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Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence national economy.

The main objectives of fiscal policy are:

• Maximum utilization of resources and factors
• Distribution of resources in the best possible manner to achieve fast economic development
• Bring about equal distribution of resources in the best possible way
• Stabilize prices of goods and services

Economic changes initiated by the government under the Industrial Policy, 1991 

(i) The government reduced the number of industries under compulsory licensing to six. 

(ii) The role of public sector was reduced. It was now limited only to four industries of strategic importance. 

(iii) Disinvestment was carried out in case of many public sector industrial enterprises. (iv) Foreign Direct Investment was permitted. 

(v) Automatic permission was now granted for technology agreements with foreign companies. 

(vi) Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India. The Indian corporate sector has come face-to-face with several challenges due to government policy changes. Some of them are 

(i) Increasing Competition: The competition has increased due to entry of new players (privatisation and globalisation). 

(ii) More Demanding Customers: Customers today, has become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services. 

(iii) Rapidly Changes Technological Environment: The rapidly changing technological environment creates tough challenges before smaller firms. 

(iv) Necessity for Change: After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations. 

(v) Need for Developing Human Resources: Earlier, Indian enterprises worked with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence, the need for developing human resources. 

(vi) Market Orientation: Before 1991, all firms worked with production oriented marketing operations. In a fast changing world, there was a shift to market orientation. The firms had to study and analyse the market first and produce goods accordingly. 

(vii) Loss of Budgetary Support to the Public Sector: The public sector undertakings have realised that in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.

FERA means Foreign Exchange Regulation Act. It was replaced by Foreign Exchange Management Act (FEMA).

Correct option is (D) FEMA

Correct option is (B) Regulation

1. Economical aspect

2. Indian Economy

Correct option is (B) Underutilized

In a developed country, the level of gross national income and per capita income is high and all the available resources are fully developed.

Mixed economy is a combination of socialist and capitalist economy. Under this system, the country allows businesses of certain sectors to do business freely whereas certain sectors are controlled by the government itself.

Correct option is (b) Capitalist

Capitalist Economy is also known as free market economy.

GST is part of legal environment.

Political dimensions or environment includes the country’s political system or its ideologies or condition i.e. dictatorship or democracy or communist government or socialistic government. It indicates the general stability and peace in the country and attitude of the elected government representatives towards business.

Political stability builds up confidence among business people to invest in long-term projects for the growth of the economy. In India we have adopted mixed economy and growth rate often remains moderate. Indian political system comprises three vital institutions like Legislature, Government and Judiciary

1. Legislature : legislature is very powerful force that decides the nature of business, programmes, project, for the development of the country through policy making, law making, budget approving, etc. 

2. Government : The framework of policies are implemented by government which effects the business organization to under take the responsibilities of the society. 

3. Judiciary : It determines the work of executives to carry out the policies in a systematic manner, in order to settle relationship between citizens and the government.

Correct option is (b) The nature of relationship of our country with foreign countries

1. Economic environment comprises of economic condition economic policies and economic system which are the important factors influencing development and trade cycles, national income, etc.

2. Economic Condition : If refers to present state of economy of a country or region based on gross domestic product, per capita income, availability of capital, etc.

3. Economic Policies: Government frames economic policies time to time influencing the business activities. In order to controls the business in the interest of the politics, e.g. – Industrial policy, monetary policy, foreign investment policy etc.

4. Economic System: It refers to the scope of private business and extent of government regulation on economic activities determines the nature of economic system i.e. – capitalist social or mixed economic.

(i) It helps in employment generation and utilization of local resources.

(ii) It helps to promote economic and industrial development in the rural area.

(iii) It helps to develop traditional sector industries to achieve equitable social development.

Correct option is (c) Economical

Correct Answer is Technological

Legislature, Government

opportunities

1. The success of every business depends on adopting itself to the environment in which it functions. Modern business is rightly termed as socio-economic activity.

2. There is reciprocal relationship between business and society. 

3. Business is affected by class structure of the society which depends upon factors such as occupation its own culture, income, etc. 

4. Every society depends its own culture, customs, tradition, values, ethics, etc. social trends are also changing fast. For e.g. large number of people are eating fast food and go to gyms. So many fast food outlets and gyms are coming up in towns and cities. 

5. Social values and traditions such as celebration of Diwali, Eid, Christmas also affect business.

As per the direction issued by Supreme Court the government passed an order to ban the sale of tobacco products: Legal Environment.

(i) Its consumption is injurious to health: Social Environment.

