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MBA 1st Year Economic Political Legal Environment Study Material Notes

MBA 1st Year Economic Political Legal Environment Study Material Notes

MBA 1st Year Economic Political Legal Environment Study Material Notes

MBA 1st Year Economic Political Legal Environment Study Material Notes: Economic Political Legal Environment is a very important part of the MBA (Master of Business Administration). Here in this post, we will provide you its Notes, Study Material, Question Answers, Practice Papers as well as Long Answer type questions.

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MBA 1st Year Economic Political Legal Environment Study Material Notes
MBA 1st Year Economic Political Legal Environment Study Material Notes

Economic, Political, and Legal Environment

Role of government in business, Legal framework in India. 

Economic Environment: Economic system and Economic policies. Concept of capitalism, Socialism and Mixed economy, Impact of business on the private sector, Public sector and Joint sector, Competition Act and FEMA, Monetary and Fiscal policies.

RBI: Role and Functions, Regulations related to capital markets, Role of SEBI and Working of stock exchanges.

The role of government in business

The government in India has an all-pervasive and predominantly restrictive influence over the various aspects of business, e.g. industrial licensing that decides location, capacity, and process, import licensing for machinery and material, size and price of the capital issue, etc. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

The economic environment of a business

Economic conditions, economic policies, and the economic system are the important external factors that constitute the economic environment of a business. The economic environment consists of macro-level factors related to means of production and distribution of wealth in a country or region These factors have a significant impact on the demand and supply of a business of an organization,

The concept of capitalism

Capitalism is an economic system where the trade, industries, and means of production are completely privately owned. It can also be termed as a free market economy or a capitalist economy and involves no interference from the government

Mixed economy

An economic system in which both the private enterprise and a degree of state monopoly (usually in public services, defiance, infrastructure, and basic industries) co-exist. All modern economies are mixed where the means of production are shared between the private and public sectors, also called a dual economy. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

Two merits and demerits of a mixed economy

Merits of Mixed Economy:

1. Government and private enterprises work together for economic development

2. Maximum utilization of resources is made under a mixed economy.

Demerits of Mixed Economy:

1. It is unsuccessful in eradicating economic fluctuations.

2. It involves non-cooperation between the two sectors.

Private Sector

The private sector is the division of the economy which is managed by private groups or individuals with the prime objective of profit earning without any direct interference from the government. These are a part of the voluntary sector of the economy and include sole traders, partnership firms joint stock companies, etc. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

Public Enterprise

The term public enterprise usually refers to government ownership and active operation of agencies engaged in supplying the public with goods and services which alternatively might be supplied by private enterprise operations.

The four Importance of Public Enterprises in India

The four importance of public enterprises in India are:

  1. Better allocation of resources,
  2. Social justice,
  3. Economic stability,
  4. Generation of surplus.

The Various forms of Public Enterprises

Public enterprises are said to be having various forms as given below:

  1. Departmental organization.
  2. Public corporation.
  3. Government company.
  4. Mixed ownership corporation.
  5. Holding company.

Some Disadvantages of mixed Ownership Co-operation

The disadvantages of mixed ownership cooperation are:

  1. Conflicts are bound to arise as public and private interests are opposed to each other.
  2. Profit motive creates conflicts over basic policies.

Competition Act

Competition Act was enacted by the government in 2002 which has replaced the earlier MRTP Act, of 1969. It extends to the whole of India except the state of Jammu and Kashmir. Its main objective is to ensure fair competition in India by prohibiting trade practices that cause an adverse effect on competition in markets within India.

The Competition Commission of India

As given in Section 7 of the Competition Act, 2002, the competition commission of India was established to further the cause of competition as described in the preamble to the Act.

It has been established to prevent practices from having an adverse effect on competition, to promote and sustain competition in markets, etc. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

About FEMA

Foreign Exchange Management Act (FEMA) relates to foreign direct investment in the country. It has helped the country by encouraging external payment and trade. Its objective is to consolidate and amend FERA so as to promote foreign trade while promoting the country’s foreign exchange market. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

Thus, FEMA aims to promote foreign payments and trade in the country,

Monetary Policy

Monetary policy is a policy authorizing central banks to control the supply of money as an instrument of achieving the objectives of general economic policy.  (MBA 1st Year Economic Political Legal Environment Study Material Notes)

Nature of the Monetary Policy

Ans. The monetary policy gives a platform or a base to announce the rules and regulations or norms for the RBI governed bodies such as banks FII, non-banking finance companies, and primary dealers in money markets. Monetary policy is announced twice a year-one for the slack season (April-September). (MBA 1st Year Economic Political Legal Environment Study Material Notes)

one for the busy season (October-March) in accordance with agricultural cycles. This cycle coin with half of the financial year. But in spite of this, the share of non-food credit in total credit has gone up and the share of agricultural credit comes down. The monetary policy will be an annual affair was decided by RBI. The policy aims at adequate financing of economic growth and at the same time ensuring reasonable price stability. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

Objectives of monetary policy

The three objectives of monetary policy are:

  1. The neutrality of money is, money is only a technical device.
  2. Exchange rate stability by using interest rate mechanisms.
  3. Promotion of economic growth by raising financial resources,

Limitations of Monetary Policy 

The three limitations of monetary policy are:

  1. The time lag.
  2. The problem in forecasting.
  3. Underdevelopment of money and capital markets.

Fiscal Policy

Fiscal policy may be defined as a government program of taxation, expenditure, and other financial operations to achieve certain national goals. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

Main Objectives of Fiscal Policy

The main objectives of fiscal policy are:

  1. Full employment.
  2. Economic stabilisation.
  3. Economic growth.
  4. Social justice or equality in the distribution of income and wealth.

Certain measures to reduce Fiscal Deficit

In the context of the Indian economy, the following measures can be undertaken to reduce the fiscal deficit:

  1. Reduction in expenditure on major subsidies such as food, fertilizers, and exports.
  2. Reduction in the huge sum of money spent by the government on LIC bonus, leave encashment, etc.
  3. Reduction in fresh recruitment of government staff along with abolition of large
  4. Curtailment of unnecessary expenditure in the government departments.

The Basic Reasons for the Nationalization of RBI

The basic reasons for the nationalization of RBI were as follows:

  1. There was a trend toward nationalization of central banks of the country in all parts of the world after the end of the second world war. (MBA 1st Year Economic Political Legal Environment Study Material Notes)
  2. To control the inflationary tendencies prevailing during the second world war, it was thought to nationalize the RBI.
  3. The country had embarked upon a planned economic program after independence So, so nationalization became necessary for the economic development of the country.

 About SEBI

SEBI (Securities and Exchange Board of India) was a landmark government measure mainly established to monitor and regulate capital market activities and to promote the healthy development of the markets. It has been empowered to conduct an inspection of stock exchanges under the SEBI Act, 1992. (MBA 1st Year Economic Political Legal Environment Study Material Notes)

More MBA Question Answer in Objective Business Environment

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