MODULE -3

ENVIRONMENTAL SECTORS
Political, Legal and Technological Environment
POLITICAL ENVIRONMENT: - Political environment of business refers to the political conditions -
factors and forces -which have a bearing on business activities. Such factors may include competing political
ideologies, electoral majority of the party in power, as well as international power alignment. It is one of
the of factors relating to government attitude towards different part of business environment. It includes the
political party system in the country, their ideologies, system followed for governance, society, etc. The main
Components of political environment are: -
1. Present political system. 2. Constitutional framework. 3. Political structure- Centre- state relations. 4.
Political philosophy & stability of the government. 5. Political process - party system, election & their
funding. 6. Profile of Politicisation of business & economic system. 7. Foreign policy of the government. 8.
Ideologies & value of political parties.
CRITICAL ELEMENTS OF POLITICAL ENVIRONMENT
There are several aspects of the political environment which may be regarded as critical elements in relation
to business. The more important of these elements are
1. Political system;
2. Political processes;
3. Stability of the political structure; and
4. Centre-State relations.
1. Political System
The Indian polity or political system is governed by the Constitution of India which was adopted by
the Constituent Assembly in November, 1949 and came into force on 26'" January, 1950. Under the
Constitution, India has a parliamentary form of government and federal structure comprising at present 28
States and 8 Union Territories. President of India is the constitutional head of the Indian Union. But he has
to act in accordance with the aid and advice of the Council of Ministers with Prime Minister as its head. The
real executive power thus vests in the Council of Ministers which is collectively responsible to the elected
members of the Lok Sabha (House of the People). Likewise, in the States, the Governor is the head of
executive, but executive powers of governance vests in the Council of Ministers with Chief Minister as its
head, and the Council of Ministers is collectively responsible to the State Legislative Assembly. The supreme
legislative body of the Indian Union is the Parliament consisting of two houses -the Lok Sabha (house of
people) and Rajya Sabha (Council of States). Members of the Lok Sabha are chosen by direct election for a
five year term on the basis of adult suffrage. Elections to the Rajya Sabha are indirect; Members representing
states are elected by elected members of legislative assemblies of states. A few members are nominated by
the President. One-third of the members retire every second year.
2. Political Processes
Election Commission of India is an independent authority which governs the formation and
functioning of political parties at national, regional and state levels. The law provides for registration of
political parties by Election Commission. The state or government cannot give preference to one religion as
against another.
3. Stability of the Political Structure
Balance between executive, legislation and judiciary can lead to stable political structure. In India,
ministries departments, secretariats and offices have executive power at centre and state.
4. Centre state relationship
 To avoid conflict between Union and federating states the constitution has provided for three fold
distribution of power; i.e. – Union, state and concurrent.
Features / Essentials of political system
• System should be stable
• It should be honest
• Efficient
• Dynamic
Factors affecting political instability
1. Civil war
2. Declaration of any emergency in the country
3. Change in the form of structure of the administration of the government
Role and functions of political system
• To integrate the whole society
• Political system designs the way to conduct the society
• Political system helps to policy making in the country
• It gives a way to government to manage a country
Political institutions
Political institutions are classified in to three. They are
1. Legislature
A legislature is a governing body that makes laws and can also amend or repeal them. It is a powerful
institution. The Parliament is the Supreme legislative body of the republic of India. It is bicameral
legislature composed of the president of India and two houses – Rajya Sabha (Council of States) and
Lok Sabha (house of the people). Each Houses has to meet within six months of its previous sitting.
Each state has a legislative assembly. A state legislature that has one house – State Legislative
Assembly (Vidhan Sabha) – is a unicameral legislature. A state legislature that has two houses – the
State Legislative Assembly and a State Legislative Council (Vidhan Parishad) – is a bicameral
legislature (Andhra Pradesh, Telangana, Uttar Pradesh, Bihar, Maharashtra and Karnataka). The
Vidhan sabha is the lower house and corresponds to the Lok sabha while the Vidhan Parishad is the
upper house and corresponds to the Rajya Sabha of the Parliament of India.
• Important role of legislature is to make law
• It has powers in;
- Policy making
- Law making
- Approval of budgets, etc.
2. Executive
Executive implements the laws passed by the legislature and the policies of the government.
According to Garner “ in a broad and collective sense, the executive organ embraces the aggregate or
totality of all the functionaries and agencies which are concerned with the execution of the will of the
state as that will has been formulated in terms of law”. Executive includes head of the state, council
of ministers, and all other officials who implements the law.
 • Referred to as government
• Responsibility for implementing law
• To shape, direct and control the business activities
3. Judiciary
It is the third powerful institution. It is the system of courts that interprets and applies the law in
the name of the state. It also provides a mechanism to settle legal dispute that affect the business.
• Responsible to interpreting and apply law
• To settle legal dispute: the legal dispute may
a. Dispute between employer and employee
b. Dispute between two companies
c. Dispute between employees
Responsibilities of business towards government
1. Regular payment of taxes
2. Voluntary programmes - Sponsoring social welfare programmes, Environmental preservation,
Promoting education, Assistance in drought, flood etc.
3. Providing Feedback information.
4. Providing service to the government through becoming member in advisory board.
5. Government contract.
Responsibilities of Government towards business
1. Provision of peaceful atmosphere
2. Provision of a system of money and credit
3. Balanced development and growth
4. Provision of basic infrastructure
5. Provision of information
6. To assist small scale industries
7. Licensing and inspection
8. Protection from foreign competition
LEGAL ENVIRONMENT: - Legal environment includes various legislations passed by the Government
administrative orders issued by government authorities, court judgments as well as the decisions rendered
by various commissions and agencies at every level of the government - centre, state or local. It is imperative
for the management of every enterprise to obey the law of the land.

