Chapter 2 : Political Environment

Very Short Question Answer

 1. Enlist the components of political environment.

Political environment includes various components which are mentioned below:

• Political ideology
• Constitution
• Political parties
•  Government and its branches: Legislation, Executive & Judiciary

 2.  What is political ideology?

Political ideology may be defined as a set of ideas, principles, and philosophy. It offers some political and cultural outlook. A political ideology is largely concerned with allocation of power. The main political ideologies are democratic and totalitarian.

3. What do you mean by political environment?

Political environment is the sum of all the political conditions and events that affect the growth and development of a business directly or indirectly. It consists of political ideology, constitution, political parties and government and its branches.

4. How constitution affects a business?

Constitution affects all sectors of a country. A democratic constitution provides rights to the businesses and facilitates their growth and development. It states the directive principle, policies and ensures some fundamental rights which are directly related to the development of business in the country.

5. Write the name of any four major political parties of Nepal.

A political party is a group of people who share the same ideas about the way the country should be governed. The four major political parties in Nepal are,

• Nepali congress
• Unified Communist party of Nepal(Unified Marxist Leninist)
• Unified communist party of Nepal (Maoist)
• Rastriya Prajatantra Party Nepal

6. Name any four constitutions bodies.

The bodies which are created by the constitution are called the constitutional bodies. Among various constitutional bodies in Nepal, four of them are as follows:

• The commission for the investigation of Abuse of Authority
• Office of the Auditor of General
• Federal Public Service Commission
• Election Commission

7. Enlist any four fundamental rights which have a large implication to the business sector.

The rights which are essential or fundamental for the well-being of a person are called fundamental rights. Some of the fundamental rights which have a large implication to the business sector are listed below.

• Right to property
•  Right to social security
• Right to information.
• Right to freedom

8. Write how legislature affects the business sector.

Legislative also called the parliament is formed by the representative of the people. It acts as the guardian of national treasury. It decides the tax to be imposed to the individual as well businesses. Hence, legislature has a great that effect on the development of the business sector in the country.

Short Question Answer

1. Define political environment and briefly explain its various components.

Definition of Political Environment

 Political environment is the sum all the political conditions and events that affect the growth and development of the business directly or indirectly. It consists of political ideology, constitution, political parties and government and its branches. A stable and competent political environment creates a number of business opportunities.

Components of Political Environment

The different components of political environment are enlisted below.

• Political ideology: It may be defined as a set of ideas, principles, and philosophy. It offers some political and cultural outlook. A political ideology is largely concerned with allocation of power. Political ideology is normative in nature. Different types of political ideologies exist in the world. They can be democratic and totalitarian.
• Constitution: It is the fundamental law of the country. Any law inconsistent with it is void. It is the duty of every citizen to follow the constitution. It affects the development of business in the country directly. Nepal has recently promulgated its constitution, 2072.
• Political parties: A political party is a group of people who share the same ideas about the way the country should be governed. Political parties are also regarded as the pillars of democratic system. They work together to introduce new laws and to alter old or existing laws. They try to win the support of the people to elect their representatives and form legislation. Through legislation, they attempt to form government and rule the nation according to their ideology and policies. There are a number of political parties in Nepal. The major are:

• • • Nepali congress
    • Unified Communist party of Nepal(Unified Marxist Leninist)
    • Unified communist party of Nepal (Maoist)
    •  Rastriya Prajatantra Party Nepal
• Legislative: It is formed by the representatives of people. It is also called the parliament. Its main responsibility is formulation and enactment of law. It also forms the executive i.e. the government. Under parliamentary system of government, the legislative exercises its immediate and direct control over the executive. It acts as the guardian of national treasury. It decides the tax to be imposed to the individual as well businesses. It is the supreme organ of the state.
• Executive: It refers to the organ of the state that is responsible for the overall administration of the nation. It is composed of the government and its organs as bureaucracy, army, and police. It also refers to the local governments as District Development Committee, Municipality and Village Development Committee. It is responsible for enacting the laws and rules formulated by the legislature.
• Judiciary: It refers to the court of law. It is responsible for settling disputes and interpreting the rules and laws if required. In other words, it has the right of judicial review under the constitution. It serves as the watchdog of law and constitution. The judiciary interprets the law and punishes the law breakers.

2. Describe the government ownership of Nepalese business.

Government ownership in business is done through public enterprises. They are the business organization wholly or partly owned by the state. Public enterprises are established for providing goods and services to the people. Public enterprises are established in utilities (gas, electricity, etc.), broadcasting, telecommunications, and transportation. The following are some of the important features of public enterprises.

