Introduction to Business Environment

Global Integration and Business Environment

The business environment in India has undergone a tremendous change in the last few years. Although there are several factors responsible for this, global integration is one of the most important ones. Liberalization, privatization, and globalization (LPG) are three crucial components of this factor.

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Background of Global Integration

The economy of India has developed drastically since independence from the British rule. The government’s priorities immediately after 1947 were to focus on social upliftment of people and eradicating poverty. The economy them was largely agrarian and industries were scarce.

liberalization privatization globalization

Gradually, the government started establishing its own industries. There were several public sector corporations operating in many industries. The government ensured that they flourished by creating monopolistic markets. Hence, private companies were heavily regulated and controlled.

This approach did not last very long because the government ended up with a balance of payment crisis in 1991. When India approached international institutions like the World Bank for help, they asked the government to open up its economy.

As a result, India adopted radical measures to integrate its economy with that of other nations. These measures, thus, are broadly termed as global integration of the Indian business environment.

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Elements of Global Integration

Global integration means the process with which the local Indian market opens up to the global economy. Consequently, it amounts to letting foreign factors influence India’s local business environment.

The process of global integration of India’s business environment began in 1991. The following elements were largely responsible for this:

  1. Liberalization
  2. Privatization
  3. Globalization

Liberalization

Every government imposes restrictions on the way its citizens conduct business activities. One way of doing this is by making it compulsory for people to obtain several licenses and permissions for business. This process, for example, was called ‘License Raj’.

Liberalization basically refers to the removal of these restrictions. This happens when the government removes unnecessary license requirements, allows more freedom in conducting business, dilutes regulation and reduces taxes. Another way to do it is by making imports and exports easier.

Liberalization has been responsible for several large MNCs coming to India. The government has been able to attract crores of Rupees as foreign capital because of it.

Privatization

Privatization simply means allowing private players and companies to conduct business. This did not happen commonly before 1991 because the government controlled many industries. It also implies withdrawal of the state’s interference in business.

The main objectives of privatization are to reduce the burden on tax-payers, encourage private competition, facilitate capital inflow, etc. Some common modes by which a government indulge in privatization include disinvestment, franchising, public-private partnerships and liquidation of public sector undertakings.

Due to privatization, there are very few government companies remaining in India now. The ones that remain do not even enjoy a monopoly. Government companies like Air India, ONGC, LIC and HAL have to compete with private companies and MNCs. As a result, India’s economy has become more diverse and growth-oriented.

Globalization

The restricted nature of India’s economy before 1991 had made it over-dependant on local companies. Indian firms only competed amongst each other. Foreign companies, thus, could not even think of working here. This finally changed when India adopted globalization.

Globalization, in simple words, means growing inter-dependence between countries with regards to business and trade. Modern means of communication and transportation technology have made this possible. Even international organizations and treaties between countries have played a big role in globalization.

There are several benefits of globalization. For example, many new markets like insurance, transportation, and banking services have grown due to it. Furthermore, people now have access to more choices and international brands because of free trade between countries.

Solved Questions for you

Question: Fill in the blanks in these below-mentioned statements.

a) India adopted the policies of global integration after the economic crisis of _____.

b) _____ is responsible for eradicating ‘License Raj’ from India.

c) Multi-lateral trade agreements help in promoting _____.

d) The elements of ____ are commonly referred to as LPG.

Answers:

a) 1991

b) Liberalization

c) Globalization

d) Global integration

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