Business and economic environment has a direct impact from political and legal phenomena. Political environment determines the nature of governance. In a capitalist country privately owned corporations enjoy supreme power, while the socialist country lays more stress on public sector.
In every country a large number of laws are framed to control and promote business (Laws governing control of monopoly promote competition). Government also frame laws regarding standard of packaging, laws prohibiting use of spurious materials causing health hazards, are there in many states.
The governments in all the countries set legal norms and parameters in which business operate. Some laws are much relevant with the business. In India, the Companies Act, Industrial Development and Regulation Act, Contract Act, Labour Laws have much bearing on industries.
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Industries cannot ignore the rights of consumer. Parliament had enacted the Consumer Protection Act, 1986 to protect the interest of consumers. The Foreign Exchange Regulation Act was passed in 1973 and was operational in 1974.
Though it regulated the foreign exchange business (inflow and outflow) the operations of MNCs became limited after enactment of this Act. After the economic reforms process started, the Act was replaced by Foreign Exchange Management Act which does not contain the complex provisions of FERA. Thus Foreign Exchange transactions now have become easy which has been reflected in the accumulation of reserves. The legal environment is thus largely determined by the government.
The laws are passed in India by the parliament because India is a parliamentary democracy. State Laws are framed by the state government and passed by legislatures. The powers of state and centre are bifurcated by the constitution.
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Their areas of operation have been indicated in the constitutional provisions through Union list and State list. There is one concurrent list in which both centre and state and state have the right of enacting rules.
The political climate in India is quite steady and strong. We have a functioning parliament and an ever vigilant judiciary. While in many third world countries democracy has never existed, various countries are struggling hard to establish democracy, but India has proved its worth, Indian electorate is world’s largest electorate.
They have given many times unique example of political maturity by toppling governments when needed through the process of voting. This shows their intellectual depth and political maturity. The Constitution gives each Indian citizen a number of Fundamental Rights. The Directive Principles of State Policy enunciates the philosophy and directions how the state will run.
The business has also to follow the Laws, and have to obey the order of the court. Thus actions of business community are subject to control by laws and institutions. We can see that the business activities are governed by Acts or Laws which are either facilitator or regulatory.