• State ownership: A public enterprise is wholly or partially owned by the government.
• State control: The government controls the public enterprise.
• Government financing: The whole or a major portion of the capital of a public enterprise is financed by the Government.
• Service motive: The primary aim of a public enterprise is to render service to the society.
• Public accountability: Public enterprises are accountable for their results to the elected representatives of the public, i.e., the parliament.
• Autonomy: Public enterprises are autonomous or semi-autonomous bodies. Nepal is a developing country. It has adopted the mixed economy. Under it, public and private sectors both exist. The government in Nepal started owning public enterprises to provide basic facilities to the people. The public sector in Nepal has a major position in the economy. Public enterprises in Nepal are operating under six broad sectors i.e. industrial sectors, commercial sectors, social sector, service sector, public utility sector and financial sector. Still, there are altogether 37 public sector undertakings in Nepal. They are presented in the following table.

Sector	No.
Industrial sector	7
Trade sector	6
Service sector	7
Social sector enterprises	5
Public utility organizations	3
Financial institutions	9

Public enterprises in Nepal have bureaucratic process of functioning. Due to this reason, they are not able to perform to the best of their capacity. They lack clear objectives and goals, and also do not bear clear mechanism for monitoring and evaluating. They suffer with the problems with accountability and autonomy. The public enterprises could not perform as expected and the concept of privatization evolved. In Nepal, privatization efforts were initiated in early 1990s from Sixth Plan. It is a part of public sector reform or sectoral adjustment program. In Nepal, altogether 30 public enterprises have been privatized till the date.

3. Give some examples of political risk factors encountered by Nepalese business.

Politics and business are closely related to each other. The political environment consists of the political conditions and events that affect the business sectors. It creates opportunities as well as threats.

Political risk constitutes non-commercial risks, are inherent and often hidden in a country’s political, business and cultural environment. They can have financial, operational, security and reputation impacts. In addition, corruption, direct action, bureaucracy, poor stakeholder relations, political shift, terrorism, legal and regulatory irregularities, religion and health can all be sources of such risks. Politically risk refers to the possibility that political decisions or events in a particular country will cause foreign investors either to lose money or fail to capture their expected returns. Political risk can be divided into:

Macro risk: This risk includes country-specific risk. Civil wars, riots, terrorism are some examples of it.

Micro risk: This includes firm-specific risk. Protests against products, boycotts and campaigns against foreign goods etc. are some examples of this risk.

The political risk factors encountered by Nepalese business are mentioned below.

• Political and policy instability: The political environment of Nepal is stable due to rapid changes in the political system as well as policies. The business organizations can flourish only when there is stability in government and the policies. The governments in Nepal are found to change frequently over the years.
• Economic factors: The effect of political environment to the business in Nepal is high due to some economic factors such as inflation, balance of payment, per capita income, etc.
• Political unrests: Political unrest is being deeply rooted in Nepal which has adversely affected the business as well as the businessmen. Bandhs and strikes have become common phenomena.
• Conditions of labour: In Nepal the labour organizations are emerging and developing as political forces. They actively work for the benefit of the political parties to which they are involved. Hence, the union environment has become a vital issue for management in Nepal.
• Attitude of the people: In Nepal, the people do not believe very strongly that the business organizations do not only work for their individual benefits rather they are milestone for the development of the country.

4. What are the components of political environment that affect significantly the Nepalese business organizations?

The political environment of a country directly affects the growth and development of business. A stable and efficient political environment creates and a number of business opportunities.

Some of the components of the political environment that affect the Nepalese no business significantly are pointed below.

• The country has recently promulgated its constitution. However, the ut human right situation is found deteriorating over the years.
• The condition of peace and security is also not in a satisfactory level. It has adversely affected the Nepalese business sector.
• In The ideology of the political parties towards the development of business sector is not found to be uniform.
• The government business relationship is not as expected leading to adverse effect on the business sector.
• The unstable and inefficient government with long term vision for the development of the business sector has remained as a major hindrance.
• Political instability, political agitation, labour disputes have posed a high apolitical risk to the Nepalese business sector.

Long  Answer Questions

1. Explain how the government and business are related to each other.

Nature of Business Government Relations in Nepal

Businesses are the economic backbone of any nation. Without business a sound state cannot be imagined. On the other hand, businesses stand with the proper promotion and regulation of the government. Thus, there is a very close relationship between business and government. Nepal has a mixed economic system following the following type of relationship between business and government.

Government Relations with Business

The following are some points to show the government’s relation with business.

