of external forces categorized as follows:

SPECIFIC FORCE These are the forces that directly and immediately affect the operation and performance of an enterprise in their daily or day-to-day working, like investors, customers, competitors, and suppliers. Suppose the customer’s taste changes, and now they prefer another brand instead of yours; that is what directly affects the enterprise by a massive decline in demand for the products or services. It leads to a decrease in sales, which ultimately affects the profit.

GENERAL FORCE These are the forces that indirectly and after some time affect the operations and performance of enterprises, like social, political, legal, and technological conditions. Suppose the increase in taxes directly affects the price of goods and makes products expensive to buy, which an average customer would not be able to afford. That will cause a massive decline in demand for the development, and therefore, sales would turn down and ultimately affect the profit. 

There are some examples of changing business environments as follows:

  • There may be up-gradation in the technology that would make existing products need to be updated.
  • There may be a change of fashion trend in the market which swift the customer demands.
  • There may be the introduction of competition that diverts the customer’s preference or choices and reduces the firms’ profit margins.
  • There may be increases in taxes, which make the product expensive, and the average customer would need more money to afford them.

As in the era of different and changing customer desires and wants, the business environment keeps changing, whether in terms of technological up-gradation, shifts in consumer preference or introduction of competition in the market, government taxation policy, or industrial policy renewal. Thus, the business environment is dynamic, so enterprises must be aware of these external forces and be engaged to adapt to the changing environment. Management is required to remain highly cautious, alert, and adaptable. The enterprises must set goals and formulate plans as per the changing business environment to succeed in the long run. The business environment is uncertain; therefore, the future cannot be predicted except by assuming the threats. Management must be strong enough to identify opportunities at the changing time to get the first-mover advantage. Generally, opportunities mean the positive change by external forces which help an organization to improve its performance. The external environment provides various opportunities for the organizations besides the harmful impact on their performance. In the environment change times, a company named Maruti Udyog became the leaders in the small car market because it first identified the need for the car at that time. Since its environment is a source of both opportunity and threats for an enterprise, understanding and analyzing them gives the base for planning and policy formulation to cope with such changes, which leads to improving the performance of enterprises.

Now, move further to know more about the dimensions of the business environment.

DIMENSIONS OF BUSINESS ENVIRONMENT

There are various dimension of the business environment in terms of the general environment categorized into five subheads: economic environment, social environment, technological environment, political environment, and legal environment. Let’s get detailed information about them:

1. ECONOMIC ENVIRONMENT

The economic environment refers to all those external forces that have a financial impact on business activities or performance. The economic climate means the mixture of all the economic factor, such as inflation, income, employment rate, etc., which affect consumers’ buying behaviour and thus impact businesses. The economic environment consist of economic factors that influence consumers’ buying ability and the marketable capability of enterprises. Economic factors can either serve as an opportunity or as a threat to a business enterprise.

There are various sources by which consumer and company behaviour changes. Let’s get detailed information 

  • Demand

Increased demand for the product could result in additional profits, whereas a decrease in the product leads to heavy losses. Raising demands for development leads to increased sales, whereas the decline in the order of creation leads to a decrease in the deal, which ultimately affects the profit fluctuations.

  • Market size

The profit margin of the enterprise will be low if it has a small market size, which means the product market has low potential customers. As per the market size theory, if the product is affordable and useable, it will gain a higher profit margin. Otherwise, it will get a low profit margin like a medical company sells wheelchairs, etc. equipment. Only the injured or affected customers will buy them healthier and won’t need them, which leads to a low-profit margin.

  • Suppliers

The production of enterprises will close down if their suppliers unexpectedly stop providing supplies of raw materials needed to manufacture a product. In the same way, the increase in the price of stores by the suppliers will lead to a rise in the production cost and will increase the enterprise’s expenditure.

  • Income

Income is the total earnings of the person. Income directly affects the buying ability of the consumer, which ultimately affects the enterprise’s sales of the product or profit. There stands a direct relationship between the buying capability of a person and his income. For example, people with low income are most likely to buy only goods and services necessary for living and spend little money on entertainment and luxurious items. A person with a low income will prefer to spend money on the essential things needed for living: a medium house, food, education, etc., rather than buying an expensive or luxurious car.

On the other hand, people with high incomes are most likely to spend more money on costly and luxury services and goods. They will spend more money on expensive goods and services, branded clothes, etc. They search for expensive, good quality, and branded goods. They prefer to eat at restaurants rather than at their homes. Consequently, it is right to say that the population’s high income raises the demand for high-priced products and branded companies, and low pay increases the need for primary and cheap products and companies.