(ii) People are becoming more conscious about health and fitness: Social Environment.

(iii) It is indicating government attitude towards business: Political Environment.

(i) He can take first mover advantage by analyzing opportunities offered by the business environment.

(ii) Two values are:

(a) Encourages team work by consulting others.

(b) Develops initiative among employees by praising them.

Dimensions of Business Environment:

(a) Social Environment: The social environment of business include the social forces like customs, habits and traditions, values, social trends, society's expectations from business, etc. traditions define social practices that have lasted for decades or even centuries. For example, the celebration of Diwali, Id, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets and many other related businesses.

(b)Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. For example, recent technological, advances in computers and electronics have modified the ways in which companies advertise their products.

Manufacturers have flexible manufacturing systems. Airline companies have Internet and World Wide Web pages where customers can look for flight times, destinations and fares and book their tickets online.

The court passed an order to ban polythene bags = Legal Environment.

(i) These bags are creating many environmental problems which affect the life of people in general = Social Environment.

(ii) Society in general is more concerned about quality of life = Social Environment.

(iii) Innovative technique developed = Technological Environment.

(iv) Income is rising and people can afford to buy = Economic Environment. Values communicated are sensitivity towards the environment-fulfilling responsibility towards the nation.

(a) Social Environment: It is related with social customs traditions, expectation, values and social trends that affect the business workings.

(b) Fair remuneration: This principle implies that remuneration of employees should be fair and provide maximum possible satisfaction to both the employer and to the employees.

(c) Values:

(i) Good behaviour subordinates of superiors towards

(ii) Providing food to the needy.

1. Yes. The business environment refers to the totality of all factors which are external and beyond the control of business enterprise.

2. The importance of Business Environment are:

a. Identification of opportunities:

Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them.

b. Identification of threats:

Environmental awareness help managers to identify various threats on time and serves as an early warning signal.

c. Tapping useful resources:

Business environment helps to know the availability of resources and making them available on time.

d. Coping with rapid changes: Environmental. scanning enables the firms to adapt themselves to the changes in the market.

e. Assistance in planning and policy formulation:

Environmental understanding and analysis is the basis for planning and policy making.

f. Improving performance:

Environment scanning helps an organisation in improving its performance

Correct Answer is Environmental

Understanding of Business Environment is very important for managers. It is highlighted through the following points.

(i) Identifying opportunities and getting first mover advantage: The businessmen, who are able to understand and scan the opportunities of business at early stage; can get maximum benefits or they can capture a big market before their competitors can grab these opportunities. For Example. Nerolac Goodlass company was the first company to understand the environment at an early stage to find out that there will be great demand of car painting in India and got all the car painting contract of Maruti company and today 90%, of car paint work of Maruti is done by Nerolac Goodlass company.

(ii) Identifying threats and early warning signals: Threats refers to the external environment trends and changes that will hinder a firm's performance. Threats work as warning signals for organisation to take suitable actions. By identifying threats and early warning signals, the organisation may effectively overcome it by adopting counter strategy. Timely scanning of business environment acts as warning signals for a business to prepare itself to modify its working in advance and try to utilize the qualitative information it receives about the competitors.

(iii) Helps in tapping useful resources: Businessmen have to supply the goods and services according to the demand and consumer needs. To supply and produce output, they need inputs like finance, power, machines, raw-material etc, keeping in mind their availability, in environment and demand of output in the market. So the existence enterprise depends on the environment as a source of inputs.

(iv) Improvement in performance: The study of environment acts as a major source of continuous learning on the part of managers. The enterprises that continuously monitor their environment and adopt suitable business practices at the right time are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

(v) Helps in assisting in planning and policy formulation: Environmental factors help in making plans and formulating policies for future. Scanning, understanding and analysing the business environment provides the base for planning and policy formulation (guidelines for decision making).

(vi) Helps in coping with rapid changes: It enables managements to become more sensitive to cover changing needs of customers. As a result, they are able to respond to such changes effectively.

(i) Principle of Management:

(a) Stability of personnel

(b) Espirit de Corps

(c) Initiative

Dimension of business environment:

(a) Legal environment

(b) Social environment

(ii) Value being conveyed:

(a) Respect for law

(b) Cleanliness and hygiene

(c) Raising standard of living

(d) Secularism

Dimensions:

(i) Economic Environment: "Customer income is rising."

(ii) Social Environment: "People have developed ..... have to pay more."

(iii) Political Environment: "The govt. ............... retail sector”.

