Business Environment Class 12 Notes Business Studies Chapter 3 - CBSE 

Chapter: 3

What Are Business Environment ?

Business Environment refers to the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise which can affect its performance.

Features Of Business Environment

  • Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.
  • Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and General forces (such as social, political, legal and technological conditions) affect the enterprise indirectly.
  • Inter-relatedness
  • Dynamic nature
  • Uncertainty
  • Complexity
  • Relativity

Importance Of Business Environment

  • It enables the firm to identify opportunities and getting the first mover advantage
  • It helps the firm to identify threats and early warning signals
  • It helps in tapping useful resources
  • It helps in coping with rapid changes
  • It helps in assisting in planning and policy formulation
  • It helps in improving performance

Dimensions of Business Environment

  • Economic Environment (Interest rate, Inflation Rate, Changes in disposable Income, Stock Market Indices)
  • Social Environment (Customs and traditions, values, Social Trends, Society Expectations)
  • Political Environment (Political Stability)
  • Legal Environment (Legal Legislations, Legal orders passed by government, judgements)
  • Technological Environment (Technology Improvements and Innovations)

Economic Environment In India

Since 1991 India has been going on economic reforms and adopted the policy of liberalization, privatization and globalization. Unproductive control are being removed and private investment (including foreign investment) is being encouraged.

  • Liberalisation: It is the end of the licence-permit-quota raj and freedom in deciding the scale of business activities.
  • Privatisation: It adopted the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction.
  • Globalisation: The integration of the various economies of the world leading towards the emergence of a cohesive global economy.


On November 8, 2016 the Government of India made an announcement that two largest denomination notes, ₹500, ₹1,000, were ‘demonetized’ with immediate effect.


  • Demonetization is viewed as a tax administration measure.
  • Demonetization indicates that tax evasion will no longer be tolerated or accepted.
  • Demonetization also led to tax administration channelizing savings into the formal financial system.
  • To create a less-cash or cash-lite economy.