Key Points

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

Specific forces like investors and customers affect individual firms directly, while general forces like social and political conditions affect all business enterprises indirectly.

The business environment is dynamic because it keeps changing and is uncertain as it is very difficult to predict future happenings, especially in technology or fashion.

A good understanding of the environment helps a firm to identify positive external trends or changes, allowing it to gain a 'first mover advantage' over competitors.

Environmental awareness helps managers to identify external trends and changes that could hinder a firm's performance, serving as an early warning signal to take corrective action.

The economic environment consists of factors like interest rates, inflation, changes in disposable income, and stock market indices that affect business practices.

The social environment includes social forces like customs, traditions, values, and social trends, such as the health and fitness trend, which creates new market demands.

This environment includes forces relating to scientific improvements and innovations that provide new ways of producing goods and services, such as online ticket booking.

The political environment includes political conditions like general stability, peace in the country, and the specific attitudes of the elected government towards business.

This environment includes various legislations passed by the government, court judgments, and administrative orders. For example, the statutory warning on cigarette packets is a legal requirement.

In July 1991, the Government of India announced a new industrial policy to address a severe economic crisis. This policy introduced the concepts of Liberalisation, Privatisation, and Globalisation.

Liberalisation means liberating the business and industry from unnecessary controls and restrictions, such as abolishing licensing requirements in most industries and allowing freedom in setting prices.

Privatisation is the process of giving a greater role to the private sector and reducing the role of the public sector, often through disinvestment of public sector enterprises.

Globalisation refers to the integration of various economies of the world, leading towards the emergence of a cohesive global economy with a free flow of goods, services, and capital across nations.

The 1991 reforms resulted in increased competition, more demanding customers, a rapidly changing technological environment, and the need for businesses to become more market-oriented.

On November 8, 2016, the Indian government announced the demonetisation of 500 and 1,000 rupee notes, making them invalid as legal tender.

The main aims of demonetisation were to curb corruption, reduce counterfeiting of currency, stop the use of high denomination notes for illegal activities, and tackle 'black money'.

Demonetisation led to a decline in cash transactions, an increase in bank deposits and financial savings, a rise in digital transactions, and an increase in income tax collection.