(iv) Legal Environment: “Law has permitted ..................... retailing.

Changes in business environment may expect following managerial responses:

(a) Restructuring the organization and strategic planning.

(b) Identifying the strengths and opportunities and taking the first mover advantage.

(c) Advancing or hiring new technologies.

(d) May induce the business enterprise to expand through acquisition mergers, joint ventures etc., to strengthen their position.

(e) Encouraging the enterprise to enter into the diversified areas.

(f) Outsourcing of core or non-core activities to captive or third parties.

(g) Becoming more consumer-friendly and socially responsible while operating the business.

(1) It enables the firm to identify opportunities and getting the first mover advantage 

(2) It helps the firm to identify threats and early warning signal 

(3) It helps in tapping various useful resources 

(4) It helps with copping with rapid changes\sensitive the management 

(5) It helps in planning and policy formulation. 

Meaning of Business Environment:

Business environment means the sum total of those factor which influence the business and over which the business has no control.

Importance of Business Environment:

The importance of business environment is highlighted by the following facts:

i. First Mover Advantage: The study of business environment enables us to know about the opportunities available. A company which is more conscious about the changes taking place in the business environment is the first mover. It takes advantage of it by becoming the first supplier. In other words, a company which has the capacity to know the possibilities of the opportunities available can be the greatest beneficiary.

ii. Warning Signal: Along with the availability of opportunities provided by the study of business environment, we also come to know about the threats accompanying them. If the knowledge about the threats is available in time, efforts can easily be made to face or surmount them. This is possible only by regularly studying the changes taking place in the business environment.

iii. Tapping Useful Resources: An organisation needs a number of resources to carry on its business (e.g., material, machine, man, money, etc.). With the help of these resources goods and services are produced. A business gets resources from the environment and provides goods and services to the same environment. A study of business environment tells a business the requirements of the environment and what can it make available to get its needs fulfilled. Therefore, it is possible to get useful resources from the business environment.

Yes, Mr Chopra should send his son to U.S.A as it will provide the understanding of business environmental content of a business which have the following benefit 

(1) It enables the firm to identify opportunities and getting the first mover advantage. 

(a) Opportunity refers to the positive external trends or changes that will help the firm to improve its performance. 

(2) It helps the firm to identify threats and early warning signals. 

(b) Environmental awareness can help managers to identify various threats on time and serve as an early warning system. 

(3) It helps in tapping resources. 

(c) To engage in any activity a business enterprise assembles various resources like finance, machine, raw material, etc. From its environment including financiers, government and suppliers.

Correct option is (c) External

Business Environment: It means the such total of all individuals, institutions and other forces that are outside the control of business enterprise but that may affect its performance.

Importance:

(i) It helps to identify opportunities and getting the first mover advantage instead of losing them to the competitors.

(ii) It helps to identify threats on time which serves as an early warning signal.

(iii) It helps in tapping useful resources so that it can convert them into output that the environment desires.

(iv) It helps in coping with rapid changes in all increasingly dynamic environment.

(v) It helps in assisting in planning and policy formulation.

(vi) It helps in improving performance by continuously monitoring the environment and adopting suitable practices.

Detailed Answer:

Business environment: It is the sum total of all individuals, institutions and other forces that are outside the control of business enterprise but may affect its performance.

Importance:

(i) It enables the firm to identify opportunities and getting the first mover advantage: Analysis of business environment helps to identify opportunities i.e., positive external changes to be exploited first instead of losing them to competitors.

(ii) It helps the firms to identify threats and early warning signals: A study of business environment helps an enterprise to identify threats i.e ., negative signals that hinders business performance and take appropriate preventive measures on time.

(iii) It helps in tapping useful resources: A business enterprise depends on environment as a source of input like raw materials, labour etc and as an outlet for outlet i.e., goods of services, taxes, etc. Analysis helps to get resources that it needs to convert into outputs which an environment desires.

(iv) It helps in coping with rapid changes: It helps management to become more sensitive to ever changing needs of the customers. As a result, they are able to respond to such changes effectively.

(v) It helps in assisting in planning and policy formulation: Environmental scanning provides the basis for deciding future course of action (planning) and guidelines for decision making (policy).

(vi) It helps in improving performance: The continuous monitoring of environment and adopting suitable business practices not only improve their present performance but also continue to succeed in the market for a longer period.

Business Environment: It means the sum total of all individuals, institutions and other forces that are outside the control of business enterprise but that may affect its performance.

