Business Environment — NCERT Solutions

The NDL India example highlights:

• Social environment — because it supports different groups of learners, including differently-abled learners, and reflects society’s educational needs.
• Technological environment — because it works through a virtual repository and single-window search facility, which are based on technology.

So the dimensions are social and technological.

From the chapter’s table on the impact of demonetisation:

• Interest rates / money market: cash transactions declined and bank deposits increased, which improved financial savings.
• Private wealth: it declined because some demonetised notes were not returned and real estate prices fell.
• Real estate: prices declined.

So the impact was a decline in cash transactions and private wealth, and a fall in real estate prices.

Business environment means the totality of external forces that affect a business enterprise. It includes both general environment and specific environment.

General environment

These are the broad factors that affect all business firms more or less equally. They include:

• economic factors,
• social factors,
• technological factors,
• political factors, and
• legal factors.

For example, rising inflation, changes in law, or technological advancement affect many firms at the same time.

Specific environment

These are factors that affect a particular enterprise directly and immediately. They include:

• customers,
• suppliers,
• competitors,
• investors, etc.

For example, if a foreign company enters the market with a new substitute, it directly affects the existing firm.

Difference

• General environment is broad and common to many firms.
• Specific environment is narrow and directly affects an individual firm.

Thus, business environment is made up of both kinds of forces, and both influence business performance.

The success of a business enterprise is significantly influenced by its environment because a business does not operate in isolation. It exists, survives and grows within the context of external forces.

A business may not be able to control these forces, but it must respond to them. For example:

• if there are new opportunities, a business can be the first to exploit them;
• if there are threats, it can prepare in advance;
• if technology changes, firms must update their methods;
• if customer tastes change, firms must modify products;
• if competition increases, firms must improve quality and reduce costs.

Enterprises that continuously monitor the environment and adopt suitable practices tend to improve performance and succeed for a longer time. Hence, business success is closely linked to environmental understanding and adaptation.

The main dimensions of business environment are:

1. Economic environment

It includes factors like interest rates, inflation rates, disposable income, stock market indices and value of rupee.

• Example: low interest rates may increase demand for cars and houses bought on loan.

2. Social environment

It includes customs, traditions, values, social trends and society’s expectations.

• Example: Diwali, Eid and Christmas create business opportunities for sweets, cards and tailoring.

3. Technological environment

It includes scientific improvements and innovations that change how goods and services are produced and delivered.

• Example: online booking of railway tickets and internet-based business operations.

4. Political environment

It includes political stability, peace, and the attitude of the government towards business.

• Example: political stability increases confidence for long-term investment.

5. Legal environment

It includes laws, government orders, court judgments, and regulations.

• Example: cigarette packets must carry health warnings and advertisements of alcoholic beverages are prohibited.

These dimensions together form the general environment of business and influence decision-making and performance.

a. Dimensions of business environment highlighted

The passage highlights:

• Technological environment — use of Point of Sale machines, e-wallets, digital cash and cashless transactions.
• Legal environment — the change in legal tender status and the regulatory framework for demonetisation.
• Economic environment — increased transparency in monetary transactions and rise in tax collection.

b. Features of demonetisation

From the chapter, the features are:

1. It is a tax administration measure.
2. It signals that tax evasion will no longer be tolerated.
3. It channels savings into the formal financial system.
4. It aims to create a less-cash or cash-lite economy.

The chapter also notes that demonetisation helped increase digital transactions and improve tax compliance.

Under the Industrial Policy, 1991, the Government initiated these major economic changes:

• Reduced industrial licensing to only a few strategic industries.
• Derserved many industries earlier reserved for the public sector.
• Disinvestment in public sector enterprises.
• Liberalised foreign investment and allowed higher, even 100% FDI in some sectors.
• Automatic approval for technology agreements with foreign companies.
• Set up the Foreign Investment Promotion Board (FIPB).
• Reduced restrictions, taxes and controls, and simplified import-export procedures.

Impact on business and industry

These changes led to:

• increased competition;
• more demanding customers;
• a rapidly changing technological environment;
• greater need for change and innovation;
• more emphasis on human resource development;
• stronger market orientation;
• and loss of budgetary support to the public sector.

Overall, businesses had to become more efficient, competitive and responsive to market needs.