• Legal Environment is the set of rules and regulations to be abiding by law stimulating and surrounding
the business.
• The legal Environment of the business refers to the code and conduct that defines the legal boundaries
for business activity.
• To understand legal boundaries, it is essential to first have a basic understanding of law. Understand
how law affect business and business practices.
• Major laws that affect business are
a. Laws on production or sale - that means business must understand production or sale
of which product is prohibited.
b. Law relating to consumer protection.
 c. Employee protection law
d. Tax and financial law
LEGAL ENVIRONMENT IN INDIA
1. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
The Government has set up the Securities and Exchange Board of India (SEBI) by a
notification of Ministry of Finance issued 12 April 1988, SEBI is the apex body for the development
and regulation of the stock market in India. After 4 years a separate legislation namely Securities and
Exchange Board of India Act, 1992 has been enacted. Till then it was acted as an advisory body
performing the following functions:
a. Collecting information and advising the government on matters relating to stock and capital
markets.
b. Licensing and regulation of merchant bankers, mutual funds, etc.
c. Preparing the legal draft for performing the regulatory and development roles of SEBI.
d. Performing any other functions as may be authorised to it by the Central Government.
By abolishing the office of Controller of Capital Issues (CCT) and by transferring some of the powers of
Securities Contracts (Regulations) Act 1956 to SEBI, it was given statutory powers by an ordinance on 30th
January 1992. Thus, at present SEBI is armed with statutory power of regulating the primary market and
supervising the functioning of stock exchanges in the country.
The SEBI Act, 1992 provides for the establishment of protect the interest of the investors in securities,
promote the development of capital market and to regulate the security market.
Objectives of SEBI
SEBI has to promote healthy and orderly growth of the securities market and secure investor
protection.
The main objectives of SEBI are as follows:
• Investor protection: In order to have a steady flow of savings into the capital market, the interests of
the investors have to be protected.
• Ensure fair practices: SEBI has to regulate the securities market and ensure fair practices.
• Promotion of efficient services: SEBI has to promote the efficient services rendered by brokers,
merchant bankers and other intermediaries, in order to make them competitive and professional.
Functions of SEBI (Sec. 11)
The SEBI Act, 1992 has entrusted with two functions, they are;
A. Regulatory functions and
B. Developmental functions
A. Regulatory Functions: These functions include
i. Regulation of stock exchange and self regulatory organisations.
ii. Registration and regulation of stock brokers, sub-brokers, Registrar to all issues, merchant
bankers, underwriters, portfolio managers etc.
iii. Registration and regulation of the working of collective investment schemes including mutual
funds
iv. Prohibition of fraudulent and unfair trade practices relating to securities market.
v. Prohibition of insider trading
 vi. Regulating substantial acquisition of shares and take over companies
B. Developmental Functions:
1. Promoting investors education.
2. Training of intermediaries
3. Conducting research and publishing information useful to all market participants.
4. Promotion of fair practices
5. Promotion of self regulatory organisations
Powers of SEBI
The following are the powers delegated to SEBI under Securities Contract (Regulations) Act,
1956.

