Unit 2: Political & legal environment
Business Environment notes · PTU syllabus (BCOM 202-18)
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Unit summary
Government, laws and global integration shape what businesses can do. This unit covers India's legislature, executive and judiciary, FEMA, the Consumer Protection Act, and the policy of liberalisation, privatisation and globalisation (LPG), including what helps and what hinders globalisation in India.
After this unit you can
- Explain how the legislature, executive and judiciary affect business
- Explain the main provisions of FEMA and the Consumer Protection Act
- Explain liberalisation, privatisation and globalisation
- Analyse factors facilitating and impeding globalisation in India
PTU syllabus topics
- Legislature
- executive and judiciary
- Foreign Exchange Management Act (FEMA)
- Consumer Protection Act
- liberalisation
- privatisation and globalisation
- factors facilitating and impeding globalisation in India
Liberalisation
Fewer licences and controls
Privatisation
Disinvestment in public enterprises
Globalisation
Lower tariffs, more foreign investment
Topic 1
The political environment
- Legislature (Parliament and state legislatures) makes laws affecting business — taxation, labour, company law.
- Executive (government and ministries) implements policies and regulations.
- Judiciary (courts) interprets laws, settles disputes and protects rights.
A stable political system, clear policies and good governance encourage investment.
Topic 2
FEMA and the Consumer Protection Act
Foreign Exchange Management Act (FEMA), 1999 replaced FERA (1973). It aims to facilitate external trade and payments and promote the orderly development of the foreign exchange market. Violations are civil offences (penalties), not criminal as under FERA.
Approach
Control foreign exchange
Manage foreign exchange
Offences
Criminal
Civil
Objective
Conserve foreign exchange
Facilitate trade and payments
Consumer Protection Act, 2019 protects consumers' rights:
- Six rights: safety, information, choice, to be heard, to seek redressal, and consumer education.
- Three-tier commissions: District (claims up to ₹50 lakh), State (above ₹50 lakh up to ₹2 crore) and National (above ₹2 crore), based on the value of goods or services paid.
- Central Consumer Protection Authority (CCPA) acts against unfair trade practices and misleading advertisements; e-commerce and product liability are covered.
Topic 3
Liberalisation, privatisation and globalisation (LPG)
The New Economic Policy, 1991, introduced during a foreign exchange crisis, rests on three pillars:
Liberalisation
Abolition of most licensing, freer markets, lower controls
Privatisation
Disinvestment in public enterprises, private entry into reserved sectors
Globalisation
Lower import duties, FDI liberalised, rupee convertibility on current account
Effects: faster GDP growth, foreign investment, a booming services sector, more consumer choice — but also concerns about inequality, agrarian distress and job quality.
Topic 4
Factors facilitating and impeding globalisation in India
Policy
Liberal FDI and trade policies
Complex regulations and procedures
People
Large skilled English-speaking workforce
Skill gaps in parts of the workforce
Market
Huge domestic market
Infrastructure bottlenecks
Technology
IT and digital strength
Bureaucracy and delays
Key terms
- Legislature
- The law-making body
- FEMA
- Law managing foreign exchange in India
- Consumer Protection Act, 2019
- Law protecting consumer rights
- Liberalisation
- Reducing government controls on business
- Globalisation
- Integrating the domestic economy with the world economy
Quick revision
- Legislature makes, executive implements, judiciary interprets.
- FEMA: civil offences, facilitates trade.
- CPA 2019: six rights, three-tier commissions, CCPA.
- LPG 1991: licensing abolished, disinvestment, FDI opened.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.How does the judiciary affect business?
- Q2.Differentiate between FERA and FEMA.
- Q3.List the six consumer rights.
- Q4.What is privatisation?
- Q5.State two factors impeding globalisation in India.
Long-answer questions
- Q1.Explain the role of the legislature, executive and judiciary in the business environment.
- Q2.Explain the main provisions of the Consumer Protection Act, 2019.
- Q3.Explain liberalisation, privatisation and globalisation and their impact on Indian business.
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