• Promoter: Government plays a significant role in the promotion of business activities. To promote and develop private sector business, the government establishes basic industries and public utility industries such as hydropower, telecommunication, infrastructure, etc. that requires a high capital investment. It also deals with the establishment of trading organizations for essential goods and services. It also provides purchase facilities to the private sector business. Establishment of government sector banking services provides low cost financing, insurance services and mortgage facilities.
• Regulator: Most government regulations are associated with control of business activities. In the process of protecting consumers, investors and laborers, the government significantly regulates business. It is because; businesses should modify their behavior according to related laws and regulations. In Nepal, the government is traditionally regulating the public utilities of monopoly nature such as gas, electricity, water supply and telephone. The government under direct regulation controls the price of these firms.
• Caretaker: The caretaker role of government to business is increasing in Nepal due to globalization and liberalization. Home industries are protected from unfair foreign competition by using the tariff protection tool. Guarantee of security to grow independently, assistance to cottage, small scale and sick industries, provisions of patent and copyrights are the caretaker role of government to business
• Customer: Government purchases large amounts of products and services from private sector business as an institutional customer. Therefore, the government as a customer has significant power and influence on business and their operation.

Business Relations with Government.

The relation of the business with government may be explained as follows:

• Tax payment: Business organizations pay tax to the government as a major part of the revenue. They pay tax on their revenue profit, sales, inputs, capital gain, etc. to the local and national government. Business also helps the government to collect tax by deduction at source such as salary, wages etc.
• Execution of contracts: Different development projects of government are undertaken by the business organizations to complete within a given time, cost and quality. They are also supplying goods and services such as foods, airlines etc.
• Rendering of advice: Business is the field where the formulated policies are imposed. Only those, which really realize the impact of these policies, are business organizations. Thus, they can advise the government to make policies, to solve the problems and to improve the weaknesses by their practical experiences.
• Source of information: Business and their associations help in the efficient policy making by making available statistics and correct information. They provide information to the policy maker that the government decision should be made in the interest of business and existing rules should be modified to make them timely. Different private sectors, business houses, Federation of Nepalese Chamber of Commerce and Industry (FNCCI), Nepalese Chamber of Commerce (NCC) and Confederation of Nepalese Industries (CNI) are the major information providers in Nepal.

2.Critically explain the issues and problems of Nepalese political environment.

The political environment creates opportunities as well as threats to the business sector. A stable and transparent political environment provides the basis for the sustainability of business. The following are some of the issues and problems of the political environment in Nepal.

• Political instability: Political instability has been a major cause for the poor growth of trade and industry in the country. The unstable government and changes in policies with the change in government have become very common in Nepal. The new constitution has been promulgated recently. However, political instability still exists in the country. The current blockade by India is also caused due to political problems. The political instability has been a major reason for poor law and order conditions in the country. The business sector is severely weakened due to political instability in Nepal.
• Lack of broader vision on political parties: The major political parties in the country are not able to deal with the existing political situation in the country as they voice differently. Erosion of ideology, exclusion of people’s interest and internal factionalism remain the dominant trends among the political parties in Nepal. Due to this, the confidence level of the private sector is at a low level.
• Poor understanding among the political parties: In Nepal, the level of understanding and trust among the political parties is very low. It has resulted in political as well as policy problems. Building political consensus among the parties is difficult even on national issues. It creates political instability in the country, which weakens democracy. This has adversely affected the business sector in Nepal.
• Lack of democratic thought: Nepal has been exercising democracy in the country over the last 25 years. Many of the mainstream political parties have been in existence since the period. However, they are found very weak in developing democratic norms, values and thoughts within them. Hence, democracy is limited in paper only in many instances. This has adversely affected the business sector in Nepal.
• Lack of good governance: Good governance is about the best possible processes for making and implementing decisions. Good governance is accountable, transparent, follows rules of law, responsive, equitable and inclusive, participatory, and effective. Poor governance has been a traditional problem in Nepal.
• Labor force as a political force: In Nepal, the unions are politically motivated. In almost all the cases, they represent certain political ideologies. In some cases, unions are mushrooming. In some cases, the inter-union conflicts create some serious problems in the organizations. Lack of good labour relations has negatively affected the business sector in Nepal.
• Over-dependent private sectors: The private sectors should take the leadership role for the development of the business sector in the country. However, they are found to be over dependent on the government, basically in building infrastructures required for the development of business.
• Employers’ associations: The employers’ associations in Nepal are found to be influenced by politics. They are divided on political issues. They are not able to create a close relationship with the labour unions and employees as well as the government.