1. Power to call for periodical returns from stock exchange.

2. Grant approval to any recognised stock exchange to make bye-laws for the regulation or
control of contracts.
3. Power to control and regulate stock exchanges.
4. Power to make or amend bye-laws of recognised stock exchanges.
5. Power to compel a public company to list it’s share in any stock exchange.
6. Licensing of dealers in securities in certain areas.
7. Power to appoint any person to make enquiries into the affairs Of stock exchange.
8. Power to suspend business of any recognised stock exchange.
9. Power to prohibit contracts in certain cases
10. Power to grant registration to market intermediaries.
2. The Foreign Exchange Management Act, 1999 (FEMA)
It is introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). It is an act to
consolidate and amend the law relating to foreign exchange with the objective of facilitating external
trade and payments.
Foreign Exchange control was first introduced in September, 1939 under Defense of India Rules.
Foreign Exchange Regulation Act was first introduced in 1947. This was later replaced with The Foreign
Exchange Regulation Act (FERA), 1973. FERA was very strict and even has a provision for imprisonment.
FERA was not suitable in the new and liberal economy, thus it was replaced by Foreign Exchange
Management Act (FEMA) 1999, which came into effect from 1st June 2000. RBI plays a key role in the
management of foreign exchange.
FEMA stands for Foreign Exchange Management Act. It is a soft, liberal & simplified law that aims at
boosting foreign trade and investment more in tune with Country's new economic environment of
globalization of Indian economy.
Applicability
• It is applicable to whole of India.
• The act is also applicable to all branches, offices and agencies outside India owned or controlled by a person
who is resident of India.
Reasons contributing to enactment of FEMA.
- Liberal EXIM Policy
- Increased inflow of foreign investment
- Foreign exchange reserves had increased
- Commitment of government to WTO
- Penalty provisions of FERA were very strict

Features
• Dealing in foreign exchange.

• Full freedom to person resident in India to hold or transfer any foreign securities or immovable
property situated outside India.
• A person resident outside India is also permitted to hold shares, securities and property acquired by
him while he was resident in India.
• Directorate of Enforcement.

• It Is applicable to all parts of India.

• It is also applicable to all branches, offices & agencies outside India owned or controlled by a person who
is a resident of India.
• It's head office is known as Enforcement Directorate is situated in New Delhi & headed by a Director

Objectives Of FEMA
The main objectives of FEMA is to utilize foreign exchange resource of the country effectively.
• To facilitate the external trade and payment.
• To promote an orderly development and maintenance of the foreign exchange market in India.
• Regulation of foreign capital in India.
• To regulate employment business and investment of non-residents.
• It is facilitates external trade, payment, orderly development & maintenance of foreign exchange in India.
• It is very important to a foreign trade & to maintain a good relation with other countries.
Major Provisions of FEMA (1999)

• Free transactions on current account subject to reasonable restrictions that may be imposed
• RBI controls over capital account transactions. • Control over realization of export proceeds.
• Dealing in foreign exchange through authorised persons like authorised dealer/money changer etc.. ·
• Appeal provision including special Director (Appeals).
• Directorate of enforcement.
• Any person may sell or draw foreign exchange, without prior permission & can later on inform RBI.
This makes it a more positive feature.

Regulators involved in FEMA

• Reserve Bank of India (RBI)

• Ministry of Industry, Government of India

• Ministry of Finance, Government of India

 • Directorate of Enforcement
INTELLECTUAL PROPERTY RIGHTS ( IPR)
Intellectual Property Rights are legal rights, which result from intellectual activity in industrial, scientific,
literary & artistic fields. These rights Safeguard creators and other producers of intellectual goods & services
by granting them certain time-limited rights to control their use. Protected IP rights like other property can
be a matter of trade, which can be owned, sold or bought. These are intangible and non exhausted
consumption.
•Basic concept in IPR
Intellectual
• Intellectual property is an intangible creation of human minds. Usually expressed or translated into a
tangible form that is assigned certain rights of property.
• Example of intellectual property includes an authors copy right on a book or article, distinctive logo
design representing a soft drink company and its products, unique design elements of a web site,
• IPR can be defined as the right given to people over the creation of their mind.

OBJECTIVES OF IPR
• It is used for various legal entitlements which attach to certain type of information ideas
• The holder of these rights can exercise various exclusive rights
rights in relation to the subject matter of the Intellectual Property.
• Intellectual property laws vary from jurisdiction to jurisdiction, such that acquisition, registration of
these are varies
• creation of their minds. They usually give the creator an exclusive right over the use of his/her
creations for a certain period of time.

TYPES OF IPR
1. Patent
patent is an exclusive right granted for an invention, which is a product or a process that
provides a new way of doing something, or offers a new technical solution to a problem. It
provides protection for the invention to the owner of the patent. The protection is granted for
a limited period, i.e. 20 years. Patent protection means that the invention cannot be
commercially made, used, distributed or sold without the patent owner's consent. A patent
owner has the right to decide who may - or may not - use the patented invention for the
period in which the invention is protected.