  • Inflation rate

The economy’s inflation rate affects the consumer’s ability to buy goods and services and business profit or sales. Like in the case of inflation in the economy, people prefer to spend their money on the necessary goods and services only and avoid spending on extraordinary goods and services. The inflation rate hurts organizations as it leads to demise in the demands, ultimately affecting their sales and profit. For example, people will avoid travelling abroad at the time of inflation in the tickets, and people will avoid going to restaurants. The inflation rate impacts the business which deals in or sells branded goods. As a result, inflation is unwanted by both consumers as well as enterprises.

    • Increasing Interest Rates

The Increasing interest rates in the economy also impact businesses, mainly those who grant loans to people or institutions at some specific interest rate, such as banks and other financial institutions. For example, the people who take a home loan to purchase a house, increase the interest rate, will avoid the plan to take a home loan and will search for other substitutes. This leads to a decrease in the demands of such financial institutions, which ultimately affects their sales and profit. That’s how both businesses and customers are affected by these changes in the interest rate.

  • Unemployment level

One another factor that impacts the economic environment is the unemployment level of the country or economy. The countries which have an unemployment level suffer from a weaker economic environment. If the people live unemployed for a more extended period, they will face problems such as lack of money. By which they would be unable to spend money on the goods and services. For example, if people do not buy, companies will not appoint people to engrave costs of production or expenses of the company. And if companies do not provide employment, the unemployment levels will increase, which will decrease their demands for the product and economic growth of the country. Thus, it is one of the essential responsibilities of the government to create jobs in the country to decrease the unemployment level in the country so that the country’s economic growth can be developed.

  • Taxes

The introduction of a high taxation policy in the country could badly impact the economic environment. As the increase in taxes leads to a rise in the cost of production, businesses have to increase the prices of their products to cover the raised cost of production. Moreover, that’s how the customer becomes the ultimate cost bearer. In this sense, customers with less disposable income avoid or reduce buying the products as they can’t afford the prices of products. This reflects that not only the consumers but also businesses suffer from this impact on the economic environment.

  • Tariffs

Tariffs are those kinds of taxes that are imposed on imported goods. This means at the time of buying goods from the international market. Tariffs have a converse impact on the sales of goods rather than taxes. The low tariff rates of the country will force People to import more goods from foreign countries, and the local market will be swamped with cheap foreign products. It will impact the sale of local products of the nation as they will suffer from foreign competition. For that reason, high tariff rates are preferred; as a result, there will be less import of foreign product, and people will buy more local effects of their country and avoid buying expensive foreign products. This will not only facilitate businesses but also strengthen the country’s economy as the money will remain in the country, which leads to a better financial status of the country. High tariff rates also motivate entrepreneurs to start new businesses and sell products that are only offered in the foreign market and not in the country. By this, we can say that high tariff rates are suitable for the economic environment in this sense. It leads to the development of the country’s financial status.

  • Cost of Labor

One another factor, the cost of labour, badly impacts the economic environment of the business. The high cost of delivery means the work will be hired at high rates, which leads to a rise in the company’s cost of production. Through this, the prices of the product would fly at high speeds. This will make people avoid buying that product and start to search for cheaper alternatives to the product. This ultimately decreases the demand for development and leads to sales or profit reduction. That’s how the business will suffer from the negative impact of this increased cost of production.

  • Population

The population factor has both good and bad impacts on the economic environment. Such as a high population means there are chances of getting skilled employees along with others. A high population results in intense competition, and people evenly get ready to work at lower wages, which results in business as they can employ more people to enhance their production. Nevertheless, a high population causes many other issues in the country—for example, unemployment and poverty lower per capita income. The income and capability of people reduce and, thus, their buying capacity, which impacts the economic environment. On the other side, underpopulation could be better. There will be a smaller number of consumers or population in the country, which leads to a decrease in the chances of getting skilled and unskilled employees. For that reason, it is essential to keep a balanced population in the country.

  • International Condition

One another international market condition factor badly impacts the economic environment. For example, many businesses import and export goods from multinational enterprises or markets. The strain between two countries or the increased tariff rates increases the import cost. As a result, the cost of production also rises. Increased production cost leads to increases in the prices of products. When prices of products increase, people are likely to buy less, and through this, sales of the product get impacted or decline, which ultimately decreases the profit or earnings of the enterprises.

  • Capital Market

One more capital market factor impacts the economic environment. When the capital market or financial market is not good, people or enterprises rely more on natural and human resources for production. A healthy capital market result in lower dependence on foreign currency as they have their financial status better enough. The nation becomes self-sufficient, which results in a more developed country or economy.

  • Economic Laws

In different countries, there are various economic laws, such as labour laws, competition laws, factory acts, commercial acts, industrial laws, company acts, etc., which impact the economic environment. Companies are required to set up their business within limits mentioned in the law, and violation of any rule can result in a penalty or the cancellation of a business license, which leads to a considerable investment loss for the investors. In accumulation to this, the government can introduce a new law that forces companies to modify their process or method of doing business, which badly impacts the business.

