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What is the impact of Political Environment of Economy?

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The Economic Policies have depended upon the political policies of a political party. in this way political environment of a country has great impact on the business houses. The dominated role of public sector in our country is outcome of ‘socialist pattern of society’ adopted by the Congress Party. In short, important economic policies such as industrial policy, foreign capital policy, fiscal policy and import policy are often political decisions which established the great impact of political & legal environment on the business houses. A stable and dynamic political environment is indispensable for business growth.

The political institutions i.e. legislature, Executive and Judiciary plays important role in economic policies as well as in development of country whereas the legislature is vested with most vital powers like policy making, budget making and executive control. The decisions of the legislature affect each and every activity of business houses. Legislatures have to check that profit earning is not only justified but also whether the activities of business houses are in a manner beneficial to the society. The other important political institution is the ‘Executives of the actual law and policies enforcing agency. What the legislative made in their chamber actually come in force in the hands of executives. In the way the functions of executive also effects the economic development. Some times the legislature makes some policies but there is conflict between the executives and business houses about implementation. In case of such conflicts, the judiciary, the third important political institution resolves the conflicts. It is the power of the judiciary to settle legal disputes that effect business considerably. It is therefore necessary to discuss about the impact of political and legal environment on the economy.

Depending upon the nature and stage of development of the economy, the behavior of the private sector, the political philosophy, social attitudes, administration system etc. it is a universal phenomenon that state controls economy. In the modern era, two most powerful institutions in the society are ‘business’ and government which meet on common grounds or otherwise together they determine the public policy both foreign and domestic for a nation. But four corner development of a country is only possible if the government plays significant role in the economy of a country. Normally government plays for important roles in an economy and Government regulation of the economy may be broadly divided into two parts; direct and indirect control. The reservation of industries to small scale, public and cooperative sector, licensing system, import and export regulations, the subsidies for different sectors are some examples of regulatory measurements of the governments.

For the development of economy, state/government will have to assume direct responsibility to build up and strengthen the necessary development of infrastructure i.e. transport, power, finance, marketing and institutions for training and guidance along with other promotional activities.

A well planned economy may lead to a country on the path of development. State especially plays important role in planning economy. How to use resources the achieve the goal within the time frame set etc. are the basic needs for proper development of economy and proper planning is most important tool for the same.

Sometimes to boost-up the economic development government plays the role of entrepreneur. It establishes the business enterprises and bear the risks. Dominating trend of pubic sector is basic ingredient of under developed countries. But recently many governments have resorted to privatization.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:February 17, 2012
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