2.Trademarks
A trademark is a distinctive sign that identifies certain goods or services as those produced or
provided by a specific person or enterprise. It may be one or a combination of words, letters,
and numerals. They may consist of drawings, symbols, three dimensional signs such as the shape
and packaging of goods, audible signs such as music or vocal sounds, fragrances, or
colours used as distinguishing features.

3.Copyrights
Copy right is a legal term describing rights given to creators for their literary and artistic works
Copyrights give exclusive rights to authors, composers, singers, musicians, and artists to
publish, dispose of, or release their work as they see fit. The people in the music business face
 problems with the illegal use of their material—piracy, which is the unlawful duplication of
copyrighted material
including sound recordings to make bootleg tapes and records. A major area in which
copyrights are routinely infringed is computer software.
4. Geographical Indications
GI are signs used on goods that have a specific geographical origin and possess qualities or a reputation that
are due to that place of origin? Agricultural products typically have qualities that derive from their place of
production and are influenced by specific local factors, such as climate and soil.
5.Industrial design
It is also a type of intellectual right . It is the design created for identifying specific industry . Eg: BIS design
for jewellery industry .

Trade Related Aspects of Intellectual Property Rights (TRIPS)

The purpose of TRIPS is to allow for the creation of domestic laws that concern the protection of intellectual
property rights, as well as the enforcement of such laws in violating countries. TRIPS established minimum
levels of protection that each WTO member government must provide to the intellectual property of fellow
WTO member states. TRIPS covers the
following types of intellectual property
Copyrights
Trademarks (including service marks)
Geographical indications:
Industrial designs
Patents
Layout designs of integrated circuits
Undisclosed information, including trade secrets
TRIPS provides guidelines for how basic principles of the trading system and other international intellectual
property rights agreements should be applied. It also spells out how various WTO member governments
must provide adequate protection of intellectual property rights in their domestic laws, and sets rules for how
countries should enforce intellectual property rights within their own borders. TRIPS also provide a means
of settling disputes regarding intellectual property between members of the WTO.

TECHNOLOGICAL ENVIRONMENT
Technological environment includes forces relating to scientific improvements and innovations which
provide new ways of producing goods and services and new methods and techniques of operating a business.
For example, recent technological, advances in computers and electronics have modified the ways in which
companies advertise their products.

Technology
The term technology means all the skills, knowledge, produced for making and doing useful things.
Technology includes the nature and specification that means what is produced, product design as well as
how it is produced.
Advantages of technology
• Reduced cost of operation
• Better productivity
• Reduced unit cost
 • Better quality of services
• Reduced wastage of resources
TECHNOLOGY TRANSFER
It is the essential factor for socio- economic development of a country. The term technology means all the
skills, knowledge produced for making and doing useful things. Technology includes the nature and
specification what is produced that is product design as well as how it is produced. Transfer of technology is
the process of transferring technology from one organization to any other person. It means transferring
Technology from the owner who owns the technology to another person. It is also known as Technology
Commercialization. It is also related to transferring skills, Knowledge, Technologies, method of
manufacturing etc.

Advantages of Technology Transfer:

Transfer of Technology is increasing day by day and it is also important for commercial enterprises o to gain
some advantages from their competitors. Some advantages of Technology Transfer are:
• It leads to competitive advantage for a company from its competitors
• It helps in research and development of a product. Transfer of technology helps organizations to modify
it according to needs.
• Transfer of Technology makes Technology new and new innovations lead to the creation of a new market
and demand.
• It helps in the commercialization of technology.

Technology Transfer Process

The transfer process of technology can be coupled to the general innovation process. Technology
transfer is, however, not present in every step of the innovation process and we will only look at those steps
where transfer is involved. The steps can be defined as follow:
1. Identifying appropriate technology
2. Evaluate the technology
3. Secure the technology
4. Protect the technology
5. Produce prototype
6. Obtain technology awareness training
7. Product specific training
Uses of technology in business
Technology used in all area of the business. All business activity depends technology.
1. Production
Technology used in the functional areas of production. It includes formation and design of
a product and it’s process.

2. Marketing
Technology also used in the area of marketing of products and services. The use of internet
, phones and television are commonly used as means of marketing .

3. Management
 Technology plays a vital role in functional areas of organisation. The management
Information System ( MIS) helps an organisation in collection, storing, process and supply
of information to the management for effective management of an organization.

4. Accounting
Technology creates significant benefit for accounting area of business. The computerized
accounting system helps to reduce the time, effort, and complexity involved in the
preparation and presentation of financial statements of an organization.

5. Research and development

Technology also used in the research and development areas of every business
organization.