  • Natural Resources

 Natural resources occupy a significant act in the business environment. Many business activities are reliant on natural resources. For example, fuel, water, resources, and weather reports like temperature, humidity, rainfall, etc., are the necessary natural resources that affect the manufacturing or production process. For example, the increase in the prices of vegetables and fruits would lead to raising the prices of food sold in hotels and shops.

2. SOCIAL ENVIRONMENT

The social environment refers to customs and traditions, value, culture, beliefs, norms, and ethics of the society or nation under which a business enterprise operates or functions. Here, these refer to the traditional practices that have lasted for decades or centuries. In the organization and business, there must be an understanding of the social environment as it helps determine the products and services standards of conduct that would be completely acceptable by the society because the product demand belongs to the society customers or people who are ultimately going to buy or use the product. And if the outcome does not favour society, then that’s where the product would suffer the profit by the massive decline in sales or no demand for the product.

  • Social Cultural environment

The Social and cultural environment has an immense impact on the economic climate of business. People’s buying habits and choices are highly influenced by the culture they are born in and by the society in which they reside. Because of their beliefs and customs, only the individuals will adapt themselves, as they are part of it. Like, in the southern state of India, women preffered to wear traditional sarees, whereas western women preffered to buy Western clothes or dresses. Even the social-cultural environment impacts the manner in which products are fashioned. For example, a well-known American secondary company, PepsiCo, Frito, sells products like Lay’s, Fritos, Doritos, etc., and you get the difference in the flavour of their products from one country to another. In India, they offer spicy products, whereas, in America, the flavour of products is less spicy and as per preference and accordance to the taste of people living in that particular region. Such as Indians prefer more spicy food, whereas foreigners prefer less spicy food. That shows how the preference of customers from different religions deviates.  

3. TECHNOLOGICAL ENVIRONMENT

The technological environment refers to the forces relating to scientific improvements and innovations that serve or give new ways or procedures to produce goods and services and new methods and techniques for operating a business. In today’s world, technology is changing faster with new and unique innovations to develop the country and reduce human needs. Now, companies are becoming more capital-intensive due to the high dependence on the machine. Changes in technology are more associated with better services to customers and cost reduction. This advanced technology produces new products and services with the latest production techniques and new ways of managing and controlling.

  • Innovation

Innovation has both positive and negative impact on the technological environment. The invention produces risk to the previously established businesses. As many entrepreneurs come up with innovative business ideas, they give competitions to the already established businesses, which impact the sales of their products and ultimately results in reduced profit. On the other hand, if companies look to the lead and invest in research and development and develop innovative ideas to improve their products to fulfil the current requirements of customers, innovation also helps reduce production costs. For example, with the introduction of automation machines and gadgets, most of the work of production, which was earlier performed by labour, can now be performed by devices. This helps in lowering the labour wage expenses, which directly adds to profit. That shows how innovation helps reduce the cost of production and has negative impacts on businesses.

  • Like earlier, black and white TV is now innovative as the colour and HD picture screen.
  • Earlier manual photo-state machines are now innovated as electrostatic copies.
  • An earlier visit to the reservation office is now innovated as the online booking of airline and railway tickets. 
  • Earlier button phones are now innovated as smartphones.
  • Earlier regular watches are now innovated as smartwatches.
  • Earlier, there were only computers, but because of innovation, laptops and tablets also existed.
  • Earlier bulbs were innovated as LED lights.

4. POLITICAL ENVIRONMENT

The political environment refers to political conditions such as general stability and peace in the country and the specific attitude elected government representatives hold towards businesses. Generally, this factor shapes the environment within which the business organization operates or works. They formulate law and order. In the case of a stable government, it leads to motives. It encourages entrepreneurs or investors to invest and build up confidence in their rules or policies for businesses. At the same time, the unstable governments destroy the procedures and methods of conducting the companies, which shakes the spirit of the entrepreneurs and investors to invest in the business. 

5. LEGAL ENVIRONMENT

The legal environment refers to the laws and various legislation and jurisdictions within which business transactions operate or take place. It mainly consists of the bill that the parliament and the court have passed or any state legislation. Generally, this legislation includes the rules, regulations, and laws that have to be followed by all the country’s organizations. And if any enterprises disagree with following the laws or disobeying the instructions made by the government, then it causes legal problems for the enterprises. Such laws made by the government are the Company Act, Factory Act, Trade Union Act, Consumer Protection Act, etc., which regulate enterprises. Apart from this, there are several other regulations like product standards, packaging, and promotion of the product.  

  • Government Policies

Government policies also have an impact on the economic environment. Company might be required to change the production process according to the change in government policies. For example, companies are required to stop the production of certain drugs after the government banned them. In India, it’s mandatory to write the warning: “Tobacco is injurious to health” on the packet of tobacco products, etc.

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