Correct option is (c) Technological environment

Correct option is (a) Social

It is important for business organisations to understand their environment because of the following reasons. 

(i) It Enables the Firm to Identify Opportunities and Getting the First Mover Advantage: Environment provide numerous opportunities for business. Early identification of opportunities helps an enterprise to use it before instead of losing them to competitors. 

(ii) It Helps the Firm to Identify Threats and Early Warning Signals Environmental awareness can help managers to identify various threats on time and serve as an early warning signals. 

(iii) It Helps in Tapping Useful Resources: Environment is a source of various resources for running a business. To engage in any type of activity, a business enterprise assembles various resources called inputs. This can be done better by understanding what the environment has to offer. 

(iv) It Helps in Coping with Rapid Changes: All types of enterprises facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action. 

(v) It Helps in Assisting in Planning and Policy Formulation : Since environment is the source of opportunities and threats, its understanding and analysis becomes the base for various policies to be framed and strategies to be made. 

(vi) It Helps in Improving Performance: The enterprises that continuously monitor their environment and adopt suitable business practices are the ones, which not only improve their present performance but also continue to succeed in the market for a longer period.

The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. The economic, social, political, technological and other forces, which operate outside the business enterprise are part of its environment.

Correct option is (a) More demanding customers

• The factors which cannot be controlled by the managerial personnel of the organization are called external factors of business environment.
• In order to survive in the market and keep going with the competition, the business has to make necessary changes with regard to external factors.

These factors can be broadly classified as:

• Economic factors
• Social factors
• Cultural factors
• Technological factors
• Political factors
• Legal factors

• The factors which can mostly be controlled by the managerial personnel of the organization are called internal factors of business environment.
• The managers can make necessary changes to such factors as per the objectives of business, employees, organizational system, etc.

Internal factors are mainly of three types.

1. Business objectives
2. Employees
3. Managerial systems i.e. organizational structure

Impact of legal environment: Many acts are passed from time to time in order to control and regulate business activities. For example, By removing control on the capital market, the huge amount of capital was collected by using various new issues in the primary market. This has increased the availability of fund with the business houses and promoted large scale production, expansion and growth of business.

Impact of political environment: Its effect on the functioning of Business organisation is explained below through this example:

It was only because of the political interest that Hyderabad came to be known as Cyberabad. In other words, it came to be known as Cyberabad because of the IT companies were established there.

• Factors related to government and financial ideologies of the ruling party are known as political factors.
• The ruling parties frame various laws in the nation. They also establish several policies to expand trade and commerce in the nation. How well the party does all these tasks decide the business environment of the nation.

Example:

• In West Bengal, there was a large opposition for Nano car project of Tata group. This opposition was so fierce that Tata group had to leave West Bengal. Gujarat government took this as opportunity and provided various incentives to the Tata group to establish their Nano car production plant at Sanand near Ahmedabad.
• Tata agreed and as a result, several ancillary industries also came up at Sanand along with Tata. This is a fine example of active role of the political party to grab the opportunity and establish positive business environment.

Effect of cultural factors on business environment:

Factors like, traditions, practices, life style, habits etc. are part of cultural factors. These factors affect the decisions that a business unit takes.

• If the business management ignores the cultural factors prevailing in a society, there are high chances for the business to fail.
• History has recorded several examples where in companies having strong management have failed by neglecting cultural factors. And at the same, time various products which are not economically acceptable have become acceptable because of cultural factors and they have become successful.
• Cultural factors are constantly changing and these changes are constant and periodical.

Effect of social factors on business environment:

• All the business activities originate, grow and end in the society. So naturally, society plays a major role in the environment it gives for the business activities.
• A business activity can never be separated from society. Society represents groups of people, social institutions, social traditions, etc.
• The society of a nation constantly evolves and hence is dynamic in nature. As a result, the lifestyle, preferences and practices also keep on changing. All these factors change the business environment too.
• Beliefs and ideologies of people cannot remain same throughout. So, with time people give importance to their decisions, ideologies and rituals to achieve their development.
• Before producing several type of products the producer needs to consider religion, caste, sect, social norms, ideologies, etc. that exists in a particular society. The decision for the economic activity will be largely affected by these parameters.
• For example, if the society is quite conservative with respect to clothing, then the producer should not produce very bold clothes else he will face loss.
• The society or a section of society which does not restrict itself to all these social constraint develops much faster. People of such societies are open to new ideas and are ready to accept new products. As a result, business activities have a higher chance to innovate and expand.